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Economics > formulas paper 3 > Flashcards

formulas paper 3 Flashcards

1
Q

Percentage Change (%Δ)

A

%Δ = (New - Old / Old) x 100

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2
Q

PED (Price Elasticity of Demand)

A

%Δ in Qd of the product / %Δ in P of the product

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3
Q

Market Equilibrium

A

When Qd = Qs

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3
Q

YED (Income Elasticity of Demand)

A

%Δ in Qd of the product / %Δ in the income of the consumer

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3
Q

XED (Cross Elasticity of Demand)

A

%Δ in Qd of product A / %Δ of P of product B

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4
Q

PES Indicators (Values)

A

PES > 1 - Supply Elastic
PES < 1 - Supply Inelastic
PES = 0 - Vertical Supply Curve (inelastic), 0 response to ΔP
PES = ∞ - Horizontal Supply Curve (elastic)

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4
Q

XED Indicators (Values)

A

Positive Value - Substitutes
Negative Value - Complements

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5
Q

PES (Price Elasticity of Supply)

A

%Δ in Qs of the product / %Δ in P of the product

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6
Q

PED Indicators (Values)

A

PED > 1 - Price Elastic
PED < 1 - Price Inelastic
PED = 1 - Unit Elastic
PED = 0 - Perfectly Inelastic
PED = ∞ - Perfectly Elastic

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7
Q

YED Indicators (Values)

A

YED < 0 - Inferior Good
YED > 0 - Normal Good
YED > 1 - Luxury Good

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8
Q

Real GDP

A

Real GDP = Nominal GDP / GDP Deflator

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8
Q

GDP Per Capita

A

GDP / Population

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8
Q

AD (Aggregate Demand)

A

AD = C + I + G + (X - M)

C: Consumption
I: Investment
G: Government Expenditure
X: Exports
M: Imports

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9
Q

GDP (Gross Domestic Product)

A

GDP = C + I + G + (X - M)

C: Consumption
I: Investment
G: Government Expenditure
X: Exports
M: Imports

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10
Q

Nominal GDP

A

Quantity of goods x Price

or

Real GDP x GDP Deflator

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10
Q

GNI (Gross National Income)

A

GNI = GDP + (Income from abroad - Income sent abroad)

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11
Q

MR (Marginal Revenue)

A

Rate of Change in TR per increase in quantity sold

∆TR / ∆Q

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12
Q

Keynesian Multiplier

A

1 / MPS + MPT + MPM

or

1 / 1-MPC

or

Changes in Real GDP / Initial Change in Spending

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12
Q

MPC (Marginal Propensity to Consume)

A

Change in Consumption / Change in Income

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13
Q

MPS (Marginal Propensity to Save)

A

Change in Savings / Change in Income

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14
Q

MPT (Marginal Propensity to Tax)

A

Change in Tax / Change in Income

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15
Q

MPM (Marginal Propensity to Import)

A

Change in Imports / Change in Income

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16
Q

CPI (Consumer Price Index)

A

( value of basket in Specific Year / value of basket in the Base year ) x 100

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17
Q

Weighted Price Index

A

( Cost of Basket in a specific year / Cost of Basket in the base year ) x 100

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17
Q

Inflation Rate

A

( CPI new - CPI old / CPI old ) x 100

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18
Q

Gini Coefficient

A

Area between the Line of Equality and Lorenz Curve / Entire area underneath the Line of Equality

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19
Q

Unemployment Rate

A

( Number of Unemployed People / Total Labour Force ) x 100

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20
Q

Total Labour Force

A

Total Number of Employed People + Total Number of Unemployed people

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21
Q

TR (Total Revenue)

A

P x Q

P: price
Q: quantity sold

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22
Q

AR ( Average revenue)

A

TR / Q

TR: total revenue
Q: quantity sold

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23
Q

AP (Average Product)

A

The output produced on average by each variable factor of production

TP / V

TP: total product
V: variable factor of production

Total Product / Quantity variable factor of production

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23
Q

TC (Total Cost)

A

TFC + TVC
AC x Q

TFC: total fixed cost
TVC: total variable cost

AC: average cost
Q: quantity produced

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24
Q

MP (Marginal Product)

A

Rate of Change in TP per increase in variable factor of production

∆TP / ∆V

TP : total product
V : variable factor of production

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25
Q

ATC (Average total cost)

A

TC / Q

TC: total cost
Q: quantity produced

total cost per quantity produced

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25
Q

AVC (Average Variable Cost)

A

TVC / Q

TVC: total variable cost
Q: quantity produced

variable cost per quantity produced

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25
Q

AFC (Average Fixed Cost)

A

TFC / Q

TFC: total fixed cost
Q: quantity produced

fixed cost per quantity produced

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26
Q

MC (Marginal Cost)

A

Rate of change in TC per increase in extra unit of quantity produced

∆TC / ∆Q

TC : total cost
Q : quantity produced

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26
Q

TFC (Total Fixed Costs)

A

TC - TVC

TC : total costs
TVC : total variable costs

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27
Q

TVC (Total Variable Costs)

A

TC - TFC

AVC x Q

TC : total costs
TFC : total fixed costs

AVC : average variable costs
Q: quantity produced

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28
Q

Balance of Payments

A

Current Account + Capital Account + Financial Account + Errors = 0

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28
Q

Profit

A

TR - TC

TR : total revenue
TC : total costs

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29
Q

Supernormal (Abnormal) Profit

A

AR>AC

TR>TC

AR : average revenue
AC: average costs

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29
Q

Marshall Lerner Condition

A

PED of Exports + PED of Imports > 1
Has to be elastic in order to have auto-correction of a trade deficit.

30
Q

Subnormal Profit

A

AR<AC

TR<TC

AR : average revenue
AC: average costs

31
Q

Profit Maximization

A

MR=MC

MR : marginal revenue
MC : marginal cost

32
Q

When price is at AC=AR…

A

Normal Profits, Sales Maximized, Break Even, Entry Limit Price.

33
Q

Dynamic Efficiency

A

LR Abnormal Profits

33
Q

Allocative Efficiency

A

D=S
MSB=MSC
P=MC

D : demand
S : supply

MSB : marginal social benefit
MSC : marginal social cost

P : market price
MC : marginal cost

34
Q

Productive Efficiency

A

Minimum point on AC
AC=MC

AC : average costs
MC : marginal costs

35
Q

X Efficiency

A

At any point on AC

36
Q

Minimum Efficient Scale

A

At the lowest quantity when AC stops decreasing

37
Q

Shutdown Condition

A

Will occur when AR<AVC
May Occur when AR=AVC

AR : average revenue
AVC : average variable costs

37
Q

Marginal Utility

A

∆ Total Utility / ∆Q

Q : quantity produced

38
Q

Average Utility

A

Total Utility / Q

Q : quantity produced

39
Q

Utility Maximization

A

Marginal Utility = 0

39
Q

Social Cost

A

Private Costs + External Costs
Can be positive or negative

40
Q

Social Benefit

A

Private Benefits + External Benefits

41
Q

Profit Maximization in the Labour market

A

Marginal Revenue Product = Marginal Cost of Labour

42
Q

Opportunity Cost of good x for comparative advantage

A

opp. of good x =
(quantity of good y) / (quantity of good x)

(lower opp. means that country should produce that good)

43
Q

Value of basket goods for CPI

A

Price of every good in the basket x quantity consumed of each good

44
Q

Average Tax

A

Total Tax / Total Income

45
Q

Tax for progressive tax systems

A
46
Q

Excluded from GDP

A

Transfer Payments

47
Q

Related goods

A

joint supply - 2 goods produced from same FOP

competitive supply - same FOP can only be used to produce 1 good out of multiple goods e.g. land

48
Q

Free good

A

good without opportunity cost

49
Q

Normative statement

A

opinion/value statements

50
Q

Positive statement

A

factual/descriptive statements

51
Q

Demand curve explanations

A

diminishing marginal utility
substitution effect
income effect

52
Q

Supply curve explanations

A

diminishing marginal returns AKA economies of scale

53
Q

Primary commodity

A

goods arising from natural resources, land, agriculture

54
Q

Manufactured goods

A

goods produced with labour and raw materials

55
Q

Sectoral structure of economy

A

primary sector, manufacturing sector, services sector (entertainment)

56
Q

Labour market rigidities

A

(makes wages downward inflexible)
minimum wage,
contracts,
labour unions,
employment protection laws,
unemployment benefits

57
Q

Public goods

A
  • non-rivalrous
  • non-excludable

(often underprovided by market) (market failure) (thus gov. provision)

57
Q

Common pool resources

A
  • non-excludable
  • rivalrous

non-excludable means
resources cannot be restricted/owned, & equally available to everyone equally

rivalrous means use of resources reduces availability for all else

58
Q

Frictional unemployment

A

unemployment when workers are between jobs,

short-run, inevitable, better in LR as seeking better jobs/allocation of workers in economy.

Caused by (asymmetrical information) between employers and workers as they cannot connect is frictional unemployment

59
Q

Seasonal unemployment

A

when demand for labour changes seasonally (life-guards, farmers, tourism sector)

60
Q

Structural unemployment

A

long-term unemployment

caused by fundamental changes

mismatch between the skills workers possess and the skills employers demand

61
Q

CPI definition

A

consumer price index, the measure of cost of living for typical household, by comparing value of basket of goods and services in one year with the value of the same basket in a base year. Inflation is the % change in value of basket. Positive is inflation. Negative is deflation.

weighted CPI - the goods and services are weighted and given more significance based on their importance

62
Q

Sustainable debt

A

level of debt where government has enough revenues to meet debt obligations e.g. interest, repayment, without accumulating arrears (overdue debt payments), whilst sustaining economic growth as limited government spending for debt servicing harms economic growth

63
Q

Measuring government debt

A

government debt is measured as a share of GDP debt-to-GDP ratio

64
Q

Macroeconomic objectives

A

Low unemployment
Low and stable inflation
Environmental sustainability
Increasing potential output or long-run economic growth
Equity in income distribution
Sustainable levels of government debt

65
Q

Poverty

A

inability to satisfy minimum consumption needs

2 types:
- absolute poverty (not have enough income to meet basic human needs)
- relative poverty (the inability to afford goods and services and lifestyle typical to the society) (below 50% median income)

66
Q

Impact of inequality on economic growth

A
  • Periods of economic growth end sooner in countries with unequal income distributions.

Possibly because greater inequality lowers growth because lower income groups cannot invest in human and physical capital, making people more uneducated leading to lower productivity.

  • Higher income groups save & import more
  • civil unrest
67
Q

Marginal tax rate

A

income tax rate paid on additional income as a percentage

68
Q

Average tax rate

A

income tax paid divided by total income as a percentage

69
Q

sources of gov. revenue

A

sources of budget surplus: all types of taxes, profit of government provided g&s, sale of government owned assets (privatisation)

70
Q

sources of Government expenditure

A

sources of budget deficit: current expenditures (day-to-day expenditure by government e.g. operational costs, debt servicing, provision of subsides, wages), capital expenditures (public investment, infrastructure investment, physical capital), transfer payments

71
Q

Benefits of free trade

A

increased competition thus efficiency, lower prices, choice, accessibility, foreign exchange, larger markets, economies of scale, specialisation, technology transfers, interdependence, growth

72
Q

Evaluation of comparative advantage theory

A

assumes that increases global production and consumption, improving global allocation of resources. However, factors of production, technology, labour, capital can change over time improving quality, quantity, decreasing costs of production, so comparative advantage of producing a good can change. Changing production from a good without comparative advantage to a good with comparative advantage can in of itself have high opportunity costs which prevent specialisation away from disadvantageous production to advantageous production. Imperfect free trade. Quality of producing a good is the same by every country. Comparative advantage changing with economic growth from agricultural sector to manufacturing sector, however, persisting in comparative advantage and production in agricultural sector may hinder development into manufacturing sector. Vulnerability from over-specialisation, becoming too dependent on specific exports, and specific imports

73
Q

Economic integration

A

refers to economic co-operation between countries and co-ordination of their economic policies (usually an agreement to reduce trade barriers)

74
Q

Preferential trade agreement (PTA)

A

agreement between countries to lower trade barriers from imports from one another.

All PTA’s objective is to promote trade liberalisation.

Bilateral trade agreement is a PTA with 2 countries.

Multilateral trade agreement is a PTA with many countries.

Regional trade agreements is a PTA between a group of countries within a geographical region.

75
Q

levels of econ. intergration in trading blocs

A

Lowest degree of economic integration trading bloc - free trade area (agreement) is a group of countries which agree to gradually eliminate trade barriers.

Middle degree of economic integration trading bloc - customs union is a group of countries that has fulfilled the free trade area agreement and eliminated trade barriers between members. Additionally, each country in a customs union must agree on new trade policies towards non-member countries AKA common external policy

Highest degree of economic integration trading bloc - common market is (development past a customs union to include) when countries allow free movement of factors of production within the common market (e.g. labour) can travel freely and find employment in all member countries.

76
Q

trading bloc

A

Trading bloc - trading bloc is a group of countries that have PTA (multilateral) agreeing to reduce tariffs and other protections

77
Q

Disadvantages of trading blocs

A

trade diversion | trade conflicts between trading blocs, slowing down PTAs and WTOs global trade liberalisation. | loss of sovereignty due to common external policy

Trade diversion - although a country outside of a trading bloc may have C.A. , there may be greater imports from a country within the trading bloc without C.A. instead of perfect C.A.

78
Q

Advantages of trading blocs

A
  • advantages of free trade + increased FDI, bargaining power, trade creation
79
Q

purpose of trade

A

promoting trade promotes economic development

  • trade specifically important for developing countries to achieve econ. growth
  • 2 key gov. policies to stimulate trade 4 econ growth
    (1 protectionism) (2 free-market)
  • intention of these policies (increase employment but also to break away from over dependance on primary products and rely on technology based production instead)
    e.g. manufacturing
  • import substitution industrialisation
    seeks to in LR achieve industrialisation
    use protectionist policies on imports of manufactured goods to give domestic manufacturing industries to grow. thus moving away from primary commodity dependence
    (protects domestic jobs) (no reliance on MNC for growth & development & avoids MNC negatives) (CONS: LR restricts growth from protectionist retaliation, restricting import of capital goods, restricting size of markets open to trade, and super bad if domestic industries cannot gain comparative advantage then LR unemployment, world efficiency losses, neg of protectionism etc)
  • export promotion (complete free trade, 0 protectionism) (pros: encouraging job growth & competition, revenues gained from trade then used to advance tech & manufacturing base) (e.g. asian tigers) (pros; SR developing countries can exploit comparative advantage in primary products, then gain loads in SR, then in LR those revenues can fund human capital then developing manufacturing industry) (CONS: protectionism may occur abroad limiting this, income inequality due to not all industries trade, cons of MNCs)
  • trade liberalisation
    (freeing up markets without any interferences from governments, reduce gov. spending, control over debt/budget deficit, deregulation, market liberalisation, privatization, trade liberalisation, free exchange rates, no protectionism) (PROS: less market failure, effective use of resources, sustainable LR growth from AE, stability in econ, investment & FDI, more jobs etc) (CONS: SR econ inequality, more poverty creation from MNCs, cons of MNCs, neg. externa enviro, fiscal cuts in e.g. healthcare preventing human capital)
  • bilateral trade agreements & region PTAs
    (encouraging econ integration, pros of free trade, gains of specialisation etc, lower transport costs from greater access, greater profit & jobs, more growth) (CONS: risk of coincidence of wants, increase in COP because import at higher costs outside of PTA, more barriers outside PTA, overseas trade barriers)
  • diversification
    (PROS: crucial to get away from agricultural dependance, towards LR sustainable growth, diversification is develop manufacturing base, greater avenues of growth, avoids resource curse argument of exporting primary goods as they have fluctuating & volatile prices, promotes new tech, exports more varied G&S thus opening greater change 4 profit, job&income creation, more skills in workforce & good for LR productivity,) (CONS: tariff escalation, & higher tariffs on manufacturing goods, if education cannot generate higher skilled workers then this may not be feasable)
80
Q

barriers to trade & development

A
  • limitations to reliance on trade
  • ‘resource curse’ (developing countries rely on export of primary commodities 4 growth, trade & development) however this dependence is vulnerable to price falls of primary goods (then export rev. falls, purchasing inputs is harder, income fall, profits fall, less investment), vulnerable to depletion of primary resources as they are not infinite resource (thus closing key avenue for growth) thus primary commodity exports is unsustainable pursuit of development, vulnerable to slow demand for primary commodities thus falling price of primary commodities
  • susceptible to price fluctuation because inelastic PED & PES for primary goods (necessity goods, less substitutes, long time to produce/harvest) thus any shift to D or S then there will be huge price swings (bad for LR stability , less investment , uncertain export revenue)
  • access to international markets is super limited for developing countries (bc. developed countries have protectionist policies on primary goods) (also tariff escalation as tariffs on manufactured goods are higher thus discouraging manufacturing exports for developing countries) (non-convertible currencies of developing countries reducing potential for trade)
  • LR decline in terms of trade for deve countries
    (export prices relative to import prices fall making it harder to sustain revenue thus growth & develop) (purchasing capital is more difficult & countries trade in primary commodity dependance)
    (LR decline terms of trade will decline from specialisation in export of primary commodities. this is because YED for exports & imports due to wealth effect | primary commodities are inelastic YED thus as world is wealthier the demand for manufacturing goods increases NOT primary goods which are capital imports that developing countries do NOT export and thus cannot benefit from, thus increasing price of manufactured goods massively more relative to primary goods thus primary exporting countries do not benefit from world econ growth & imports for developing country also become more expensive harming quality of life)
  • terms of trade is index of export prices/index of import prices x100
81
Q

FDI & development

A

FDI is when firm has major head quarters in another part of the world but operates in a branch or part of business in another part of world

MNCs would what to do this because: (1) developing countries are abundant in natural resources (2) the markets where MNCs do FDI could be emerging big markets which lots of potential for profit (3) lower costs of labour in developing countries (4) developing countries have less regulations and standards

Pros:
- FDI is injection, more employment, increase LRAS
- more investment thus human capital
- positive effect on BoP (balance of payments)
- MNCs can promote infrastructure development like human capital 4 progress
- increased domestic productivity to compete against MNCs
- technological transfer as MNCs are better at research & development
- increased tax revenue from MNCs (more income tax from jobs, corporation tax from MNCs, VAT aswl)

Cons:
- employment benefits may be SR no guarantee MNCs will stay. No guarantee MNCs will employ domestic workers
- MNCs may exploitative & use power for better tax position, influence politics
- MNCs may deplete resources
- environmental costs
- tax revenue collection may be lower than expected bc. gov give tax breaks to MNCs
- MNCs may get around taxes

82
Q

Foreign Aid & Development

A

https://www.youtube.com/watch?v=SyFV65I6y9E&t=41s&ab_channel=EconplusDal

Foreign aid fills savings gap in developing countries to promote dev.

lack of savings is barrier to development

Forms of aid:
(1) official development assistance
(2) unoffical not from a country

(1) humanitarian aid
- allivate SR suffering
- food, medical, emergyency aid

(2) development aid
- LR loans
- Tied aid
- Project aid
- Technique assistence aid
- commodity aid

  • injection into economy
83
Q

depreciation is a shift in..

A

increase in supply for currency

84
Q

apreciation is a shift in..

A

increase in demand for currency

85
Q

current account has:

A

trade balance
income
current transfers

86
Q

financial account has:

A

FDI
portfolio investment
reserve/official assets
official borrowing

87
Q

capital account has:

A

capital transfers
transactions of in-producted, non-financial assets

88
Q
A

Economics (5 decks)

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