Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Economics > CHAPTER 5 & 6 EXAM REVISION > Flashcards

CHAPTER 5 & 6 EXAM REVISION Flashcards

0
Q

Define consumer surplus

A

The difference between what consumers are willing to pay and what they actually pay.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
1
Q

Define efficiency

When is it maximised?

A
  • Producing the goods society wants at the lowest possible price
  • Maximised when total surplus maximised
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is producer surplus?

A

The difference between what the producer is willing to receive and what they actually receive in the market.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Define total surplus

A

The measure of the net benefits to society from the production and consumption of goods.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are the characteristics of an inefficient market?

4

A
  • externalities
  • market power
  • price restrictions and quantity restrictions
  • taxes and subsidies
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Define externality

A

The side effects of economic activity.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What does an inefficient market lead to?

A

Either an overproduction or underproduction of goods

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is a dead weight loss?

A

Decrease in total surplus that results from an inefficient allocation of resources.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Price floor (definition, examples and effects of policy)

A
  • It is the minimum price that is set by the government
  • used to increase producer surplus
  • e.g. Tarriff on imported car to support domestic car sales
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Price ceiling (definition, examples, and effects of policy)

A
  • A maximum price set by the government
  • used to increase consumption, make more essential goods affordable
  • creates shortages
  • (e.g. Water, health care, electricity)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is vertical equity?

A

Redistribution of income from the rich to the poor

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is horizontal equity?

A

Providing opportunities, regardless of income, the opportunity to earn a higher income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the trade off between efficiency and equity?

A
  • efficiency is expanding the size of the economy

- equity is about everyone having the same level of social benefit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are the characteristics of market failure? (5)

A
  • market power
  • externalities
  • public goods
  • common property goods
  • merit and demerit goods
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is market power?

A

Market power occurs when there are just a few dominant firms in the market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Characteristics of industries with market power (5)

A
  • barriers to entry
  • control over resources
  • few firms
  • No substitutes
  • control over price
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Example of positive consumption externality

A

Trees and gym membership

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Example of positive production externality

A

Research

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

When does market failure occur?

A

When resources are not allocated efficiently

- when total surplus is not being maximised

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Examples of negative consumption externality

A

(E.g. Smoking, driving a car)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Example of negative production externality

A

Mining pollution

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What is a tax?

A

A cost imposed on producer that equals the external cost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What is a subsidy?

A

Consumer receives money from the government equal to the external benefit

23
Q

What is a public good? (Give example)

A

Non- rival, non-excludable

- footpaths, light house, national defence

24
Q

What is a common property good?

A

A good that is rival but non-excludable

E.g. Environmental resources; forests, fish stocks, atmosphere

25
Q

What is the theory and effectiveness of assigning property rights?

A
  • creating a market for an environmental resources
  • makes someone responsible for the environmental resource
  • can be difficult to assign property rights to a large resource (e.g. Ocean or atmosphere)
26
Q

What is microeconomics?

A

The study of economy from the individual’s POV

27
Q

What is scarcity?

A

Not enough resources to meet the unlimited wants of society

28
Q

What is the opportunity cost?

A

The value of that which has been foregone.

29
Q

Assumptions of the PPF (4)

HINT: tech, fixed, economy, transferable

A
  • no change in technology
  • fixed resources
  • economy only produces two goods
  • resources transferable between two goods
30
Q

Why is the PPF curved?

A

Because of the law of increasing opportunity cost.
- as more of one good is produced, the opportunity cost increases since resources are not equally productive at producing both cars and pizzas

31
Q

What is the law of demand?

What relationship between price and demand

A

As price increased the quantity demanded decreases

32
Q

How do movements occur in demand?

What is expansion?
What is contraction?

A

Movements in demand occur when there is a change in price.

An expansion occurs when price decreases and there is a rightward movement along the curve.

A contraction occurs when price increases and there is a leftward movement along curve.

33
Q

When do shifts occur?

A

Shifts occur when there is a change in a non- price factor

34
Q

What are the non- price factors that result in a shift of the demand curve?

A

Non- price factors

  • income
  • demographic
  • complements and substitutes (related goods)
  • tastes and preferences
  • expectations of change in price
35
Q

What is supply?

A

Supply is the willingness of a firm to produce a good at a particular price and particular point in time.

72
Q

What is a demerit good?

A

Goods associated with significant negative externalities

  • overproduced and underpriced
73
Q

What are merit goods?

A

Goods or services that generate positive externalities.

  • people should consume but generally under consumed
  • underproduced and overpriced
74
Q

What is the law of supply?

A

As price increases the quantity supplied increases

75
Q

How does expansion occur in supply?

A

Expansion occurs with the increase in price

76
Q

How does a contraction in supply occur?

A

It occurs when price goes down

77
Q

Non-price factors that cause a shift in supply: (5)

Related goods, tech, production cost, expection, number

A

Non-price factors of supply:
* change in cost of producing related goods

  • an improvement in technology
  • a decrease/ increase in production cost
  • producer expectations
  • increase in numbers of producers
78
Q

Why is producer expectations a non-price factor of supply?

A

If a higher price is expected in the future, firms will decrease their current supply to take advantage of future higher prices.

  • firms will decide on investing in plant and machinery on expected future price
  • high oil prices= increased exploration
79
Q

What is the equilibrium? What does it indicate?

A

Market equilibrium occurs when demand = supply

  • means total surplus is maximised
  • indicates a market is at it’s most efficient point
80
Q

Price elastic?

>, <, =

A

PRICE ELASTIC

Ed > 1 (sensitive to change)

81
Q

Price inelastic?

>, <, =

A

PRICE INELASTIC

Ed < 1 (not sensitive to change)

82
Q

Unitary elastic

A

UNITARY ELASTIC

Ed = 1

(Price and quantity change in exactly the same proportion)

83
Q

What is the price elasticity of demand?

A

Responsiveness of quantity demanded to a change in price.

84
Q

What are the factors that affect price elasticity? (4)

A

Factors that affect price elasticity of demand:

  • the availability of substitutes
  • necessity or luxury
  • the proportion income spent on a good
  • Time
85
Q

What is the price elasticity of supply?

A

The responsiveness of quantity supplied to change in price

86
Q

Determinants of supply elasticity: (2)

A

DETERMINANTS OF SUPPLY ELASTICITY

  • time
  • nature of industry
87
Q

Why is time a determinant of DEMAND elasticity?

A

Consumers won’t have time to adjust consumption or find substitute if short period of time

88
Q

Why is the availability of substitutes a factor affecting price elasticity of DEMAND?

A

If the price of a good rises and it has many close substitutes, then consumers will be sensitive to price because easily switch to other products

89
Q

What is cross elasticity?

Related goods

A

The responsiveness of the quantity demanded to the change in the price of related goods

90
Q

What is income elasticity?

A

The responsiveness of the quantity demanded by the change in income

91
Q

Define marginal benefit

A

The maximum amount a person is willing to pay to consume that additional unit of a good or service

92
Q

What does an increase in consumer surplus mean for the consumer?

A

That the consumer is better off and economic welfare has increased.

Economics (7 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions