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Economics 3,4 > U3 AOS1 > Flashcards

U3 AOS1 Flashcards

1
Q

What is microeconomics

A

= study of how individual c’er + bus behave in individual markets

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2
Q

What is macroeconomics

A

= study of economy as a whole or the “top down view” of the economy focussing on aggregate characters

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3
Q

What are needs

A

= items which are essential 2 survival

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4
Q

What are wants

A

= items which are x essential 2 survival h/r enhance our lives

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5
Q

What is relative scarcity

A

= basic economic whereby our unlimited needs + wants are x able 2 be fully satisfied as our resources are limited
-> forces eco. agents 2 make decisions

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6
Q

What is opportunity cost

A

= the value of the next best alternative foregone whenever a decision is made

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6
Q

What is allocative efficiency

A

= most efficient allocation of resources occurs when living standards + welfare are maxed + it is possible 2 further inc living standards by changing the way resources are allocated

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7
Q

What is productive / technical efficiency

A

= when it is x possible 2 inc output without inc inputs t/f max output from inputs

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8
Q

What is inter-temporal efficiency

A

= how well resources are allocated over different time periods so that living standards of current generations are x jeopardising future generations living standards

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9
Q

What is dynamic efficiency

A

= how quickly an economy can reallocate resources 2 achieve allocative efficiency, entails firms being adaptive + creative in responses 2 changing economic circumstances

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10
Q

What is a market

A

= main instrument 4 allocating scarce resources in Aus + method of answering 3 basic eco. Q’s

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11
Q

What are the 3 basic economic questions

A

1) What + how much 2 produce
2) How to produce
3) For whom 2 produce

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12
Q

What are the 4 preconditions of a perfectly competitive market (characteristics)

A

1) c’er sovereignty exists
2) lrg number of buyers + sellers = price takers
3) products are homogenous
4) ease of entry + exit

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13
Q

What are the 3 traditional viewpoints of consumers

A

1) c’er have ordered set of preferences
2) c’er make informed decisions
3) c’er act rationally

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14
Q

What is the market / price mechanism

A

= describes how the forces of D+S influence (relative) prices of g/s which then coordinates the way productive resources are allocated in the economy

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15
Q

What is demand

A

= willingness + ability of c’er 2 purchase g/s

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16
Q

What is the law of demand

A
  • Qty demanded inc, price dec
  • Qty demanded dec, price inc
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17
Q

What is the income effect

A

= dec consumption of g/s whose price has inc due 2 dec in c’ers purchasing power / inc in consumption of a g/s whose price has dec due 2 the inc in c’er purchasing power

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18
Q

What is the substitution effect

A

= dec consumption of a g/s whose price has inc due 2 the changed trade off : the fact that one must give up more of another g/s 2 get more units of the high priced g/s

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19
Q

What is disposable income

A

= income available 4 spending after the receipt of welfare benefits + deduction personal tax

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20
Q

What is discretionary income

A

= disposable income available 4 consumption following the payment of all “x-discretionary” / “x-avoidable” expenditures i.e related 2 food, clothing, shelter

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21
Q

What are the microeconomic demand side non-price factors

A

-> shift of demand curve
1) Changes in disposable income
2) The price of sub
3) The price of compliment
4) Preferences + tastes
5) Interest rates
6) Population demographics
7) C’er confidence (sentiment) = confidence in future state of the economy + job security

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22
Q

What is supply

A

= ability + willingness of p’ers 2 produce

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23
Q

What is the law of supply

A
  • As $ inc the qty supplied inc
  • As $ dec the qty supplied dec
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24
What is the profit motive
= particularly given the higher the price, the inc chance of making profit
25
What are the microeconomic supply non price factors
-> result in shifts 1) changes in cost of production 2) number of suppliers 3) Technological change 4) productivity 5) climatic conditions
26
What is the equilibrium
= where qty demanded 4 g/s = 2 qty supplied of g/s
27
What is the 7 step process of answering changes in demand supply Qs
1) explain situation in your own words 2) supply / demand 3) inc or dec 4) shift curve left or right 5) if prices 2 remain at P1, shortage or surplus 6) market forces put upward or downward pressures on price 2 adjust 2 new equilibrium 7) overall impact on price qty
28
Distinguish b/n movement + shift
p.o.d = the factor causing the change movement = influenced by prices changing that sees contractions + expansions along curve shift = influenced by non price factors that physically shifts whole curve fav or unfav
29
What is price elasticity of demand
= responsiveness of total qty demanded of a product 2 a change in price of that of a product -> inelastic = hard 2 change -> elastic = easy 2 change
30
What is the price elasticity of demand equation
= percentage change in qty demanded / percentage change in price
31
Factors affecting the price elasticity of demand + how
1) the degree of necessity = if necessity, c'ers dec likely 2 dec qty consumed x matter price change 2) availability of substitutes = if x / dec substitutes 4 product then c'er dec likely 2 dec qty consumed x matter price change 3) proportion of income = inc proportion of income required 2 purchase g/s, inc impact of price change 4) time = s.t -> c'ers continue 2 make buying decisions on a habitual basis = m-l.t-> start 2 realise price changes, often occurs with products e.g bills
32
What is the significance of price elasticity of demand
-> important measure 4 bus + gov.t 1) bus prefer 2 operate in environment where there is dec PED 4 their g/s as an inc in price will only result in small % change in qty demanded = overall impact = inc rec 2) bus take PED into account when pricing products 3) gov.t consider PED 4 goods when replacing / inc indirect taxes
33
Guide 2 PED values
High PED > 1 Medium PED = 1 Low PED < 1
34
What is price elasticity of supply
= refers 2 the responsiveness of total qty supplied of a product 2 a change in the price of that product -> High PES = elastic -> Low PES = inelastic
35
What is the price elasticity of supply equation
PES = % change in Qty supplied / % change in price
36
Factors affecting elasticity of supply (+how)
1) Spare capacity -> lot's out back = elastic -> none out back = inelastic 2) Production period -> short time 2 produce = elastic -> long time 2 produce = inelastic 3) Durability of goods -> lasts long time = elastic -> short life = inelastic
37
Guide 2 PES values
High PES > 1 Med PES = 1 Low PES < 1
38
What is the significance of the price elasticity of supply
-> PES can affect the viability of a bus as well as their ability 2 respond 2 changing price signals
39
What is the price mechanism
= describes how the forces of demand and supply influence (relative) prices of g/s which then coordinates the way productive resources are allocated in the economy
40
What are relative prices
= prices of g/s compared 2 the price of another g/s
41
What is consumer sovereignty
= ability of c'er in competitive markets 2 direct or allocate resources
42
The effect of competitive markets on allocative efficiency
-> right g/s need 2 be produced, in the right way -> relative prices send signals, producers pay close attention 2 these -> ease of entry + mobile resources -> many sellers -> inc competition keeping low prices -> prod efficiency -> lowest possible prices + maxed MLS
43
The effect of competitive markets on productive efficiency
-> homogenous g/s t/f 2 be competitive, producers must dec costs + inc output t/f low prices -> low barriers 2 entry + exit with mobility of resources = inc comp -> many sellers = inc comp -> producers boost productivity = profit max
44
The effect of competitive markets on dynamic efficiency
-> when relative prices change, lvls of d. efficiency determined by how quickly producers can reallocate -> features + assumptions of comp market that will assist process = ease of entry + exit; mobile resources; many sellers = incentive 2 innovate
45
The effect of competitive markets on inter-temporal efficiency
-> L.S of future gens may x be taken into account (b/c c'er sovereignty -> Market x factor in full cost of prod + consumption e.g pollution -> gov.t intervention required through things like emissions trading scheme
46
What are the behaviours of key economic agents
Producers aim 2 max profits Consumers aim 2 max L.S + utility Gov.t aim 2 max national L.S
47
What is market failure
= when an unregulated market is x able 2 allocate resources efficiently 2 maximise national L.S / welfare -> over/under allocation of resources 2 production of g/s
48
What are public goods
= g/s that are socially desirable + important 2 all, it is x excludable + x depletable / x rivalrous in consumption
49
What do public goods provoke
= free-rider problem -> an economic agent who receives benefit from public good h/r x pay 2 use it t/f reason 4 public goods being market failure
50
Types of market failures
1) Public goods 2) Common access resources 3) Externalities 4) Asymmetric information
51
Role and effect of gov.t interventions: Public goods
-> in general, role of gov.t intervention = 2 ensure public goods are provided in order 2 address under allocation of resources 1) Gov.t subsidies 2) Direct provision
52
What are common access resources
= x owned by anyone + usually do x have a market price making them available 2 anyone h/r they are depletable / rivalrous in consumption b/c 1 person reduces the amount available 2 another
53
How are common access resources a market failure
= lack of excludability + absence of price -> excessive production + consumption of goods that use of common access resources -> overuse = unsustainable = intertemporally inefficient
54
Role and effect of government intervention: common access resources
-> ultimate goal is 2 prevent/dec over use of common access resources 1) gov.t regs i.e environmental + licensing 2) indirect taxes i.e ETS 3) Subsidies -> Used 4 RnD
55
What is an externality
= results when the wellbeing of a 3rd party x involved in a transaction is affected -> either +ve or -ve, occurring in the production / consumption of a g/s
56
What is a positive externality
= when a 3rd party receives a benefit from the production / consumption of a g/s
57
What are examples of positive externatlities
prod-> Beekeeper cons-> Vaccinations
58
How is a positive externality an example of a market failure
= all + externalities will -> inefficient allocation of resources via under allocation of resources
59
Role and effect of gov.t intervention: positive externalities
1) Subsidies -> dec cost of production 2) Direct provisions = health + edu or RnD
60
What is a negative externality
= occurs when a cost is imposed on a 3rd party x involved in a transaction from the production / consumption of a g/s
61
What are examples of negative externalities
prod-> pollution cons-> smoking
62
How are negative externalities an example of market failure
= all -ve externalities -> inefficient allocation of resources via an over allocation of resources
63
Role and effect of government intervention: negative externalities
1) gov.t regulations 2) indirect taxes i.e excise taxes on petrol/cigs 3) Subsidies 4) government advertising
64
What is asymmetric information
= type of market failure where one party has greater info than the other in a transaction -> inefficient allocation of resources (under over al) 2 the prod/consumption of certain g/s over time
65
What is adverse selection
= an economic outcome that x maximise wellbeing 4 @least 1 of the parties 2 a transaction due 2 1 party having more info than the other
66
What is moral hazard
= occurs when economic agents adjust behaviours without other party being aware, 2 1 that = dec efficient / favourable in society pov after transactions occurred
67
Role an effect of gov.t intervention: asymmetric information
1) Gov.t regulations -> Aus c'er law -> ACCC -> Regs 2 ensure p'er gives c'er inc info 2) Gov.t advertising (awareness) 3) Subsidies -> maybe 4 firms who provide meaningful info
68
What is government failure
= a term used 2 describe a situation where gov.t intervention fails 2 improve allocation of resources / makes allocation of resources less efficient compared 2 free market outcome
69
What are price controls
1) price ceiling 2) price floor
70
What is price ceiling
= gov.t failure where sellers of g/s are banned from inc prices above certain lvl
71
What is price floor
= gov.t failure where price offered in a market = prohibited from falling below lvl
72
What is an example of price floor
= Minimum wage -> designed 2 protect workers with weak bargaining powers from excessive exploitation in the workforce - currently $23.23
73
How do government failures result in inefficient allocation of resources
1) productive efficiency impeded b/c x meet equilibrium t/f inefficient b/c valuable labour underutilised 2) Disturbs price mech t/f low skilled labour wages artificially high t/f disincentives ppl 2 inc skills = inefficient -> dec dynamic efficiency b/c less creativity + adaptability of economy 3) Due 2 inc wages + low skilled work offshored, dec L.S of portions of economy i.e structurally unemployed

Economics 3,4 (6 decks)

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