SECTION A MICRO Flashcards
(24 cards)
What does a country operating inside its PPF indicate?
There is an inefficient allocation of resources // unemployment of resources
The country could produce more of both goods than it currently is without facing an opportunity cost
Why is the PES of houses more inelastic in London compared to the Northeast?
London has a lack of available space on which to build houses, and there are tighter restrictions on where houses can be built, meaning supply is less responsive to a change in price due to the inability to influence supply to a large extent
Why has there been a fall in the demand for PCs from 2000s to 2015?
As technology has advanced, there has been an increase in subtitute goods causing demand fall, for example tablets becoming more popular since they are easier to carry around and have a similar functionality
How are resources allocated in a free market?
Allocated according to the supply and demand market forces
Price changes act as a signal to increase or reduce supply
One benefit of division of labour?
Reduced production time
Workers specialise in a task, so less time is wasted moving between tasks
WHAT do you show on a tax or subsidy diagram?
CONSUMER / PRODUCER INCIDENCE
WHAT 3 things do you add to an externality diagram?
MEC / MEB
Net welfare loss
Overproduction / Underconsumption
ALWAYS
One likely effect of reducing the number of tradable pollution permits.
Tradable pollution permits are permits issued in an economy or market which entitle the holder to produce a certain volume of pollution
Reducing the number of permits reduces the amount of pollution
Diagram:
Shift supply inwards ….
…which increases price per permit
Negative externality reduces
Explain what happens to total cost at output levels greater than the MES
The firm experiences diseconomies of scale
[Total cost rises at an increasing rate
Total costs continue to rise but more steeply]
Explain some reasons as to why a firm might choose to stay small
Owners may wish to maintain control (1) - 2 million customers allows them to profit satisfice
Avoid diseconomies of scale (1)
Offer a more personal service (1)
Regional monopoly (1) - charge higher prices (1)
Lack of finance to expand (1) - high cost of opening an additional cafe (1)
WHAT might happen in a diagram? Particularly a SUPPLY AND DEMAND diagram?
BOTH DEMAND AND SUPPLY SHIFT
WHAT should you annotate on a price discrimination diagram?
PROFIT
WHAT do you do with a collusion diagram with given numbers?
USE THE NUMBERS (and invent similar numbers)
Explain one type of internal economies of scale that a newly merged car company may achieve.
- Commercial/purchasing/ bulk buying (1)
- Technical (1)
- Managerial (1)
- Marketing (1)
Lower LRAC (1)
- Cheaper steel /monopsony buying power (1)
- Larger factory space/delivery vehicles/robots (1)
- New e-car design director/specialist managers (1)
- Discounted advertising (1)
Why might a merger spook the EU competition authorities?
Against consumer (1) // national economic interests (1)
Increased monopoly power/reduction in competition/increased market share (1)
Lack of choice for consumers/loss of consumer surplus/force competitors out (1)
Increased prices/exploit consumers (1)
X-inefficiency (1)
Advantages of free market economies?
Key points: profit motive and greater incentive, more competition = efficiency, quality products, choice etc.
More choice (1) because of consumer sovereignty (1) and profit motive / greater incentive (1)
* More efficient allocation of resources (1) because of allocative efficiency / productive efficiency / dynamic
efficiency / lack of X-inefficiency (1) because of profit motive / greater incentive (1)
* Lower prices (1) because of more competition (1) and greater incentive (1)
* Better quality products (1) because of competition (1) and profit motive (1)
* More innovation (1) because of competition (1) and profit motive (1)
+ AP (‘quote’)
Opportunity cost of moving to produce more wheat?
The opportunity cost of producing 2 more units of wheat is 1 unit of oats
Implication of a firm moving to a production position inside their PPF?
● Efficiency will decrease
● Inefficient allocation of resources
Not producing at maximum potential output … lower output
● Potentially produce more products
● Spare capacity
● Unemployed resources
● No opportunity cost from moving from W towards PPF
With reference to monopsonies, explain why why nurses in the public sector have had lower wage rises than those in the private sector.
Monopsony: when a firm is the sole buyer of a good / service
This can be applied to the government in the labour market due to the NHS employing 90% of nurses
Public sector refers to organisations owned by the state
Nurses have a lack of alternative employers, so are forced to accept lower wages
Students have a different PED of bus passes to adults. Why?
PED is the responsiveness of demand for a good in response to a change in price.
One factor influencing PED is the proportion of income: a greater proportion of income, the more elastic demand will be.
Students on average have a lower income than adults, so bus fares consequently take up a greater proportion of their income, so their PED is more elastic than adults’ (AP)
Why is PES in Texas more elastic than, I don’t know, say, New York?
Price elasticity of supply measures the responsiveness of supply to a change in price
* Regulations (1) takes time to build/planning permission/immobile factors (1)
* Lack of resources (1) shortage of land/materials/ labour/operating at full capacity (1)
Supply of housing is relatively more price inelastic in New York than Texas/more price elastic in Texas than New York (1) (AP)
Why max price tuition fees?
A maximum price is the ceiling price above which the price cannot rise.
Maximum price is set below the market equilibrium
Increases student affordability causing an extension in demand, low income students increase uptake
Increase consumer surplus
Increase the number of people at university, increase future labour productivity
AP £9250
Market structure of mortgage lenders?
Oligopoly: (1)
a few dominant firms (1)
high barriers to entry (1)
high concentration ratio: 4 firm 54.2% (2/3)
