Economics Flashcards
What is average cost?
-cost per unit of output
-AC is obtained by adding the average fixed cost & the average variable cost
-when the total cost is divided by the total output
-AC declines in the first stage, reach minimum & later increases continuously with output
- average cost curve is U-shaped
Explain marginal cost.
-change in total cost as a result of producing an extra unit of output
-defined as the additional cost incurred in producing an additional unit of output
-MC declines in the first stage, reaches its minimum and then increases continuously with output level
-marginal cost curve is U-shaped
Internal diseconomies of scale (explain graph)
-refer to the problems & disadvantages face by the firm itself arising from the actions inside the firm itself
-average cost of production is increasing, indicated by the upward sloping of the long-run average cost (LRAC) curve
-long run average cost increase from C0 to C1 when output increases from Q0 to Q1
-shown by the movement of point upwards along the long-run average cost curve from point b to point c
-indicated by upward sloping section of the LRAC
What is oligopoly?
-consists of a few large firms
-each firm able to influence the market price by its own action as it is a situation where the market is dominated by a few large firms
-products sold can be homogeneous or differentiated
-example: television broadcasting, petroleum company
Characteristics of oligopolistic market
-few sellers
-the products are homogeneous or differentiated
-mutual interdependence
-barriers to entry
Advantages of international trade
-the availability of a variety of goods and services
-increase in efficiency of production
-wider market
-increase competition
-economic development
Types of Protectionism
- Quotas
-takes the form of a physical limitation on the quantity of a good which is allowed to be imported into the country in a given year
-eg: government limits the imports of luxury cars like Rolls-Royce cars to 10 units per year
-once quota reached, no more RR car allowed to be imported to the country in that particular year
-quota do not generate any revenue to government
-implementation of quota would raise import prices and at the same time, reduce the demand for imports - Embargo
-complete ban on imports of goods from particular country
-carried out between countries of different ideologies
-eg: Malaysian government places an embargo on all good from Israel
Definition of balance of payments
-BOP is a record that shows all transactions made between one particular country and all other countries during specific period of time
-BOP indicates the amount of export and imports of goods and services, and all financial movements
-includes the total receipts received by one country and the total payment made by that country during specific period of time
-BOP is calculated every quarter and every calendar year
-determine the inflow and outflow of money of a country during specific period of time
-if country received money, it will be recorded as credit
-if country paid or given money, it is recorded as debit
-BOP surplus means more money is flowing into the country compared to outflow of money
-BOP deficit means more money flowing out the country than money flowing into
Structure of BOP account
-current account
-capital and financial account
-official reserve account
What is financial account?
-records the forms of investment overseas by Malaysians & the inward flow income in the current account
-made up of direct investment (building a factory/takeover a firm in another country by Malaysian individuals or companies), portfolio investment (purchase and sale of government bonds and shares, money deposit into foreign banks) & other investments
-investments can be short-term investment/long-term investment
-capital & financial account will be surplus (inflow of capital movement and investments > outflow of capital movement and investments) vice versa deficit
Advantages of fixed exchange rate system
- Promotes international trade
-FER ensure certainty in the foreign payments among exporters & importers
-exporters & importers of goods can agree on price and contracts can be settled as they are not subject to the risk of changes in the exchange rate
-this situation inspires confidence among exporters & importers
-help to promote international trade - Promotes international investment
-by maintaining a fixed exchange rate, it gives certainty to investors & encourages investment
-if the exchange rates fluctuating, lenders & investors will not be prepared to lend for long-term investments
-under fixed exchange rate, negotiation of long term contract, granting of long term credit & undertaking of long-term foreign investment become less risky - Remove speculation
-FER eliminate speculative activities in the international transactions
-speculation flows can destabilize an economy & the incentive to speculate is very small when exchange rate is fixed
-buying and celling of currencies with the aim of making profits will be minimized
-situation of panic capital movement from one country to another does not arise in the FERS
-FER is necessary especially for developing countries in carrying out planned economic development policies
Characteristics of a developed economy
- High level of national income
-developed economy=industrialized economy
-has high gross domestic product (GDP) & income per capita
-due to the high level of industrialization, advanced technology, modern infrastructure available in the economy
-practices large scale production–goods are produced & manufactured in large amount (mechanization adopted)
-eg countries: Japan, France, United Kingdom
2.Division of labour
-work is divided into different levels, categories/geographical locations
-workers are required to perform only part of work
-workers become specialised in their job by repeating the same work again and again
-time saved as workers no need to move from one place to another/change task
-division of labour and specialization inrease productivity & efficiency, quantity & quality of production rises
- Labour force
- generally most workers are highly educated due to the opportunity to pursue academic qualifications
-many training centres available for training of skilled labour
-male & female equality in terms of pay & work benefits
-economy may face labour shortage due to slow population growth (Singapore)
-empty vacancies filled by migration of skilled labour to their countries
-usually have low unemployment rate due to high demand for exports that increase the number of jobs - Infrastructure & Facilities
-modern infrastructure such as express highway, more advanced & efficient public transportation
-urbanisation takes place as majority of population live in cities due to facilities available (school, hospital, university)
-citizens of developed economies benefits from better healthcare
-better healthcare system in developed countries (greater access to healthcare locally & affordable)
-increase the life expectancy in these developed economies
