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Economics > Chapter 4 > Flashcards

Chapter 4 Flashcards

1
Q

Explain the production theory short run and long run

A

Short run- Law of diminishing returns

Long run- Returns to scale

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2
Q

Define productivity

A

Output per unit of input

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3
Q

Define labour productivity

A

Output per worker

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4
Q

Define capital productivity

A

Output per unit of capital

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5
Q

What is the UK productivity puzzle

A

Failure of labour productivity to recover from a relatively low level compared to others

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6
Q

Define firm

A

Productive organisation which sells its output of goods and or services commercially

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7
Q

Define specialisation and division of labour

A

Specialisation: worker only performing one task or a narrow range of tasks
Division of labour: In a firm many workers perform different tasks in producing a good or service

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8
Q

What are the benefits of division of labour

A
  • No need of switching between tasks
  • More and better machinery or capital can be employed
  • Practice makes perfect
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9
Q

Difference between trade and exchange

A

Trade: buying and selling of goods and service
Exchange: to give something in return for something else recieved

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10
Q

Explain short run law of diminishing returns

A

Short-run law which states that as a variable factor of production is added to a fixed factor marginal and average returns diminishes

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11
Q

Define marginal returns of labour

A

Change in the quantity of total output resulting from the employment of one more worker

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12
Q

Difference between short and long run

A

Short run- at least one fixed factor of production

Long run- all factors are variable

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13
Q

Draw law of diminishing returns (TR, MR, AR)

A

…

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14
Q

Define total returns, average returns

A

Total returns: the whole output produced by all factors of production employed by a firm

Average returns: Total output/ total n of employed

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15
Q

What is returns to scale

A

The rate at which output changes if the scale of all the factors of production is changed

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16
Q

Define the 3 kinds of returns to scale

A

Increasing: Output is proportionally higher than input
Constant: Output is proportional to input
Decreasing: Output is proportionally lower to input

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17
Q

Explain the difference between short and long run costs of production

A

Short run: Fixed + variable

Long run: Variable

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18
Q

Draw Returns and Cost graph (MR, AR, MC, AVC)

A

…

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19
Q

Difference between total, average and marginal cost

A

Total: All costs incurred when producing a particular size
Average: Total cost / number of workers
Marginal: Cost by each additional worker

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20
Q

Draw short run average cost curve (AFC, AVC, ATC,MC)

A

…

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21
Q

What is a business objective

A

Profit maximise

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22
Q

What is assumed that a firm will do if cost of labour cost is high

A

Less labour will be employed and capital becomes more attractive

23
Q

Explain economies of scale

A

As output increases long run average cost falls

24
Q

Explain diseconomies of scale

A

As output increases, long run average cost rises

25
Q

Draw Economies and Diseconomies of scale

A

…

26
Q

Draw Economies and diseconomies of scale with LRAC and SRATC

And explain

A

SRATC represents a particular firm size
Long run, firm will move from one to another short run average total cost curve
LRAC curve forms a tangent to the SRATC

27
Q

Explain internal and external economies and diseconomies of scale

A

Internal Economies and diseconomies : Changes in long run average costs of production due to changes in size or scale of firm or plant
External Economies: Changes in long run average costs of production due to growth of market or industry of which the firm is a part

28
Q

Reasons for internal economies of scale

A
  • Technical (indivisibilities)
  • Managerial
  • Marketing (bulk buying and bulk selling)
  • Financial or capital raising
  • Risk bearing (Less risk as higher firm)
  • Economies of scope (range of goods)
29
Q

Reasons got internal diseconomies of scale

A
  • Managerial
  • Communication failure
  • Motivational
30
Q

What is the relationship between returns to scale and (dis)economies of scale

A

Higher returns to scale=economies of scale

31
Q

Reasons for economies and diseconomies of scale

A

clustering of individuals- competition, more trained

32
Q

Draw different kinds of economies and diseconomies of long run average cost curve

A
  • Normal
  • Horizontal LRAC
  • Quick slope up to Diseconomies of scale
  • Slow slope up to Diseconomies of scale
33
Q

What is long run marginal cost

A

Additional cost incurred if firm increases output when all factors are variable

34
Q

What is the L shaped long run average cost curve

A

No Diseconomies of scale, MES (minimum efficient scale)

35
Q

Define MES

A

Lowest output at which long run average costs have been reduced to fully benefit from economies of scale

36
Q

Difference between:
Total revenue-
Average revenue-
Marginal revenue-

A

Total revenue- all money received by a firm from selling its output
Average revenue- Total revenue / output
Marginal revenue- Addition to total revenue resulting from an additional sale

37
Q

Explain what are the conditions of Perfect competition

A
  • Large number of buyers and sellers
  • Perfect information
  • Consumers can buy as much as they want and producers sell as much as they want at the market ruining price
  • Homogenous products
  • No barriers to entry or exit
38
Q

Draw a competitive firm as being a price taker

A

…

39
Q

Draw Revenue in a monopoly (AR, MR)

aswell as gain and loss of revenue

A

…

40
Q

Why does Demand = AR

A

Because each additional revenue is the same due to being the demand

41
Q

Explain a monopoly as a price maker and quantity setter

A

Price maker- firm possesses marker power to sell at any price
Quantity setter- possesses marker power to set the quantity of a good

42
Q

Relationship between marginal and total revenue

A

As marginal revenue increase total increases by same increment

43
Q

What is profit

A

Revenue - cost

44
Q

Define profit maximisation

A

Level of output at which total profit is greatest

45
Q

Difference between normal and abnormal profit

A

Normal- Minimum amount a profit must make to stay in business
Abnormal- profit over and above normal

46
Q

Role of profit in an economy

A
  • Creation of worker incentive
  • Creation of shareholder incentive
  • Profit for innovation and risk taking
  • Business finance
47
Q

Define technological change

A

Describe overall effect of invention, innovation and spread of technology in an economy

48
Q

Difference between technological change and technological progress

A

Technological change: improving welfare

Technological progress: Scientific improvement, not necessarily about welfare

49
Q

Difference between invention and innovation

A

Invention: Making something entirely new
Innovation: Making a significant contribution to something already invented

50
Q

What effect does technological change have on economic performance

A
  • Methods of production

- Productivity

51
Q

Define productive efficiency

A

Impossible to produce more of one good without less of another

52
Q

Define Dynamic efficiency

A

Measures improvement in productive efficiency in the long run

53
Q

Define creative destruction

A

Capitalism evolving and renewing itself over time through new technologies and innovations replacing older ones

Economics (15 decks)

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