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economics Flashcards

1
Q

the four problems/challenges of economic development in lesser-developed countries

A
  1. The workforce may be too old or inadequately skilled
  2. Natural resources simply may not exist

3.Without foreign investment, producers may not have the means to incorporate modern, industrial technology.

  1. The government may be unwilling or unable to effectively promote economic development
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2
Q

relative price calculation

A

Relative Price of Good A = Total Possible Units of Good B/Total Possible Units of Good A

vice versa

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3
Q

comparative advantage

A

who makes the item with the least amount of losses

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4
Q

Absolute Advantage

A

who can make the most of something no matter how much the cost is

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5
Q

the purpose/objectives of the International Monetary Fund (IMF)

A
  • A system that tracks economic trends
  • analyzes countries’ financial performances
  • warns governments of potential financial problems
  • provides expertise to governments to promote employment, high economic growth and reduce poverty.
  • Promotes financial stability by lending money
  • providing training in banking regulations and exchange rate policies.
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6
Q

the four barriers to trade

A

Protective Tariffs:
Taxes imposed on imported goods in order to raise the price and lower the quantity sold.

Embargo:
Ban against the import or export of a good

Quotas:
A restriction on the amount of foreign goods that may be imported
Quota is a number

Red Tape:
Government can use bureaucracy (using government rules, regulations, etc) to delay or even prevent the importing of foreign goods

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7
Q

TFSA (Tax free savings account)

Advantage and disadvantage

A

Pro: Any interest you earn is not taxed

Con: Interest rate is low, return not big

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8
Q

Savings/bank account

Advantage and disadvantage

A

Pro: safe, liquid
Con: low rate of return

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9
Q

Stocks

A

Pro: dividends, high potential return, liquid (Liquid means: as close to cash you can get, you can flip it to cash very easy)

Con: long term, risky

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10
Q

Mutual funds

A

Pro: Can invest small amounts, managed for you, liquid

Con: fees paid to managers, moderate risk, no control over investments

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11
Q

Collectibles

A

Pro: Portable, high potential return
Con: Low liquidity (can’t turn it into usable money fast) , risky

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12
Q

Bonds

A

Pro: safe, liquid

Con: low rate of return

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13
Q

the difference between easy and tight monetary policy

A

Easy money= deacrease in overnight lending rate
Dollar and interest rates goes down
Increase in demand
Inflation rises
Tight money = increase in overnight lending rate
Dollar and interest rates go up
Decrease in demand
Deflation drops

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14
Q

what happens when the overnight lending rate increases or decreases

A

Decrease in Overnight Lending Rate:
Dollar goes down
Interest rates go down
Rate of inflation increases
Increase in demand

Increase in Overnight Lending Rate:
Dollar goes up
Interest rates go up
Rate of inflation decreases
Decrease in demand.

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15
Q

calculate the change in deposits and the total increase in the money supply

A

Change in Deposits (D) = 1/reserve ratio ® x change in reserves (C)
Total increase in money supply = total new deposits - initial cash deposit

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16
Q

The Demand for Loanable Funds come From:

and

The Supply of Loanable Funds
Comes From:

A

The Demand for Loanable Funds come From:

Consumers:
Lower interest rates mean that they pay less for goods

Businesses:

Businesses who are considering a new investment must take If their return is larger than the interest rate on their loan, they will proceed.

Government:
A higher or lower interest cost when they borrow are ultimately paid by taxpayers.

The Supply of Loanable Funds
Comes From:

Individuals:

By increasing or decreasing the amount in their deposit accounts. The higher amount of money in deposit accounts, the more money the bank has to lend. When interest rates rise, people are encouraged to save more.

Businesses:
By increasing or decreasing the amount in their deposit accounts. Businesses save for future expenses instead of distributing to shareholders, especially when interest rates are high.

Banks:
If interest rates rise, chartered banks will want to supply more money.

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17
Q

the direction of the demand and supply of loanable funds curves

A

Upward sloping: because as interest rates rise, more loanable funds are supplied, when rates fall, their is less supplied

Downward sloping: because as interest rates decrease, more loanable funds are borrowed, if rates rise, less is borrowed

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18
Q

multiple counting

A

Double counting parts of a GDP will make it look like the GDP is increasing but it is really not because they are counting the parts and the whole, so you must only count the final product or service

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19
Q

the difference between contractionary and expansionary fiscal policy

A

Expansionary
Used to increase aggregate demand​

If gov’t cut taxes it would increase disposable income of consumers (assuming they do not save this money or spend on imports). This would increase aggregate demand (increase in growth of GDP)​

gov’t can increase spending (same effect as above)​

gov‘t can maximize the effect by both a tax cut and a spending increase

Contractionary  Used to decrease aggregate demand​

If gov’t increases taxes it would decrease disposable income of consumers. This would decrease aggregate demand (decrease GDP)​

gov’t can decrease spending​

gov‘t can maximize the effect by both a tax incr. and a spending decrease

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20
Q

Seasonal Unemployment: don’t memorize just understand)

A

Unemployment caused by people who work in industries where their labour is not needed all year.

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21
Q

calculate the unemployment rate and define it M/C

Do not memorize just know

A

=(Unemployed/Labour Force) x100

labour force is employed plus unemployed

those members of the labour force who do not have a job but are making a persistent effort to
find work.

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22
Q

Cyclical Unemployment:

don’t memorize just know

A

Results from a reduction in overall consumer spending
Has to do with the economy

Example:

> caused by a downturn in the business cycle (recession)

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23
Q

Frictional Unemployment:

dont memorize just know

A

Unemployment caused by workers who are between jobs or who are entering or reentering the labour force
Example:
> If you leave one job and now are trying to a find a new job
> If you graduate from school and are looking for a job

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24
Q

Structural Unemployment:

A

Occurs when the skills or location of workers no longer matches the patterns of demand in the economy

Examples:
> The development of new technologies
> Moving production facilities to a different location

25
Q

A decrease in government spending

will aggregate demand would increase or decrease and what direction the aggregate demand curve will move

A

Shift the aggregate demand curve to the left

26
Q

The Canadian dollar decreases in value

will aggregate demand would increase or decrease and what direction the aggregate demand curve will move

A

Increase aggregate demand
Shift curve to the right
Cheaper for foreigners to buy canadian goods

27
Q

Employment insurance benefits are increased

will aggregate demand would increase or decrease and what direction the aggregate demand curve will move

A

Increase aggregate demand
Shift to the right

28
Q

An Increase in Aggregate Demand (MOVES TO THE RIGHT) (EXPANSIONARY):

A

Increase in consumption
Decrease in taxes
Decrease in savings
Decrease in import spending
Increase in investment
Increase in government spending
Increase in exports

29
Q

A Decrease in Aggregate Demand (MOVES TO THE LEFT) (CONTRACTIONARY)

A

Decrease in consumption
Increase in taxes
Increase in savings
Increase in import spending
Decrease in investment
Decrease in government spending
Decrease in exports

30
Q

Because crude oil prices have gone up by 29% this last year, all plastic products have gone up by 20%

determine based on a scenario what the initial problem is, what type of fiscal policy should be used and the government action

A

Problem: inflation
Ficscal policy: contractionary
Government action: increase taxes, decrease government spending

31
Q

Many consumers are expecting a recession in the next year and because of this they have cut there purchases in half. This has caused companies to lay of workers

A

Problem: unemployment
Ficsal policy: expansionary
Government action: decrease taxes, increase government spending

32
Q

phases of the business cycle

A

Expansion:
Business investments increase
Interest rates go from low to high
Consumer confidence increases
Low unemployment
Inflation may rise

Contraction:
Drop in business spending
High unemployment (5 - 10% in recession)
Interest rates go from high to low
Consumer confidence - Saving for a raining day
Deflation may occur

33
Q

define, list the components of and calculate GDP

A

A measure of a country’s output

EXPENDITURE APPROACH:
A calculation of GDP that totals all that the economy spends on the final goods and services in one year.

INCOME APPROACH:
A calculation of GDP that totals all the incomes earned by the different factors of production in producing all final goods and services in one year.

GDP Equation:
GDP = C + I + G + (X-M) (consuption, investments, government spending, exports and imports

34
Q

types of budgets (balanced, deficit, surplus)

A

Deficit Budget:
Spending more than they are receiving.

Surplus Budget:
It has money left over.

Balanced Budget:
Really rare
The government spends an amount equal to what it has collected

35
Q

components of leakages and injections

A

Fills (Injections):
increase levels of employment, income and output:

  1. investments (I)
  2. Government Spending (G)
  3. Exports (X)

Leaks (Leakages):
decrease levels of employment, income and output means GDP.

  1. Savings (S):
  2. Taxation (T);
  3. Imports (M):
36
Q

the characteristics of the different market structures and examples of each (perfect competition, monopolistic competition, oligopoly and monopoly) M/C.

A

Perfect competition
Large number of firms but small in size
Identical products in the market
No control over price
No barriers to market
Amount of non-price competition: little (location sometimes)
Examples: fruit basket, wheat

Monopolistic competition
Many firms, but not large in size
Product differentiation in market in quality, packaging, marketing etc.
Some control over price, a price influencer
Some barriers to market
Amount of non-price competition: some product quality advertising, packaging)
Example: haircuts, clothing, restaurants

Oligopoly
Few firms but large in size
Some product differentiation in market
Significant control; informal collective pricing
Many barriers to market
Considerable non price competition (packing, advertising, brand name
Examples: gas, tires, cell phone plans

Monopoly
One large firm
Unique product in the market
Total control: a price maker
Almost total exclusion (ease with which a firm can enter the market)
Not much non price competition (public relations, advertising needed when close substitutes exist
Example: LCBO, Ontario hydro, via rail

37
Q

the different forms of businesses (sole proprietorship, partnership, corporation, co-operative) M/C

just know don’t memorize

A

Sole Proprietorship:
Form of business ownership owned by just one person (both own and operate in the business).
Most businesses in Canada are sole proprietorships

Partnership
Similar to a sole proprietorship, expect there are two or more owners

Co-operative
Is owned and controlled by members and each member has one share and one vote, more democratic. (if you own more of the shares then you make more decisions).

Corporations:
Big companies
Private ownerships by shareholders
Limited liability
Unlimited life because ownership is transferable through the sale of shares

38
Q

how different stakeholders invest in human capital and explain why

A

Individuals invest in human capital through:
Investing in their own education in the hopes of making themselves more marketable in the future. They want to offer their services in a specific area of the labor market where the demand for labor is high and the supply of labor is low

Firms invest in human capital through:
On-the-job training, in-service training and supporting further formal education of employees

Governments invest in human capital through:
Subsidizing public education, some post-secondary education and numerous job-training

39
Q

how to achieve product differentiation/non-price competition

A

Involves changing anything but price (quality, best-built product, latest style, best warranty, timely service).

40
Q

marginal cost, total costs, fixed costs and variable costs

A

Marginal Cost = Marginal Revenue (profit maximization)

Marginal Cost: the additional cost for a firm of producing one more unit of its product

Total Costs are the fixes and the variable costs combined

Fixed Cost: Rent or Property tax, they remain the same regardless of how much you’re producing. You always have to pay your fixed cost.

Variable cost, costs that change or vary with the level of output, such as labour and raw materials.

41
Q

calculate the most efficient level of output

A

When the number of efficiently per output is at it’s lowest
Number of efficiency is total cost divided by quantity
Choose the quantity produced which is aligned with the lowest number of efficiency

42
Q

small vs. big businesses

A

Small Businesses:
Often between 1 and 49 employees (less than 49 is considered small business)
Face intense competition from numerous other small firms (competing for the same clients, customers, etc)
Maintain their competitive advantage by limiting their operations to one specialized field or process

Big Businesses:
Often more than 500 employees (over 500 is considered a bigger business)
They have Economies of scale (total cost becomes so small because they’re producing so much).
Can assume greater risk (they can use their capital to expand) and accumulate capital to initiate expensive and complex projects.
Have limited competition (because other businesses can’t get the same cost).

43
Q

the factors that shift the supply and demand curves of labor and know how to draw and label supply and demand graphs and indicate how the situation affects wage and number of worker

A

Demand for Labor shift
A change in the Demand for the Product of Labour

  1. Change in the Price of Related Productive Resources
    Most products require inputs from land, labor and capital. Capital is usually considered a substitute for labor (come up with own example while studying)
    Example: the price of land inputs (raw materials) are complementary to labor. If the price of raw materials increases, production costs will go up and then the demand for labor will see a decrease
  2. A Change in Worker Productivity
    As workers become more productive (they increase their marginal product of labour) the demand for labor will increase.

Changes in labor supply

The labour supply curve will shift as a result of the following factors:
Changes in Income Tax Rates
An increase in the income tax rate means the government takes away a greater proportion of wages earned. This will lead to a reduction in the supply of labour.

  1. Changes in the Size and Composition of the Population

As the population increases, the relative number of people available to offer their services at a given wage rate also increases
Due to immigration and age distribution of population

  1. Changes in the Price of Complementary Goods and Services

Additional costs of working include: cost of childcare, household maintenance and transportation.
Example: If the costs of child care increases, it will become more expensive to participate in the labour market and some people will leave the labour market, reducing the labour supply

  1. Changes in Barriers to Entry
    Are costs or other obstacles that make it difficult to enter the market, such as licensing requirements
  2. Changes in Attitudes about Roles
    Changing attitudes about roles in society, for example, an increase in women joining the workforce has increased the supply of labour
44
Q

determine based on a scenario whether it is an elastic or inelastic good (elasticity of demand factors)

A

Number of substitutes (more = elastic)

Necessity = inelastic
Luxury = elastic

definition of the market (broad = inelastic, vice versa) (Meat, steak)

Time (shorter = inelastic, vice versa)

% of consumer income (higher = elastic, vice versa)

45
Q

how to show on a graph a price ceiling and/or price floor and explain if it creates a surplus or shortage of goods

A

Price Floor
Minimum price that is set above equilibrium to ensure a higher price, such as minimum wage

Will result in a surplus as the quantity supplied will be higher than the quantity that is demanded

Price Ceiling
Occurs when the government fixes a maximum (or ceiling) price on a good or service such as rent

Will result in a shortage as more quantity will be demanded than suppliers are willing to produce

46
Q

Factors affecting demand and supply

A

Factors affecting demand
- Changing consumer income
- Changing consumer tastes and preferences
- Changing expectations for the future
- Changes in population
- Price of other goods; substitute goods or complementary goods

Factors affecting supply
- Changes in the number of producers
- Changes in technology
- The environment
- Changing production costs

47
Q

What can affect the price and quantity

A

What can affect the price

Quality
Brand
Labor costs
Demand
Supply
Manufacturing
Transportation costs
Marketing

What can affect the quantity

Quantity is affected by price changes

48
Q

demand vs. supply
Demand

A

Demand
The quality of goods or services consumers are willing and able to purchase over a range of prices at a given point in time
Exists when you want and can afford the item

Supply
The amount of a product that producers are willing to provide over a range of prices

49
Q

law of supply vs. law of demand

A

Law of Supply
When the price goes up, the quantity supplied also goes up, and vice versa.

Law of Demand
When the price goes up, the quantity demanded goes down, and vice versa

50
Q

Substitute good and example
Complementary good and example

A

Goods that can be used in place of another
Ex. hair instead of bench

Goods that compliment another
When you buy one you usually buy another one at the same time
Ex. ketchup and hot dogs
Ex. Ice cream and ice cream cones

51
Q

determine if goals are conflicting or competing

A

Example, increased economic output and helping the environment, they conflict

52
Q

TRADITIONAL ECONOMY:

A

What — Based on needs of family (what we have always produced)

How — based on customs (same as we always have done it).

Whom — for use by immediate family or trading (same amount they always received).

Based on agriculture, fishing, hunting and those that grow and make their own goods to survive the challenges of each day.

53
Q

COMMAND ECONOMY:

A

A small group of political leaders with the power to enforce their decisions

What — based on the best interests of the state the central planning authority determines what products and the quantities, it is usually capital goods

How — using the state resources the central planning authority determines who will be working and their wage (own land=Gov)

Whom — allocated on behalf of the state

A system of rewards and punishments are used to promote productivity.

People who contribute to the betterment of the state are rewarded with extra goods and sometimes privileges and those that are not penalized.

54
Q

What is Market economy

A

The actions of individuals buyers and sellers in the marketplace

What — determined by consumer demand and producers produce these goods to generate profits.

How — producers determine based on most profitable methods (efficient use of resources as this can help producers maximize profits)

Whom — those willing and able to pay a favorable price, those with higher incomes can afford to buy more of the national output.

Basic elements are private property, freedom of enterprise, profit maximization and competition. The government’s role is only to provide law and order and to assist in economic development.

55
Q

MIXED MARKET ECONOMY:

A

The economy of Canada

Many elements of a market economy with some characteristics of command and market

Government regulates and influences some industries (transportation, alcohol, CBC television) to provide essential services, to promote economic development and to support Canadian culture and identity.

56
Q

Factors of production

A

NATURAL RESOURCES:

CAPITAL RESOURCES:

HUMAN RESOURCES:

Examples: physical efforts of humans, mental efforts of humans.
Production of goods

ENTREPRENEURIAL RESOURCES:

Examples: the ability to combine the other factors together in a better way, or to produce new results, the willingness to take risks.

57
Q

Scarcity

A

is when there are unlimited wants and needs, but limited resources

58
Q

normative statements vs. positive statements

A

POSITIVE:
Economics is fact-based

NORMATIVE:
Economics are opinion-based

business (2 decks)

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