Economics mixed. Flashcards
Multiplier Equation
1/1-MPC
When the Gini coefficient=0
There is perfect equality.
When the Gini coefficient=1
There is perfect inequality.
How do you work out the Gini coefficient using the the area Above and Beneath the Lorenz curve?
A/A+B
If the price is above the market equilibrium there will be…
Excess supply.
If the price is below the market equilibrium there will be…
Excess demand.
Give an example of joint demand.
Cars and fuel or fish and chips.
Give an example of joint supply.
Beef and leather.
Give an example of composite demand.
Land can be used for building houses or shopping centres.
Give an example of derived demand.
The demand for pilots is derived from the demand for long-distance travel for holidays and business trips.
MPC=
Marginal propensity to consume. MPC of 1 means that all of any additional income is spent.
What is Accelerator theory?
Increases or decreases in the rate of growth of national income will lead to even larger increases or decreases in the level of investment. This is because firms will need a higher productive capacity to meet the higher level of spending.
List 5 things that affect AD.
Interest rates. Consumer confidence. Taxation. Wealth. Unemployment. Investment.
Why do higher interest rates reduce AD? (3 points)
Those who have variable-rate mortgages now have less money to spend.
Puts people off purchasing things on credit.
Higher interest rates increase the reward to save which reduces MPC.
Why does poor consumer confidence reduce AD?
If people feel that their income is likely to fall or that their jobs are insecure then they are likely to reduce their consumption.
Why does increased taxation reduce AD?
Reduces disposable income.
What are the 5 main determinants of investment?
Interest rates. Business confidence. Tax Technology. Accelerator Theory.
What are the 4 main government objectives?
Stable prices (low inflation)
Steady and sustained economic growth
Low unemployment or full employment
A balanced balance of payments
Name 4 determinants of SRAS.
Wage rates. Changes in the cost of raw materials. Business taxation. Productivity. Exchange rate changes.
Name 4 determinants of LRAS.
Technology. Productivity. Factor mobility. Enterprise. Economic incentives and attitudes.
PED=
% change in Q demanded/% change in price
What does an inelastic demand curve look like?
Steep.
What does an elastic demand curve look like?
Flat.
% change=
(change/original) x 100
What does PED= when the good is inelastic?
Between 0 and 1.
What does PED= when the good is elastic?
Greater than 1 (ignoring the - sign).
What does PED= when the good is unitary elastic?
1.
What does PED= when the good is perfectly inelastic?
- A change in price won’t change the quantity demanded,
List 4 determinants of PED.
Availability of close substitutes. % of income spent on the product. Nature of the product. (luxury or necessity) Time period. Broad or specific market definition.
Income elasticity of demand (YED)=
% change in Q demanded/% change in real income.
What does YED= when the good is elastic? And what is a good like this called?
More than +1. A luxury good.
What does YED= when the good is inelastic? And what is a good like this called?
Between 0 and +1. A basic good or a necessity.
What does YED= when the good is negatively income elastic?And what is a good like this called?
Less than 0. An inferior good.
Cross elasticity of demand (XED)=
% change in Q demanded of product A/% change in price of product B
What does a positive XED mean?
The goods are substitutes.
What does a negative XED mean?
The goods are compliments.
