Y1 Microeconomics Flashcards
(99 cards)
1
Q
What does PED, YED, XED and PES stand for?
A
Price elasticity of demand
Income elasticity of demand
Cross elasticity of demand
Price elasticity of supply
2
Q
What is the law of diminishing utility?
A
Marginal (additional) satisfaction/utility decreases after each use
3
Q
What does PED represent on a graph
A
the steepness of demand slope (reciprocal gradient)
4
Q
PED = 0 –> describe the shape of the graph
A
vertical demand
5
Q
PED = -infinity –> describe the shape of the graph
A
horizontal demand
6
Q
What is the formula for PED?
A
Proporionate change in Qty/proportionate change in price
7
Q
What are the three factors that affect PED?
A
Luxury vs Necessity
Qty of substitutes
% of income
8
Q
Describe the characteristics of a good with inelastic demand
A
Necessity, few substitutes, small % of income
9
Q
Describe the characteristics of a good with elastic demand
A
Luxury, many substitutes, large % of income
10
Q
PED is always…
A
negative
11
Q
What is total revenue
A
price x quantity
12
Q
A firm is going to increase its prices. Why might into want to ensure its products are inelastic
A
As this would mean the market is less sensitive to price changes so revenue would increase
13
Q
What is another word for elasticity?
A
Sensitivity
14
Q
What is the formula for YED?
A
Proportionate change in quantity/ proportionate change
in income
15
Q
How are YED and XED different from PED with reference to a demand-supply diagram
A
YED and XED are curve shifts but PED is about gradient on a DEMAND-SUPPLY DIAGRAM
16
Q
Name of a product with +YED
A
Normal good (superior if YED>1)
17
Q
Name of a product with -YED
A
Inferior good
18
Q
Name of product YED = 0
A
Necessity
19
Q
Formula for XED
A
Proportionate change in quantity demanded of one good/proportionate change in price of another
20
Q
Name of two products with +XED
A
Substitute
21
Q
Name of two products with -XED
A
Complements
22
Q
Name of two goods with XED=0
A
unrelated
23
Q
What is an extension?
A
A shift along a curve increasing quantity
24
Q
What is a contraction?
A
Shift along a curve decreasing quantity
25
What must PES always be?
Positive
26
What does PES represent
the steepness of the supply curve (reciprocal of the proportionate gradient)
27
Shape and name for PES>1?
elastic
| horizontal
28
Shape and name for PES = 1?
Unitary
| y=x
29
Shape and name for PES<1?
Inelastic
30
What determines PES?
Spare capacity
Available stocks
Time (SR or LR)
31
What does CPPC stand for?
Costs
Price of other goods (joint or competitive supply)
Productivity
Climate
(sometimes new entrants is included but that is fake news)
32
What is a supplier's main objective?
Profit
33
What does IPPAFEL
```
Income
Population
Price of other goods (compliments/substitutes)
Advertising
Fashion
Expectations
Legislation
```
34
What are the three functions of the price mechanism?
S signal
I incentive
R Ration/allocate
35
Where is the consumer surplus?
Triangle between demand and equilibrium price line
36
Where is the producer surplus?
Triangle between supply and equilibrium price line
37
What is a producer/consumer surplus an indication of?
The consumer/producer welfare
38
What is a consumer/producer surplus?
Difference between market price and what is bought/supplied
39
What are the primary functions of money (4)?
a medium of exchange
unit of account
store of value
Method of deferred payment
40
Name three types of market failure
public goods
Externalities
Asymmetric Information
41
What is a moral hazard?
When an economically irrational decision is made, knowing that the misfortune will fall on another economic agent.
42
What is the principal-agent problem?
The agent buys goods on behalf of the principle, misallocating the resources due to the information gap.
43
Name some ways of reducing the information gaps
Certification, warranties, using unbiased expert advice
44
What are the characteristics of public goods?
Non-diminishable
| Non-excludable
45
Whats the Free Rider Problem?
People can receive the benefits of some goods without paying for it
46
What is a PPF?
A diagram to show the maximum output combinations of 2 goods that an economy can produce using its current resources efficiently
47
Opportunity Cost?
Sacrificed benefits of the next best alternative
48
What are the factors of production?
Land, Labour, Capital, Enterprise
49
Disadvantages of a free market (3)?
```
Monopolies
Income inequality
Externalities (and any market failures)
High risk for citizens
Erratic business cycles
```
50
Advantages of a free market (3)?
Effecient (business have to remain competitive)
Political freedom
Choice
Higher quality (competitive)
51
What's the opposite of a free market economy?
Command Economy
52
What are the determinates of PED?
Percentage of income, necessity v luxury, qty of substitutes
53
Determinates of PES?
Spare capacity
Available Stocks
Time scale
54
How do you draw a tax? Where are the C and P incidences?
Shift in S curve left, join equilibrium line down to old s curve and then join with price axis.
Note that consumer incidence is above old equilibrium price and producer part is below
55
What are the three economic legends in Micro?
Adam Smith
Friedrich Hayek
Karl Marx
56
What did Karl Marx believe in?
Planned economy
| Capitalism leads to monopolies leads to exploitation leads to revolutions from the proletariats
57
What did Hayek believe?
Completely free market for freedom
Price mechanism can allocate
Fair
58
What did Adam Smith believe? (2 key ideas)
Invisible hand
Free market
Need for government to prevent monopolies and enforce propety law
Specialisation and the division of labour
59
What replaces the demand curve on a externalities diagram?
Marginal social benefits and Marginal private benefits
60
What replaces the supply curve on a externalites diagram?
Marginal private costs and marginal social costs
61
On a demerit good diagram on which side is the WLT?
The right side of the equilibrium
62
On a merit good diagram on which side is the WLT
the left side of the equilibrium
63
What are the basic economic questions (3)
What is produced
For whom is it produced
How is it produced
64
Name some common examples of irrational behaviour (3)
Habitual beheaviour
Inertia (fear of change)
Impulse buying
65
Name some other slightly more wacky examples of consumer behaviour (go on do it I dare you) (4)
Poor Computation
Relative v Absolute (people calc propotional savings not real)
Peer Pressure
Overvaluing effect (Consumers struggle to compare stuff they've made to other products)
66
What is a positive statement?
An phrase that can be proved or disproved by evidence
67
What is a normative statement
value judgement e.g. "should"
68
What is Hayek's communication network?
The way a market functions through the price mechanism (SIR) and allocates resources efficiently as a result
69
Define ceteris paribus
All other things being equal
70
What is capital (2)?
NOT MONEY
| Capital is a man made resource used for production (like a hammer)
71
What is the basic economic problem?
Infinite wants and finite resources
72
Changes in what shift the PPF out?
Quantity or Quality
73
Wealth =
Capital + money
74
Investment definition
purchase or production of capital goods
75
Define depreciation
Loss of value of goods over time
76
Why is a curved PPF more realistic
As it is unusual for a good's resources to be a perfect substitute for each other
77
What is Fiat money
Money that does not have intrisic value (i.e. not gold or silver but paper money)
78
What is a near money?
An asset that can quickly be liquidated into money
79
What does specialisation go best with?
TRADE
80
What are the advantages of specialisation AND trade? (3)
```
lower costs
imporved skills/productivity
specialist tools can be bought
higher variety for consumers
time is saved
workers can do jobs they are best at
```
81
What are the disadvantages of specialisation AND trade (3)
Repeitive work lowers motivation
high tunrover as workers get bored
Potential for structural unemployment
Over specialisation may break if one part fails
small market can't survive and be specialised
82
What is the law of diminshing marginal utility?
Decreasing additional satisfaction after each unit is consumed
83
What is disposable income
income less taxes plus benefits
84
Discretionary income?
Party money (disposable less necessity costs)
85
What is signal in price mechanism
Observation
86
What is incentive?
Process of thinking, judging and evalutating
87
What is the rationing part of SIR
Allocation of resources
88
With a tax what four things should be analysed
New price and qty
Increase in price compared tax size
Incidence (proportion) of tax passed on to consumer/producer
Government revenue
89
What is complete market failure?
A missing market
90
What is partial market failure?
Underconsumed or overconsumed
91
Formula for society (social)?
internal + external
| All parties
92
What has negative externalities?
Demerit good
93
When is social benefit>private benefit?
merit good
94
What is a quasi-public good
Either excludable and non-diminishable
| or diminishable and non-excludable
95
What is adverse selection also known as?
Principle agent problem
96
Name five types of government intervention?
Tax, trade pollution permits, propety rights, regulation, price setting
97
What are some common flaws in government intervention? (4)
Cost to taxpayer
Information gap (difficult to quantise market failure)
opportunity costs/conflicitng objectives
admin costss
98
What is regulatory capture?
Monopolists mislead the regulators so they are less harsh with their red tape
99
What is policy myopia?
Shortsightedness political decisions
