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[OBSELETE] S - Econ > saturday- third hour of AS revision > Flashcards

saturday- third hour of AS revision Flashcards

1
Q

what is excess supply?

A
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2
Q

what is excess demand

A
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3
Q

draw excess supply and demand on a diagram

A
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4
Q

recall the main functions of the price mechanism

A

rationing
signalling
allocating
incentives

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5
Q

how does the rationing function of the price mechanism work

A
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6
Q

how does the signalling function of the price mechanism work

A
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7
Q

how does the incentives function work

A
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8
Q

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

A

price inelastic good

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9
Q

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

A

elastic

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10
Q

what does it meant if PED is exactly -1

A

perfectly inelastic

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11
Q

what does it mean if PED is - infinity

A

perfectly elastic

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12
Q

what is price elasticity of supply?

A

how responsive supply is to a change in price

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13
Q

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

A

inelastic

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14
Q

what does it mean if PES is greater than 1?

A

elastic

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15
Q

what are the factors affecting PES

A

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

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16
Q

explain the factors that effect elasticity of supply

A
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17
Q

what is YED

A

measure of responsiveness of demand to a change in income

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18
Q

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

A

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

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19
Q

what is XED

A

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

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20
Q

what is the formula of XED

A
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21
Q

what does a positive XED value mean

A

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

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22
Q

what does a negative XED value mean

A

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

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23
Q

what is govt failure?

A
24
Q

why may govt failure occur

A
25
Q

what are the four reasons for govt failure

A

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

26
Q

how does the law of unintended consequences cause govt failure

A
27
Q

how does the excessive admin costs cause govt failure

A
28
Q

how does the imperfect info cause govt failure

A
29
Q

how does the distortion of price signals cause govt failure

A
30
Q

what is aggregate supply

A

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

31
Q

why is SRAS upward sloping

A
32
Q

how can firms shift the SRAS curve

A
33
Q

what may cause a contraction or extension in SRAR

A
34
Q

what are imports and exports

A
35
Q

recall the factors affecting x-m

A

exchange rates
cost of p
relative inflation rates
MPM

36
Q

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

A
37
Q

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

A
38
Q

how can cost of production affect x-m

A
39
Q

what are some non price factors that impact demand for exports

A
40
Q

how does MPM affect x-m

A
41
Q

how would a recession affect UK exports of normal goods?

A
42
Q

how would a recession affect UK exports of inferior goods?

A
43
Q

what is a trade surplus and trade deficit

A
44
Q

what does the elastic part of the LRAS curve mean

A

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

45
Q

what does the perfectly elastic section of the LRAS curve mean

A

economy is approaching full capacity in the LR

46
Q

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

A

output change is large but price level change is proportionally small

47
Q

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

A

larger change in price level and small change in output

48
Q

what is the major assumption of the classical LRAS model

A

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

49
Q

what does a rightwards shift in LRAS mean

A

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

50
Q

what is actual and potential economic growth

A
51
Q

what is an output gap and how can it be illustrated

A
52
Q

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

A

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

53
Q

show a negative output gap on a classical LRAS diagram

A
54
Q

what is a positive output gap

A

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

55
Q

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

A
56
Q

draw a positive output gap on a classical LRAS diagram

A

always show positive output gap on this diagram

57
Q

what are the keynesian ideas on positive output gaps

A

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

[OBSELETE] S - Econ (42 decks)

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