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Economy > 1st final exam > Flashcards

1st final exam Flashcards

1
Q

Externalities occur where…

A

the social costs and benefits differ from the private costs and benefits.

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2
Q

Negative externality:

A

Social cost greater than private cost (or social benefit less than private benefit).

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3
Q

Positive externality:

A

Positive externality: Social cost less than private cost (or social benefit greater than private benefit).

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4
Q

MR=

A

MSB

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5
Q

information asymmetry:

A

Where one party has information not available to another party

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6
Q

Pure public goods:

A

Non-excludable

Non-exhaustible

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7
Q

Non-excludable (not possible to exclude free-riders) public goods:

A

Implies no private market is possible

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8
Q

Non-exhaustible

A

implies that the ‘allocative efficiency’ price should be 0 (price=MC=0)

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9
Q

Mixed public goods

A

A broader category of products (goods and services) that have elements of the characteristics of public goods, while not full meeting the criteria for a pur public good

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10
Q

Merit goods=

A

goods and services which tend to create positive externalities

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11
Q

Regulations:

A
  1. Those protecting consumers from the consequences of ‘market failure’
  2. Those preventing ‘market failure’ from happening in the first place
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12
Q

Potential benefits of deregulation:

A
  1. Opening markets up to competition
  2. Removing obstacles to business efficiency
  3. Raising economic welfare
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13
Q

Effects of privatization:

A
  1. Greater efficiency
  2. Greater managerial freedom
  3. Wider share ownership
  4. More government revenue
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14
Q

Public choice theory:

A
  1. This sees politicians and civil servants as seeking to maximize their own interests rather than those of the consumers of the public sector (nationalized) industry
  2. Politicians seek votes, civil servants seek to ‘please’ their departments (headed by politicians)
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15
Q

Property rights theory:

A
  1. This sees the owners of public/ nationalized industries as being unable to exercise effective control over them
  2. The public is a broad set of people who cannot influence the policies of the public sector/ nationalized industries in the same way as shareholders who have voting rights and can directly influence companies
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16
Q

Privatization: x-inefficiency

A

This sees public sector/ nationalized industries as being under less pressure to maximize profit that their private sector counterparts.
As a result the public sector may be content to allow costs to be higher then they need to be

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17
Q

Arguments for privatization:

A
  1. Greater efficiency
  2. Wider share ownership
  3. More government revenue
  4. More managerial freedom
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18
Q

Arguments against privatization:

A
  1. Simply converts state monopoly to private monopoly
  2. Need bureaucracy to regulate private monopoly
  3. In practice concentration of share ownership tends to increase
  4. Loss of government revenue
  5. Natural monopoly
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19
Q

LRAC

A

Long-run averagee cost curve

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20
Q

Regulators try to limit:

A

the possible abuse of market power in the privatixed industries

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21
Q

Establishing a price gap:

A

this method is to set a maximum price

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22
Q

Encouraging new maket entry:

A

Another method is to reduce the barriers to entry facing new firms

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23
Q

Three conditions determine EU involvment:

A
  1. Companies to merge must have combined turnover >5bn Euros
  2. EU involved if at least two companies involved have an EU turnover of 250m Euro or more
  3. EU not involved if all parties to mergehave two-thirds of turnover in same member state
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24
Q

How much time EU has after notification of proposed merger to start proceedings?

A

One month

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25
Q

When EU must make final decision?

A

Within four months of starting EU involvement

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26
Q

WIll national competition authority vestigate merger if EU is included?

A

NOpe, but can we make a break?

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27
Q

In which cases EU decision can be overruled by national authorities?

A

In special cases e.g. public security

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28
Q

MNPB

A

Marginal net private benefit

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29
Q

Marginal net private benefit:

A

the extra net benefit received by the firm in producing one more unit

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30
Q

MEC

A

Marginal external cost

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31
Q

Marginal external cost:

A

the extra damage to society as a result of producing one more unit

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32
Q

When The otimum level of pollution is achieved at a scale of activity?

A

MNPB=MEC

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33
Q

Policy options to reduce pollution:

A

Environmental standards
Bargaining and negotiation
Environmental taxes
Tradable permits

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34
Q

Minimum standards set:

A
  1. Non-market based mechanism for pollution control

2. Regulators must monitor the situaton and be able to sanction breackles in standards

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35
Q

Income distribution from that solution depends upon…

A

whether property rights are assigned to ‘polluters’ or to ‘victims’.

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36
Q

Pigouvian tax:

A

A tax on the producer of an externality which is exactly equal to the marginal external cost imposed.

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37
Q

Polluter pay principle:

A

Environmental taxes are consistent with this

widely accepted principle, under which the polluter pays the cost of any damage he/she imposes on the environment.

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38
Q

Limit pollution:

A

Total number of permits issued limit environmental damage

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39
Q

Market-based:

A

Polluters can buy or sell permits at an agreed price

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40
Q

Efficient mechanism:

A

Firms which can reduce pollution at a cost below the market value of the permit have the incentive to do so, and to sell the permits; and vice versa

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41
Q

Allocation of permits:

A

Various mechanisms, e.g. ‘grandfathering’

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42
Q

tradable permits:

A
  1. Limit pollution
  2. Market-based
  3. Efficient mechanism
  4. Allocation of permits
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43
Q

what is national income?

A

A measure of the value of the output of the goods and services produced by an economy over a period of time, usually one year.

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44
Q

Withdrawals:

A
  • Any income received by domestic household (H) not passed on to domestic firm (F)
  • Any income received by domestic firm (F) not passed on to domestic household (H)
  • i.e. W = S + T + M.
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45
Q

Injections:

A
  • Any income received by domestic household (H) not from domestic firm (F)
  • Any income received by domestic firm (F) not from domestic household (H)
  • i.e. J = I + G + X.
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46
Q

GDP

A

Gross Domestic Product

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47
Q

Gross Domestic Product

A

Value of everything made within an economy

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48
Q

GNP

A

Gross National Product

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49
Q

Gross National Product:

A

Value of everything produced by tax residents of a country

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50
Q

Net National Product NNP =

A

GNP – depreciation

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51
Q

Market prices:

A

valuations include taxes (inflate prices) and subsidies (deflate prices)

52
Q

Factor cost:

A

valuations exclude taxes and subsidies (so subtract taxes and add subsidies)

53
Q

national income measurements: output method-

A

Value added at each stage of production OR Value of final output to be included

54
Q

Income method:

A

Measures incomes paid in return for productive activity
•Exclude transfer payments e.g. pensions, benefits paid for nonproductive activity
•Include undistributed profits (surpluses)
•Exclude stock (inventory) appreciation

55
Q

Expenditure method:

A

Measures the flow of expenditures
•Expenditure on final output only, to avoid double counting
•Must be current expenditure (i.e. in that year)
•Not second-hand goodS

56
Q

Problems of international comparisons, variations in:

A
  • Quality of life
  • Purchasing power
  • Needs of residents
  • Levels of unrecorded activity
  • Working conditions
  • Distribution of income
57
Q

Exogenous variables

A

•Determined outside the model and independent of Y (eg. I+G+X)

58
Q

Endogenous variables

A

•Determined inside the model and dependent of Y (eg. S+T+M)

59
Q

mpw =

A

mps + mpt + mpm

60
Q

Average Propensity to Withdraw

A

(APW) = W/Y

61
Q

Marginal Propensity to Withdraw

A

(MPW) = ΔW/ΔY

62
Q

Equation for calculating GDP

A

C + I + G + (N)X

63
Q

Average Propensity to Consume (APC)

A

C/Y

64
Q

Marginal Propensity to Consumer (MPC) =

A

ΔC/ΔY

65
Q

ΔJ =

A

ΔI + ΔG + ΔX

66
Q

ΔW =

A

ΔS + ΔT + ΔM

67
Q

‘Fiscal policy’

A

is the name given to government policies which seek to
influence government revenue (taxation) and/or government
expenditure.

68
Q

Fiscal policy

•Golden rule:

A

over the economic cycle the government will only borrow to invest and will not borrow to fund current expenditure.

69
Q

Definition: changes in G or T

A
  • Budget deficit T < G
  • Budget surplus T > G
  • Balanced budget T = G
70
Q

Direct taxes:

A

paid directly to Exchequer by individuals or companies

71
Q

Direct taxes for Individuals:

A

Income tax, capital gains tax, inheritance tax, wealth tax

72
Q

Direct taxes for Companies:

A

Corporation tax, etc.

73
Q

Indirect taxes:

A

paid indirectly to Exchequer and usually via expenditures of

individuals or companies

74
Q

examples of indirect taxes

A

VAT, customs and excise duties, etc

75
Q

Social (security) contributions:

A 
Paid into the social security founds can compare in terms of:
•Macroeconomic management
•Economic incentives (paskatos)
•Economic welfare
•Administrative costs
76
Q

Progressive tax system:

A

Tax paid rises more than in proportion to income

77
Q

Regressive tax system:

A

Tax paid rises less than in proportion to income

78
Q

Proportional tax system:

A

Tax paid rises exactly in proportion to income

79
Q

monetary policy

A

Monetary policy has been defined as the attempt by government to manipulate the supply of, or demand for, money in order to achieve specify objectives.

80
Q

Expansionary monetary policy:

A

increase in money supply and/or reduction in rate of interest

81
Q

Contractionary monetary policy:

susitraukianti pinigų politika

A

decrease in money supply and/or increase in rate of interest

82
Q

Costs of inflation:

A
  • ‘Shoe leather costs’
  • ‘Menu costs’
  • ‘Decision-taking costs’
  • ‘Inflation illusion’
  • ‘Redistribution costs’ (persiskirstymo kainos)
  • ‘Fiscal drag’
83
Q

Benefits of inflation:

A
  • Cost increases are more easily passed on to consumers
  • Labour can therefore more easily ‘bargain’ for wage rises
  • Debtors gain since they pay back less in real terms
84
Q

Frictional/search unemployment:

A

•Results from workers who are between jobs.
•Will always exist, but it might be reduced.
•Remedies proposed include:
1. Improved information
2. Reduction in unemployment related benefits.

85
Q

Structural unemployment:

A
  • Results from changes in the pattern of demand and/or methods of production.
  • As a result workers may have the wrong skills or be in the wrong location.
  • Remedies proposed include: Retraining/ Relocation of workers
86
Q

demand deficit unemployment occurs when…

A

there is insufficient demand (nepakankama paklausa) in the economy to maintain full employment

87
Q

Remedies for demand deficit unemployment:

A
  • Expansionary fiscal policy: raising G and/or lowering T

* Expansionary monetary policy: raising money supply and/or lowering interest rates

88
Q

real wage unemployment results from:

A
  1. Real wages being above the level at which labour demand
    would match labour supply.
  2. Real wages seen as too high for ‘full employment’.
  3. Sometimes referred to as ‘classical unemployment
89
Q

natural rate unemployment:

A

Natural Rate of Unemployment (NRU) has been defined as the (voluntary) unemployment which still exists even if the real wage is at the equilibrium level which ‘clears’ the market.
NRU is sometimes defined as the rate of unemployment at which there is no excess demand or deficiency of demand for labour

90
Q

balance of payments

A

A record of all recorded transactions between one country and the rest of the world in a particular financial year.

91
Q

The key components of balance of payments include :

A
  • Current account
  • Capital account (land purchase, capital transfers)
  • Financial account (sometimes called “capital account” as well)
92
Q

what can influence the BoP?

A
  1. Expenditure switching policy instruments

2. Expenditure reducing policy instruments

93
Q

Expenditure switching policy instruments:

A
  • Changing the relative prices of exports and imports by raising the exchange rate (appreciation) or lowering the exchange rate (depreciation).
  • The change in relative prices may cause a switch in expenditure by consumers
  • e.g. A fall in the exchange rate will make exports cheaper and imports dearer
94
Q

Expenditure reducing policy instruments:

A
  • Reducing aggregate expenditure by deflationary fiscal policy (e.g. reduced government spending, increased taxes) or deflationary monetary policy (e.g. higher interest rates, lower money supply).
  • With less real income to spend, domestic consumers will purchase less imports from abroad
  • Domestic consumers may also purchase less domestic production, causing these producers to more actively seek markets abroad
95
Q

exchange rate:

A

Number of units of the foreign currency needed to purchase one unit of the domestic currency

96
Q

Nominal exchange rate:

A

•The rate at which one currency is quoted against any other currency (i.e. bilateral exchange rate)

97
Q

Effective exchange rate (EER) measures…

A

the value of the domestic currency against the weighted value of a basket of foreign currencies

98
Q

Real exchange rate (RER):

A

•Seeks to measure the rate at which home products exchange for products from other countries, rather than the rate at which the currencies themselves are traded.

99
Q

PESTEL analysis political:

A

•EU enlargement, the euro, international trade, taxation

100
Q

PESTEL analysis economic:

A

•Interest rates, exchange rates, inflation, unemployment

101
Q

PESTEL analysis social:

A

•Ageing population, attitudes to work, income distribution

102
Q

PESTEL analysis Technological:

A

•Innovation, new product development, rate of technological obsolescence (pasenimas)

103
Q

PESTEL analysis Environmental:

A

•Global warming, environmental issues

104
Q

PESTEL analysis Legal :

A

•Competition law, health and safety, employment law

105
Q

Greater efficiency:

A
  • Public choice theory
  • Property choice theory
  • Avoids x-inefficiency
106
Q

Long-run average cost curve shows…

A

the lowest cost of producing any output

107
Q

GNP=

A

GDP + net property income from abroad

108
Q

Porter’s 5 forces

A
  1. Barriers to entry
  2. Competition
  3. Bargaining power - buyers
  4. Threat of substitutes
  5. Bargaining power - supliers
109
Q

boston consulting matrix structure: high market growth and high market share

A

Star

110
Q

boston consulting matrix structure: high market growth, low market share

A

Question mark

111
Q

boston consulting matrix structure: low market growth, low market share

A

Dog

112
Q

boston consulting matrix structure: low market growth, high market share

A

Cash cow

113
Q

reasons firms internationalize:

A 
Diversification (įvairinimas)
Economies of scale
Government incentives
Market growth
Joint venture opportunities
Saturated (prisotinta) domestic market
114
Q

Types of export:

A

direct export

indirect export

115
Q

internationalization methods, from minimum risk and minimum reward to maximum risk and maximum reward

A
  1. Indirect exporting
  2. Directing exporting
  3. Licensing and franchising
  4. Joint ventures
  5. Direct investment and foreign manufactures
116
Q

A situation where a product generates high profits which can be invested in new products?

A

Cash cows

117
Q

which one refers to using a low-price strategy:

A

loss-leader pricing

118
Q

Certel prices

A

fixed monopoly price, individual companies cannot to undercut the prices

119
Q

An increase in EER is an indication that

A

its exports are becoming more expensive and its imports are becoming cheaper. It is losing its trade competitiveness

120
Q

BoP

A

Balance of payments

121
Q

demand-pull inflation

A

is a period of inflation which arises from rapid growth in aggregate demand. It occurs when economic growth is too fast

122
Q

cost-push inflation

A

occurs when overall prices increase (inflation) due to increases in the cost of wages and raw materials

123
Q

If the economy experience inflation, then aggregate

A

demand increases faster than aggregate supply

124
Q

The Phillips curve says: The higher the inflation,

A

the lower the unempoyment

125
Q

What allows government to spend a specific amount of money?

A

Appropriation bill

126
Q

MNPB means

A

Marginal Net Private Benefits

Economy (4 decks)

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