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Rapid Random Recall Flashcards

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1
Q

What do production possibility diagrams illustrate?

A

Opportunity cost between producing two goods. It can also illustrate the production possibility of a whole economy and link to the LRAS.

The frontier is curved due to resource suitability for different goods.

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2
Q

What are capital goods?

A

Goods used to produce other goods and services.

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3
Q

What are consumer goods?

A

Goods intended for final consumption by consumers.

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4
Q

What does an outward shift in the production possibility frontier indicate?

A

Balanced economic growth due to improved productivity or increased quantity or quality of factors of production.

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5
Q

How does war impact the production possibility frontier?

A

Reduction in productivity or fall in quantity of factors of production.

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6
Q

What is the demand curve?

A

It shows the inverse relationship between price and quantity demanded.

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7
Q

What does movement from point A to down to point B on a demand curve represent?

A

Extension of quantity demanded due to a fall in the price of the product. This can be because the supply curve has shifted.

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8
Q

What is the difference between contraction in demand and decrease in demand?

A

Contraction is caused by a fall in supply; decrease is due to other factors than price which affect demand.

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9
Q

What does an increase in demand look like on a diagram?

A

A rightward shift of the demand curve.

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10
Q

What is the significance of the XED value in complements and substitutes?

A

Complements have a negative XED value; substitutes have a positive XED value.

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11
Q

What defines market equilibrium?

A

The ‘agreed’ price and quantity in the market where supply equals demand. The market clears all goods at this price.

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12
Q

What happens to market equilibrium when there is a decrease in market demand?

A

The equilibrium price and quantity both decrease.

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13
Q

What is the effect of an increase in market supply on market equilibrium?

A

The equilibrium price decreases while quantity increases.

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14
Q

What does price inelastic demand imply?

A

The increase in price is proportionally much larger than the fall in quantity demanded.

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15
Q

What does price elastic demand imply?

A

The increase in price is proportionally much smaller than the fall in quantity demanded.

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16
Q

What is total revenue in economics?

A

Total revenue = Price x Quantity.

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17
Q

What happens to total revenue when price falls and the PED is inelastic?

A

Total revenue decreases.

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18
Q

What is excess supply?

A

When quantity supplied exceeds quantity demanded at a given price.

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19
Q

What is excess demand?

A

When quantity demanded exceeds quantity supplied at a given price.

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20
Q

What is a price ceiling?

A

A maximum price set by the government to prevent prices from rising too high, often set below the market equilibrium.

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21
Q

What is a price floor?

A

A minimum price set by the government to prevent prices from falling too low. Often set above the market equilibrium.

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22
Q

What are the effects of an indirect tax on market equilibrium?

A

It raises the price and decreases the quantity sold.

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23
Q

What is the deadweight welfare loss?

A

The loss of economic efficiency when the equilibrium outcome is not achievable i.e. allocative inefficiency.

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24
Q

What does a negative consumption externality indicate?

A

MSB < MPB, leading to welfare loss.

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25
What does a positive production externality indicate?
MSC > MPC, leading to underproduction.
26
What is the marginal revenue product curve?
It shows the additional revenue generated from employing one more unit of labour.
27
What does the labour market demand and supply graph represent?
Supply reflects the people willing and able to work and the demand reflects the MRP of each additional unit of labour for the firm.
28
What does MSB stand for?
Marginal Social Benefit
29
What does MSC represent?
Marginal Social Cost
30
What is Pe in economics?
Equilibrium Price
31
What does MPC stand for?
Marginal Private Cost
32
What is overproduction?
Production that exceeds market demand
33
In a market with negative production externality, what condition holds true?
MSC < MPC
34
What is the relationship between marginal revenue product (MRP) and demand (D) in the labour market?
MRP = D
35
What does W stand for in labour market diagrams?
Wage rate
36
What does QL represent?
Quantity of labour
37
How does a minimum wage affect unemployment in a competitive labour market?
It can lead to increased unemployment
38
What happens to equilibrium when there is an increase in labour supply?
Wage decreases and employment increases
39
What is the effect of a decrease in labor supply on equilibrium?
Wage increases and employment decreases (unless a monopsony employer has set the wage below equilibrium- then a minimum wage can see an increase in the quantity employed).
40
What is the impact of an increase in labour demand on the labor market?
Wage and employment both increase
41
What occurs when trade unions negotiate a wage increase?
Employment may fall
42
What does NLW stand for?
National Living Wage
43
What is the result of increasing the National Living Wage?
Excess supply of labour leading to real wage unemployment
44
What defines a monopsony labour market?
Single buyer of labour
45
What is the relationship between Average Cost (AC) and Marginal Cost (MC) in short-run cost curves?
MC cuts AC at its minimum point
46
What do economies of scale refer to?
Cost advantages as production increases
47
What is X-efficiency?
Attainable AC = Actual AC
48
What is supernormal profit?
Profit above normal profit levels
49
Define the demand curve in perfect competition.
MR = AR = P
50
What is the long-run equilibrium condition in perfect competition?
Normal profit only
51
What does the term 'allocative efficiency' refer to?
Production where price equals marginal cost and where production meets consumer preferences.
52
In a monopoly, what is the quantity of output condition for profit maximisation?
MC = MR
53
What occurs at the quantity where MR = 0?
Total revenue is maximised
54
What does PED stand for?
Price Elasticity of Demand
55
What is the significance of the kinked demand curve in oligopoly?
It explains price rigidity and market stability
56
Fill in the blank: Inelastic demand results in ________ total revenue when price falls.
Decreasing
57
True or False: A price maker can set its own prices above marginal cost.
True
58
What does the relationship between total, average, and marginal revenue indicate?
MR is the change in TR with respect to output
59
What is the implication of a decrease in variable costs on marginal cost?
MC curve shifts down
60
What happens to average fixed cost (AFC) when fixed costs increase?
AFC increases
61
What is the outcome of a fall in market price for a firm in perfect competition?
Supernormal profit can turn into normal profit
62
What is the definition of marginal physical product (MP)?
The change in total product when one more unit of labour is added
63
What is the impact of an increase in demand on price and output for a price maker?
Price and output both increase
64
What is the effect of price discrimination during peak and off-peak times?
Higher prices during peak due to inelastic demand
65
What is the relationship between price elasticity of demand (PED) and price discrimination for off-peak and on-peak goods/services?
Firms charge a higher price during peak use because PED is more inelastic during peak times. ## Footnote This means that consumers are less sensitive to price changes when demand is high.
66
In an oligopoly, what happens to equilibrium price and output when costs increase?
There is no impact on equilibrium price and output; prices are rigid/stable/sticky. ## Footnote This is due to the kinked demand curve characteristic of oligopolistic markets.
67
What is the profit-maximising output level for a natural monopoly under marginal cost pricing?
When P=MC, this can mean the Natural Monopoly is making a loss as AC can be above AR.
68
What are the possible pricing options for a firm in monopolistic competition in the long run?
Various pricing options include setting prices above marginal cost to maintain profits or adjusting prices based on demand and competition. ## Footnote The specific options depend on the firm's market strategy.
69
What does a decrease in aggregate demand (AD) indicate on a macroeconomic equilibrium graph?
It typically results in a lower general price level and reduced real GDP. ## Footnote This can lead to a recession if the decrease is significant.
70
True or False: An increase in short run aggregate supply (SRAS) results in demand-pull inflation.
False. ## Footnote An increase in SRAS usually leads to lower price levels and increased output.
71
What does the Laffer curve illustrate?
The relationship between tax rates and total tax revenue, showing that reducing tax rates could increase total tax revenue under certain conditions.
72
What is the Gini coefficient used for?
It measures income inequality within a population, calculated as the area A/(areas A+B) on the Lorenz curve.
73
Fill in the blank: In the foreign exchange market, an increase in demand for a currency causes _______.
appreciation.
74
What is the impact of devaluation on the balance of payments (BofP)?
Initially worsens the current account situation before it improves due to adjustments in production and demand for exports. (J-curve)
75
What characterises a negative output gap in the Keynesian model?
The actual GDP is below the potential GDP, indicating underutilisation of resources.
76
What happens to total tax revenue when the tax rate is set above the maximum revenue point on the Laffer curve?
Total tax revenue decreases as higher tax rates discourage economic activity.
77
What does the kinked demand curve in an oligopoly imply about price rigidity?
It suggests that firms will not change prices in response to cost increases, leading to stable prices in the market.
78
Fill in the blank: The Phillips curve illustrates the trade-off between _______ and inflation.
unemployment.
79
True or False: A subsidy on exports decreases the price of exports.
True. ## Footnote The subsidy effectively lowers the cost for exporters, making their goods cheaper in international markets.
80
What are the phases in the economic cycle?
* Recession * Recovery * Boom * Slowdown
81
What is the effect of an increase in aggregate demand in the classical model?
It can lead to demand-pull inflation, with higher price levels and increased real national output. ## Footnote This is represented graphically by a rightward shift in the AD curve.
82
What does a movement along the short run aggregate supply (SRAS) curve indicate?
It indicates a change in the price level, affecting the overall output in the economy.
83
Fill in the blank: A tariff imposed on imports raises _______ but causes welfare loss for consumers and firms.
tax revenue.
84
What is an absolute advantage in production?
When a country can produce more of a good or service than another country with the same resources.
85
What does the term 'comparative advantage' refer to?
The ability of a country to produce a good at a lower opportunity cost than another country.
86
What is the effect of an increase in the money supply on interest rates?
It typically lowers interest rates, encouraging borrowing and spending. ## Footnote This is depicted in the money market diagram.
87
What happens to consumer surplus when a tariff is imposed?
Consumer surplus decreases as prices rise due to the tariff. ## Footnote This is illustrated by the reduction in consumer surplus area on the supply and demand graph.
88
What indicates an increase in the productive potential of an economy in the classical model?
An outward shift in the long-run aggregate supply (LRAS) curve. ## Footnote This represents an increase in full employment level of real national output.

Economics randomised testing (2 decks)

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