Econ-micro Flashcards
Supply side policies
policies aimed at increasing aggregate supply (AS), a shift from left to right. They enhance the productive capacities of an economy while improving the quality and quantity of the four factors of production.
Successful policies can lower the natural rate of unemployment and can contribute to long-term economic growth without increasing the rate of inflation.
Privatisation
the transfer of assets from the public (government) sector to the private sector.
advantage of SSP over FP
the higher GDP comes without a rise in inflation. There is also more potential with supply side policies because demand side policies can only expand an economy up to its current potential and not beyond it.
They can also help create real jobs and sustainable growth through their positive effect on labour productivity and competitiveness. Increases in competitiveness will also help improve the balance of payments.
weakness of SSP
long time-lag
costly to implement-opportunity cost
inequality(remove minimum wage)
equity-distribution of income, (privitization)
The law of demand
as price of a good increases, ceteris paribus (all else being equal), quantity demanded will decrease.
why demand curve is downward sloping
determinants of demand
ICIPASTE
income,Complements,Interest rate,Population,Advertising,Substitutes,Tastes and Preferences,Expectations
Indirect tax
Specific tax
Ad valorem tax
a tax placed on the producer (his produced goods and/or services) which is then (partly) passed on to the consumer in a form of a higher price.
Specific tax – a fixed monetary value added on every unit of production.
Ad valorem tax – a percentage tax placed on a good or a service.(the vertical gap between the two supply curves will increase when moving along the X axis)
Total tax revenue
per unit tax * quantity
tax incidence（It all depends on relative PED and PES）
PED > PES， producers pay most of the tax
PED < PES, consumers bear most of the tax burden.
tax incidence（It all depends on relative PED and PES）
PED > PES， producers pay most of the tax
PED < PES, consumers bear most of the tax burden.
PED
measure of the responsiveness of the quantity demanded to a change in the own price of a good. eg-agriculture:inelastic. 大于一，elastic.
change in quantity demanded/change in price
the PED varies on different portions of Demand curve: elastic at higher price and inelastic at lower price
determinants:Number of substitutes, closeness of substitutes, necessity.
Price ceiling (maximum price)
Price floor (minimum price)
the highest possible price that producers are allowed to charge consumers for the good/service produced/provided set by the government. It must be set below the equilibrium price to have any effect.
the lowest possible price set by the government that producers are allowed to charge consumers for the good/service produced/provided. It must be set above the equilibrium price to have any effect on the market.
theory of the firm
short run
long run
Short run – period of time when at least one factor of production is fixed (by definition meaning, that one or more are variable, usually variable).
Theory of the firm
total product
average product
marginal product
Total product – total quantity of goods or services produced.
Average product (AP) – quantity of goods or services produced per some quantity of input. Normally, we choose to calculate average product of labour: divide total quantity by number of workers.
Marginal product (MP) – the additional quantity added to total product as one more unit of a factor is added.
the law of diminishing marginal returns
as more of a variable factor (of production) is added to a fixed factor (of production) the additional to total output will eventually begin to decline.
draw the graph for monopoly
draw the graph for perfect competition
