saturday- third hour of AS revision

Question 1

what is excess supply?

Answer 1

Question 2

what is excess demand

Answer 2

Question 3

draw excess supply and demand on a diagram

Answer 3

Question 4

recall the main functions of the price mechanism

Answer 4

rationing
signalling
allocating
incentives

Question 5

how does the rationing function of the price mechanism work

Answer 5

Question 6

how does the signalling function of the price mechanism work

Answer 6

Question 7

how does the incentives function work

Answer 7

Question 8

what does it mean if PED is between 0 and -1?

Answer 8

price inelastic good

Question 9

what does it mean if PED is less than -1?

Answer 9

elastic

Question 10

what does it meant if PED is exactly -1

Answer 10

perfectly inelastic

Question 11

what does it mean if PED is - infinity

Answer 11

perfectly elastic

Question 12

what is price elasticity of supply?

Answer 12

how responsive supply is to a change in price

Question 13

what does it mean is PES is between 0 and 1?

Answer 13

inelastic

Question 14

what does it mean if PES is greater than 1?

Answer 14

elastic

Question 15

what are the factors affecting PES

Answer 15

if supplier has spare capacity
high stock levels
long time period
ease of factor mobility

Question 16

explain the factors that effect elasticity of supply

Answer 16

Question 17

what is YED

Answer 17

measure of responsiveness of demand to a change in income

Question 18

what does it mean if:
YED is positive
YED is negative
YED is greater than 1

Answer 18

+ normal good
- inferior good -> income inc, demand dec
>1 luxury good -> income inc, demand inc

Question 19

what is XED

Answer 19

responsiveness of demand for good A to a change in the price of good

Question 20

what is the formula of XED

Answer 20

Question 21

what does a positive XED value mean

Answer 21

the two goods are substitutes
as price of one good increases, demand for rival product inc

Question 22

what does a negative XED value mean

Answer 22

the two goods are complements
as price of one good dec, demand for complementary good inc

Question 23

what is govt failure?

Answer 23

Question 24

why may govt failure occur

Answer 24

Question 25

what are the four reasons for govt failure

Answer 25

law of unintended consequences excessive admin costs price signal distortion imperfect info

Question 26

how does the law of unintended consequences cause govt failure

Answer 26

Question 27

how does the excessive admin costs cause govt failure

Answer 27

Question 28

how does the imperfect info cause govt failure

Answer 28

Question 29

how does the distortion of price signals cause govt failure

Answer 29

Question 30

what is aggregate supply

Answer 30

the potential output of all goods and services that are produced within an economy over a period of time

Question 31

why is SRAS upward sloping

Answer 31

Question 32

how can firms shift the SRAS curve

Answer 32

Question 33

what may cause a contraction or extension in SRAR

Answer 33

Question 34

what are imports and exports

Answer 34

Question 35

recall the factors affecting x-m

Answer 35

exchange rates cost of p relative inflation rates MPM

Question 36

what is exchange rates and how can it affect x-m

Answer 36

Question 37

what is relative inflation rates and how can it affect x-m

Answer 37

Question 38

how can cost of production affect x-m

Answer 38

Question 39

what are some non price factors that impact demand for exports

Answer 39

Question 40

how does MPM affect x-m

Answer 40

Question 41

how would a recession affect UK exports of normal goods?

Answer 41

Question 42

how would a recession affect UK exports of inferior goods?

Answer 42

Question 43

what is a trade surplus and trade deficit

Answer 43

Question 44

what does the elastic part of the LRAS curve mean

Answer 44

economy isnt fully utilising all of the factors of sUpply in the LR

Question 45

what does the perfectly elastic section of the LRAS curve mean

Answer 45

economy is approaching full capacity in the LR

Question 46

what hapens if AD increases when the economy is not close to full capacity

Answer 46

output change is large but price level change is proportionally small

Question 47

what happens if AD increases when the economy is approaching full capacity

Answer 47

larger change in price level and small change in output

Question 48

what is the major assumption of the classical LRAS model

Answer 48

economy is always at full employment believes economy is self correcting therefore a fall in AD means that the economy fixes itself and output remains at full employment

Question 49

what does a rightwards shift in LRAS mean

Answer 49

overall productive capacity inc known as potential growth economy can now produce a larger output when operating at full capacity

Question 50

what is actual and potential economic growth

Answer 50

Question 51

what is an output gap and how can it be illustrated

Answer 51

Question 52

what is a negative output gap and show this on a keynesian LRAS diagram

Answer 52

actual real GDP is less than potential output also known as deflationary gap or recessionary gap all available factors of p arent being utilised

Question 53

show a negative output gap on a classical LRAS diagram

Answer 53

Question 54

what is a positive output gap

Answer 54

actual real GDP is greater than the estimated potential output of the economy

Question 55

why is a positive output gap only possible on a temporary basis

Answer 55

Question 56

draw a positive output gap on a classical LRAS diagram

Answer 56

always show positive output gap on this diagram

Question 57

what are the keynesian ideas on positive output gaps

Answer 57

actual GDP cant be greater than potential growth in the LR so the best illustration would be to draw AD very high up on the perfectly elastic section therefore the economy experiences no further real GDP but high levels of inflation