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economics atar y11 > Exam semester 1&2 > Flashcards

Exam semester 1&2 Flashcards

1
Q

What is economics?

A

The study of human behaviour of how we use our scarce recourses to meet our wants and needs. Limited resources, unlimited wants

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2
Q

Define Land:

A

Natural resources

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3
Q

Define Labour:

A

mental or physical effort

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4
Q

Define Capital:

A

equipment used to produce final goods and services

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5
Q

Define Enterprise:

A

the manager. They choose how much land, labour and capital is used

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6
Q

What are economic systems?

A

an economic system describes how a countries economy is organised. Every country needs a system to determine how to use its productive resources

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7
Q

Name the 4 economic systems:

What are the characteristics of a traditional economy?

A

economic decisions are based on customs and beliefs. People will make what they always made and will do the same work their parents did

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8
Q

Name the 4 economic systems:

What are the characteristics of a Command economy?

A
  • government makes all economic decisions and owns most of the property.
  • Determine prices of goods/services and the wages of workers
  • This system has not been very successful
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9
Q

Name the 4 economic systems:

What are the characteristics of a Market economy?

A
  • economic decisions are guided by the changes in prices that occur as individual buyers and seller interact in the marketplace.
  • Most of the resources are owned by private citizens
  • Based off free enterprise
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10
Q

Name the 4 economic systems:

What are the characteristics of a Mixed economy?

A

market and command = mixed. There are no pure command and market economies. To some degree, all modern economies exhibit characteristic of both systems and are often referred to as mixed economies

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11
Q

What is the law of supply?

A

when the price (cost) of a good increased then a firm will increase supply

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12
Q

What are factors that effect supply?

A

Price, Number of suppliers, Legislation- bans, Tax, Resources (L, L, C, E) – cost of production, Weather/climate, Technology

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13
Q

What is the Law of demand

A

when a price of a good increases then demand will decrease

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14
Q

What are factors that effect demand?

A

Announcements, Availability of credits, Substitutes + complimentary, Seasons- agriculture, Preferences, Population, Tastes, Demographics, Disposable income

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15
Q

explain equilibrium in relation to supply and demand

A

The price at which supply equals demand for a product, when supply and demand curves intersect

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16
Q

what is a competitive market?

A

A competitive market is one where there are numerous producers that compete with one another in hopes to provide goods and services we, as consumers, want and need. In other words, not one single producer can dictate the market.

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17
Q

what is a non-competitive market?

A

A market is not competitive when the agents acting in such a market have the power to influence the price, directly or indirectly, something that does not occur under perfect competition.

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18
Q

what is perfect competition?

A

perfect competition occurs when all companies sell identical products, market share does not influence price, companies are able to enter or exit without barrier, buyers have “perfect” or full information, and companies cannot determine prices.

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19
Q

what are price factors?

A

The unit cost of using a factor of production, such as labour or physical capital

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20
Q

what are non-price factors?

A

Increase in income, Decrease in income, Price of substitutes, Price of complimentary goods, Tastes and preferences, Future expectations

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21
Q

define substitutes:

A

something that takes the place of another thing

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22
Q

define complimentary:

A

combining to enhance or emphasize the qualities of each other or another

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23
Q

Types of demand:

- what is individual demand?

A

influenced by an individual’s age, sex, income, habits, expectations and the prices of competing goods in the marketplace

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24
Q

Types of demand:

- what is marketdemand?

A

the same factors as individual except it’s the expectations of a community and so on

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25
Q

Types of markets:

what is the factor and product market?

A

Factor market: where factors of production are bought and sold e.g., raw materials, steel, metal, plastic

Product market: the product market is the marketplace where final goods or services are sold to businesses and the public sector

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26
Q

what is efficiency

A

The production of goods and services that society wants at the lowest possible cost

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27
Q

what is market efficiency?

A

Market efficiency: all resources are being used effectively

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28
Q

what is technical efficiency?

A

Technical efficiency: producing goods and services at the lowest possible cost e.g., robots

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29
Q

what is allocative efficiency?

A

Allocative efficiency: resources are being used to make the products that people want. When the value consumers place on a good or service equals or exceeds the cost of the resources used up in productio

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30
Q

what is dynamic efficiency?

A

Dynamic efficiency: able to adapt to change relatively easily and at lowest cost. Implementing better work practices

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31
Q

what is consumer surplus?

A

The difference between maximum price consumers is willing to pay vs what they pay

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32
Q

what is producer surplus?

A

The difference between what the producer is willing to receive vs what they receive

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33
Q

what is total surplus?

A

The value of the consumer surplus + the producer surplus

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34
Q

what is dead weight loss?

A

Market inefficiency. The decrease in total surplus that results from an inefficient allocation of resources

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35
Q

What is a price ceilling?

A
  • the maximum price that sellers are allowed to charge in the market.
  • Its purpose is to lower prices to consumers
  • A price ceiling results in a shortage because quantity demanded is higher than quantity supplied
  • May increase CS, but PS decreases by more causing a dead weight loss in the market
36
Q

what is a price floor?

A
  • the minimum price that sellers are allowed to charge in the market
  • Its purpose is to raise the income of producers
  • A floor results in a surplus because the quantity sellers are willing to sell exceeds the quantity buyers wish to purchase
  • May increase producer surplus, but consumer surplus decreases by more causing a dead weight loss in the market
37
Q

define price elasticity of demand

A

the responsiveness of quantity demanded to a change in the price of the good or service

38
Q

what are the types of elasticity? name and define:

A
  • Elastic: demand is said to be elastic when a change in price leads to a more than proportional change in the quantity demanded
  • Inelastic: demand is said to be inelastic when a change in price leads to a less than proportional change in the quantity demanded
  • Unitary: demand will change by the same proportion as the price change – basically impossible to get
39
Q

formulas for PED:

A
  • The point method: Ed = change in quantity/quantity x price/change in price
  • The midpoint method: Ed= change in quantity/quantity average x price average/change in price
  • Total revenue: P x Q
  • Income elasticity of demand: % change in quantity/% change in income
40
Q

What are the determinants of PED? name and define:

A
  • The availability of substitutes: the greater the number of close substitutes a good has, the more price elastic its demand.
  • necessity or a luxury good: we would exact to find that necessity type goods such as basic items of food will be more price inelastic than luxury type goods such as jewellery, designer handbags, and French champagne. Goods such as bread, milk and rice will be relatively inelastic in demand because these are essential food groups.
  • The proportion of income spent: expensive goods are likely to be relatively price elastic because they take up a larger proportion of a consumer’s income or budget. Cheaper, inexpensive items on the other hand, will be relatively price inelastic. E.g., if the price of a coffee were to increase from $4-$5- a 25% increase, it is unlikely to cause a significant decrease in the quantity demanded if coffee in comparison if a TV price rose.
  • Time: if consumers have time to respond to a price change, then demand will be more price elastic. In the very short run, demand for most commodities will be relatively inelastic because consumers do not have the time to adjust their consumption or find substitute products. As the time period increases though, it becomes easier to change consumption patterns and so demand becomes more elastic
41
Q

define price elasticity of supply:

A

Measures the responsiveness of quantity supplied to a change in price. To calculate PES, we use the same formula as PED except that we use quantity supplied rather than quantity demanded.

42
Q

What are the determinants of PES? name and define:

A
  • Time: if the producer can respond quickly to a price change, then supply will be price elastic. In the very short run, it may be difficult for a producer to suddenly increase output, especially if inventories are low. Supply will therefor tend to be price inelastic, as I’m increases, producer will be able to obtain more inputs and expand output more easily.
  • Nature of the industry: the supply of agricultural products tends to be relatively price inelastic, while the supply of manufactured goods is more price elastic. Products such as wheat, wool and meat require a reasonable amount of time to produce. If the price of wheat suddenly increases, farmers cannot quickly respond, they must wait for the next growing season.
  • Ability to store inventories: If a producer can store or warehouse its goods, then it can respond quickly to a change a demand and so supply would be relatively elastic. Supermarkets can store non-perishable goods in large warehouses and ship them whenever a store runs out of product. Goods that are perishable such as fresh fruit and vegetables cannot be stored readily and so their supply would be relatable inelastic.
43
Q

define market failure:

A

Markets sometimes fail to produce efficient results because the necessary conditions do not exist

44
Q

define market power:

A

Market power refers to the ability of a firm to influence the price at which it sells a product or service to increase economic profit. In other words, market power occurs if a firm does not face a perfectly elastic demand curve and can set its price above marginal cost without losing sales.

45
Q

what are rival goods:

A

Does consumption by one person reduce the supply available to another person? A rival good is a type of product or service that can only be possessed or consumed by a single user. When a good is rival in consumption, it may be subject to strong demand and fierce competition—factors that tend to drive up prices.

46
Q

what are non-rival goods:

A

non-rival goods are public goods that are consumed by people but whose supply is not affected by people’s consumption. When an individual or a group of individuals use a particular good, the supply left for other people to use remains unchanged. Therefore, non-rivalrous goods can be consumed over and over again without the fear of the reduction of supply.

47
Q

define excludable goods:

A

Excludable goods are private goods, while non-excludable goods are public goods. For example, while everyone can use a public road, not everyone can go to a cinema as they please. To enter one, a person needs to purchase a ticket, and their purchase of a ticket excludes someone else because seating is limited.

48
Q

what are non-excludable goods:

A

A product that is non-excludable means that it is difficult or even almost impossible to prohibit any person from using the good. Example: if a local government puts up a flood control system in a city close to a river to protect it from extreme weather conditions, everyone in that community or city benefits from flood control system even if they don’t agree with it.

49
Q

what are public goods?

A

In economics, a public good refers to a commodity or service that is made available to all members of a society. Typically, these services are administered by governments and paid for collectively through taxation.

  • Goods that are non-excludable and non-rival
  • law enforcement, national defence, and the rule of law, access to clean air and drinking water.
  • Examples of public services include health care, transport, electricity, gas
  • This means they cannot be priced by the market, due to free riders, and so would not be provided at all under a free market.
50
Q

who provides public goods?

A
  • Government spending and taxes
  • markets can produce public goods. The radio, for example is nonexcludable since once the radio signal is broadcast, it would be very difficult to stop someone from receiving it.
  • The private market doesn’t always (rarely) provide public goods because the private market is profit-driven, it produces only those goods for which it can hope to earn a profit. That is, it will not produce public goods.
51
Q

what is the free rider effect?

A

It is considered an example of a market failure (an inefficient distribution of goods or services) that occurs when some individuals are allowed to consume more than their fair share of the shared resource or pay less than their fair share of the costs. It occurs with goods where there is non-excludability.

Free riding prevents the production and consumption of goods and services through conventional free-market methods. To the free rider, there is little incentive to contribute to a collective resource since they can enjoy its benefits even if they don’t. Therefore, the producer of the resource cannot be sufficiently paid. The shared resource must be subsidized in some other way, or it will not be created. The government reduces the free rider problem by collecting taxes from consumers to help fund public goods.

52
Q

why do public goods suffer from the free rider effect?

A

Public goods are non-excludable goods, meaning that they are goods that are made available to everyone and are normally funded for free to the public through government taxation. An example is if a coastal town builds a lighthouse, ships from many countries and regions will benefit from it, even though they are not contributing to its costs, and are thus free riding the navigation system.

Public goods suffer from the free rider effect because there is no way they can stop it. You can’t expect if you build a flood prevention system in a community that only the people who are citizens of that community use it, because if there are people from other places visiting there, they will have to use it too.

53
Q

examples of free rider problems:

A

·Security guards: If your neighbourhood has seen a rise in crime, residents could pay for a security guard. Everyone in the street will benefit from a security guard, but there is a temptation to not pay towards the cost but hope that other people provide the public good of improved security.

·Cleaning up: If your neighbourhood is full of litter, if someone picks it up, everyone benefits from a cleaner environment. But there is an incentive to hope someone else does the cleaning.

·Flood Defences: Getting everyone in a city of one million to contribute would be difficult, because of the incentive to free ride

54
Q

solution to fix free rider effect:

A

Introduce a tax: introducing a tax will make sure that everyone will contribute to a good/service (such as national defence) and will also benefit from it too. Although placing a tax on a public good is not possible because they are non-excludable, there is an ability to place a tax on the cost of production, which forces the producer to pay. This will result in a decrease in quantity supplied which means there is a lesser chance for people to free ride.

55
Q

what are merit goods?

A

A merit good/service is when something is consumed, provides external benefits, although these may not be fully recognised. Merit goods are goods and services that the government feels that people will under-consume

56
Q

what are some examples of merit goods?

A
  • education and healthcare
  • An educated population brings widespread benefits to the society. Crime rate decreases and productivity increases. This leads to a more successful population, a higher standard of living and for governments, higher tax revenues.
57
Q

what is underconsumption

A

The purchase of goods and services at levels that fall below the available supply. Inadequate consumer demand in relation to the production of a particular good or service results in underconsumption.

58
Q

what are some examples of underconsumption?

A

Education and health care are both examples of merit goods. They are both supplied at a price in private markets. But if their supply was left completely to the free market, it is likely that there would be significant under-consumption of these goods. This is because the value some individuals place on these services is less than the value society places on them. Not everyone can afford private education or could pay expensive hospital and medical bills. The substantial social benefits associated with these goods often results in the government intervening to supply them at a heavily subsidised (reduced) price to encourage greater community consumption.

59
Q

solutions to fix underconsumption

A
  • Introduction of subsidies lowers the cost of production

- Introduce a price floor

60
Q

What are common resources?

A

Common goods are goods that are rivalrous and non-excludable. This means that anyone has access to the good, but that the use of the good by one person reduces the ability of someone else to use it.

-These goods are non-exclusive, but they are rival in nature, tend to be found in the environment

61
Q

what is tragedy of the commons?

A

An economic problem that results in overconsumption and the depletion of a resource that is mutually shared. In the tragedy of the commons, the goods are non-excludable and rival and there is limited stock so people overbuy/use products and there will be none left in the future.

62
Q

what are examples of tragedy of the commons?

A

Overfishing: As the global population continues to rise, the food supply needs to increase just as quickly. Overhunting and overfishing have the potential to push many species into extinction. Fish stocks in international waters: no one is excluded from fishing, but as people withdraw fish without limits being imposed, the stocks for later fishermen are potentially depleted.

63
Q

what are solutions to fix tragedy of the commons?

A
  • Introduce a tax: Introducing a tax will increase the price on certain items, meaning that less people will be able to buy a large amount. When in the past people were able to buy products in bulk at a cheap cost, now they will have to pay a lot more money to buy products in bulk.
  • Introduce a price ceiling: By introducing a price ceiling this will place restrictions on allowing prices to fall. This means that prices will stay at a more expensive price, meaning that less people can afford to get the product.
64
Q

Business practices that reduce competition:

what is a cartel?

A

Cartel: companies work together to price fix; other companies can’t compete. A cartel is a collection of independent business organisations that collude to manipulate the price of a product or service. Cartels are competitors in the same industry and seek to reduce that competition by controlling the price in agreement with one another.

65
Q

Business practices that reduce competition:

what is a collusion?

A

Collusion: when 2 companies work together to share market and price. (Secret or illegal)

66
Q

Business practices that reduce competition:

what is market sharing?

A

Market sharing: 2 companies share markets, don’t compete but undermine other companies coming in.

67
Q

Business practices that reduce competition:

what is collusive tendering?

A

Collusive tendering: all companies all put in a price higher than the tender to make a profit

68
Q

Business practices that reduce competition:

what is collusive bidding?

A

Collusive bidding: bidders of an auction bid in a pre-determined manner to set a price and negotiate.

69
Q

Business practices that reduce competition:

what is predatory pricing?

A

Predatory pricing: when a company with significant market share lowers the price of same or all of their goods below cost price

70
Q

Business practices that reduce competition:

what is resale price maintenance?

A

Resale price maintenance: the supplier tells the re-saler how much they can charge. They charge a recommended price

71
Q

Business practices that reduce competition:

what is exclusive dealing?

A

Exclusive dealing: one supplier gives advantages to one company over another

72
Q

Business practices that reduce competition:

what is collective boycott?

A

Collective boycott: when a group of competitors agree not to purchase goods and services from another company

73
Q

Business practices that reduce competition:

what is a merger?

A

Merger: when 2 or more companies join together e.g., Quantas and Japanese airlines

74
Q

What is macroeconomics?

A

The study of the economy as a whole. Macroeconomics is a branch of economics dealing with the performance, structure, behaviour, and decision-making of an economy as a whole. For example, using interest rates, taxes, and government spending to regulate an economy’s growth and stability. This includes regional, national, and global economies.

75
Q

what is microeconomics?

A

Microeconomics is a branch of economics that studies the behaviour of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms

76
Q

what are microeconomic indicators? name and define

A
  • Leading: in the future, new home loan approval, new job advertisement
  • Lagging: what happened in the past, debt levels
  • Coincidental: occurs at the same time as the business cycle, GDP, inflation, unemployment
77
Q

when is equilibrium achieved in the circular flow of income?

A

The equilibrium level of national income occurs when injections (J) into equals to withdrawals (W) from the circular flow of income. Which means the sum of savings, taxation and import spending (S + T + M) equal to investment, government spending and export revenue (I + G + X)

78
Q

What are the stages in the business cycle? name and define

A

Trough: the stage in the business cycle where activity is bottoming or where prices are bottoming before a rise. marks the end of a period of declining business activity and the transition to expansion

Upswing/recovery: a recovery period in the trade cycle. 2. an upward swing or movement or any increase or improvement.

Boom/peak: An economic boom is the expansion and peak phases of the business cycle. During a boom, key economic indicators will rise. Gross domestic product (GDP), which measures a nation’s economic output, increases.

Downswing: A downswing is a downward turn in the level of economic or business activity, often caused by fluctuations in the business cycle or other macroeconomic events.

79
Q

What is aggregate expenditure?

A
  • Aggregate expenditure is the measure of national income.
  • The sum of C + I + G + (X-M)
  • All the money that is injected into the economy.
  • Total Spending
80
Q

What are the components of aggregate expenditure?

A
  • Consumption by households: Household final consumption expenditure covers all purchases made by resident households (home or abroad) to meet their everyday needs: food, clothing, housing services (rents), energy, transport, durable goods (notably cars), spending on health, on leisure and on miscellaneous services. Factors affecting include income, wealth, expectations about the level and riskiness of future income or wealth, interest rates, age, education, and family size.
  • Investment by businesses: An investment is an asset or item that is purchased with the hope that it will generate income or appreciate at some point in the future. … An investment can refer to any mechanism used for generating future income, including bonds, stocks, real estate property, or a business, among other examples. Factors affecting interest rates, economic growth, inflation, productivity of capital
  • Government spending on goods and services: Government spending is spending by the public sector on goods and services such as education, health care and defence. Factors affecting; The business cycle: Australia’s position in a trough, overseas business cycle, government policy objectives
  • Net exports: Net exports are a measure of a nation’s total trade.
  • The formula for net exports: The value of a nation’s total export goods and services - the value of all the goods and services it imports, = its net exports.
  • A nation that has positive net exports enjoys a trade surplus, while negative net exports mean the nation has a trade deficit. A nation’s net exports are thus a component of its balance of trade. Factors affecting domestic and foreign incomes, relative price levels, exchange rates, domestic and foreign trade policies, and preferences and technology. A change in the price level causes a change in net exports that moves the economy along its aggregate demand curve
81
Q

what is MPC?

A

Marginal Propensity to Consume (MPC): The proportion of an aggregate raise in pay that a consumer spends on the consumption of goods and services, as opposed to saving it.

82
Q

What is MPS?

A

Marginal Propensity to Save (MPS): used by economists in order to quantify the relationship between changes in income and changes in savings. It refers to the proportion of a raise in pay that a consumer saves rather than uses for consuming goods and services.

83
Q

What is economic growth?

A

Economic growth: The increased capacity of an economy to satisfy more of its consumers wants and needs over a given period

  • We aim for 3% economic growth
  • We show economic growth on a PPF curve (production possibility frontier)
  • Economic growth results in an outward shift in the production possibility curve.
  • A country’s economic growth is measured by comparing the level of Gross Domestic Product (GDP) from one year with that from another.
84
Q

What is GDP?

A

GDP: Gross Domestic Product is the total value of all goods and services produced or consumed within an economy in a given period usually one year.

  • Economists must avoid problems such as inflation by comparing GDP figures for the year at current prices and adjusting them according to price rises over the same period.
  • If prices rose by 10% a year, then the GDP would also rise by at least 10%. However, this rise must be considered because the economy has not increased the capacity to satisfy the wants of consumers, the prices have simply increased.
  • A Gross Domestic Product figure which has not been adjusted for changes in price levels (eg: inflation) is termed nominal GDP.
85
Q

What are the types of GDP?

A

Nominal GDP = Real GDP x Price Index for the Given Year / 100

Real GDP = Nominal GDP (GDP at Current Prices) / Price Index for the Given Period x 100/1

Nominal includes inflation
Real doesn’t include inflation- real is better

economics atar y11 (1 decks)

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