formulas paper 3 Flashcards

Question

Inflation Rate

Answer 1

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

Answer 2

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

Answer 3

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

Answer 4

Total Number of Employed People + Total Number of Unemployed people

Answer 5

P x Q P: price Q: quantity sold

Answer 6

TR / Q TR: total revenue Q: quantity sold

Answer 7

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

Answer 8

TFC + TVC AC x Q TFC: total fixed cost TVC: total variable cost AC: average cost Q: quantity produced

Answer 9

Rate of Change in TP per increase in variable factor of production ∆TP / ∆V TP : total product V : variable factor of production

Answer 10

TC / Q TC: total cost Q: quantity produced total cost per quantity produced

Answer 11

TVC / Q TVC: total variable cost Q: quantity produced variable cost per quantity produced

Answer 12

TFC / Q TFC: total fixed cost Q: quantity produced fixed cost per quantity produced

Answer 13

Rate of change in TC per increase in extra unit of quantity produced ∆TC / ∆Q TC : total cost Q : quantity produced

Answer 14

TC - TVC TC : total costs TVC : total variable costs

Answer 15

TC - TFC AVC x Q TC : total costs TFC : total fixed costs AVC : average variable costs Q: quantity produced

Answer 16

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

Answer 17

TR - TC TR : total revenue TC : total costs

Answer 18

AR>AC TR>TC AR : average revenue AC: average costs

Answer 19

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

Answer 20

MR=MC MR : marginal revenue MC : marginal cost

Answer 21

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

Answer 22

LR Abnormal Profits

Answer 23

D=S MSB=MSC P=MC D : demand S : supply MSB : marginal social benefit MSC : marginal social cost P : market price MC : marginal cost

Answer 24

Minimum point on AC AC=MC AC : average costs MC : marginal costs

Answer 25

At any point on AC

Answer 26

At the lowest quantity when AC stops decreasing

Answer 27

Will occur when AR

Answer 28

∆ Total Utility / ∆Q Q : quantity produced

Answer 29

Total Utility / Q Q : quantity produced

Answer 30

Marginal Utility = 0

Answer 31

Private Costs + External Costs Can be positive or negative

Answer 32

Private Benefits + External Benefits

Answer 33

Marginal Revenue Product = Marginal Cost of Labour

Answer 34

opp. of good x = (quantity of good y) / (quantity of good x) (lower opp. means that country should produce that good)

Answer 35

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

Answer 36

Total Tax / Total Income

Answer 37

Transfer Payments

Answer 38

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

Answer 39

good without opportunity cost

Answer 40

opinion/value statements

Answer 41

factual/descriptive statements

Answer 42

diminishing marginal utility substitution effect income effect

Answer 43

diminishing marginal returns AKA economies of scale

Answer 44

goods arising from natural resources, land, agriculture

Answer 45

goods produced with labour and raw materials

Answer 46

primary sector, manufacturing sector, services sector (entertainment)

Answer 47

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

Answer 48

- non-rivalrous - non-excludable (often underprovided by market) (market failure) (thus gov. provision)

Answer 49

- 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

Answer 50

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

Answer 51

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

Answer 52

long-term unemployment caused by fundamental changes mismatch between the skills workers possess and the skills employers demand

Answer 53

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

Answer 54

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

Answer 55

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

Answer 56

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

Answer 57

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)

Answer 58

- 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

Answer 59

income tax rate paid on additional income as a percentage

Answer 60

income tax paid divided by total income as a percentage

Answer 61

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

Answer 62

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

Answer 63

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

Answer 64

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

Answer 65

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

Answer 66

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.

Answer 67

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.

Answer 68

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

Answer 69

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.

Answer 70

- advantages of free trade + increased FDI, bargaining power, trade creation

Answer 71

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)

Answer 72

- 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

Answer 73

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

Answer 74

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

Answer 75

increase in supply for currency

Answer 76

increase in demand for currency

Answer 77

trade balance income current transfers

Answer 78

FDI portfolio investment reserve/official assets official borrowing

Answer 79

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