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Micro economics mocks > Key concepts > Flashcards

Key concepts Flashcards

1
Q

What is supply?

A

Supply is the quantity of goods or services that producers are willing or able to produce at a given price level.

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2
Q

What is PES (Price Elasticity of Supply)?

A

PES is the responsiveness of quantity supplied to a change in price. PES is always positive because of the positive/direct relationship.

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3
Q

What is the formula of PES?

A 
     % Change in Price
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4
Q

How do you calculate a % change?

A

% Change= Difference
—————- x 100
Original

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5
Q

State the factors affecting PES

A
  1. Production lag (e.g. agriculture)
  2. Spare capacity
  3. Stock
  4. Time
  5. Sustitutability of the factors of production.
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6
Q

Define market.

A

Any place where buyers meet suppliers and exchange goods or services

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7
Q

What is equilibrium (not a definition)

A

When quantity demanded = quantity supplied

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8
Q

What is joint demand?

A

When two products are demanded equally as they are complementary goods e.g. Printer & Ink.

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9
Q

What is competitive demand?

A

Products that are substitutes, replace each other, e.g. ccoke and Pepsi.

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10
Q

What is composite demand?

A

When a good is demanded for more than one use e.g. milk for cheese and butter.

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11
Q

What is derived demand?

A

When a good is needed for the production of another e.g. steel workers are needed for steel production.

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12
Q

What is joint supply?

A

The production of one good leads to the production of another e.g. cows can be used for milk.

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13
Q

What is the formula of elasticity of demand for labour

A

Elasticity of % Change in Q of workers
= ————————————–
Demand Level % Change in Wages

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14
Q

State the factors that affect elasticity of DL

A
  • Substitutability with other factors of production e.g. capital (higher sust. higher elast.)
  • Elasticity of the underlying good (the higher elast. the higher elast. of labour)
  • Cost of labour as a percentage of total cost (high %, high elasticity)
  • Time period (more time more elasticity)
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15
Q

Factors affecting change in the supply of labour

A
  • Trade Unions
  • Changes in population
  • Value of leisure time
  • Better training & education
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16
Q

What is the formula of supply of labour

A

Elasticity of supply of labour

                                % Change in QL supplied
                      =   --------------------------------------
                                % Change in Wages
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17
Q

Factors affecting the elasticity of the supply of labour in comparison of two jobs e.g. doctor vs waiter

A
  1. Time taken to train for the profession
  2. Vocations
  3. Nature of skills required
  4. Time period
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18
Q

What is the marginal product theory?

A

The theory that shows the effect of the next additional unit e.g. effect of another cook in a pizzeria on pizzas made.

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19
Q

What does the law of diminishing return state

A

Each additional worker provides less units than the one before.

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20
Q

What are the reasons for the diminishing law of return being correct.

A
  1. Capital fixed
  2. Communication harder
  3. Lack of space
  4. Lack of tasks
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21
Q

What does a perfectly competitive labour market include?

A
  • Many workers
  • Many firms
  • Workers accept the wage determined by the market
  • Firms accept the wage offered by the market
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22
Q

What makes a labour market imperfect?

A
  1. Few firms or just 1 firm
  2. Imperfect information
  3. Trade unions (push for higher wages)
23
Q

What is a monopoly?

A

When there is 1 firm selling e.g Microsoft

24
Q

What is a monopsony?

A

When there is 1 firm buying e.g Amazon

25
Q

How do trade unions impact the labour market?

A

PROS:

  • Higher wages for workers
  • Security
  • Working conditions/safety

CONS:

  • Higher cost to firms
  • Workers reliant and falling productivity
  • Corruption in unions
26
Q

What is the national minimum wage?

A

A legal minimum wage used to increase the earnings of the lowest paid.

27
Q

State pros and cons of the national minimum wage

A

PROS:

  • Increase income of the lowest paid (higher standard of living of the lowest earners)
  • Reduces inequality
  • Increase consumption

CONS:

  • Increased consumption can cause inflation
  • Higher cost to firms
  • May discourage firms from hiring
28
Q

What are wage differentials?

A

Differences in wages that come up between individuals, occupations, industries and regions.

29
Q

What is income?

A

A flow of money to a factor of production, usually labour.

30
Q

What is wealth?

A

Stock of valuable assets such as property, savings, shares.

31
Q

What is equality?

A

It is the equal sharing of income & wealth across all members of society.

32
Q

What is equity?

A

Equity is about fairness, not necessarily equal.

33
Q

How do you measure inequality?

A
  • Lorenz curve

- Gini coefficient

34
Q

What is a positive statement?

A

Statements based on evidence that can be tested and proved.

35
Q

What is a normative statement?

A

It is a value judgement that can’t be proved right or wrong.

36
Q

What is relative poverty?

A

When individuals in a society are worse off than others e.g. earning less than 60% of the median salary in that country.

37
Q

What is absolute poverty?

A

When individuals in society can’t afford the basic necessities e.g food, water, shelter.

38
Q

What are the three tax systems?

A
  1. Progressive tax system
  2. Proportional tax system
  3. Regressive tax system
39
Q

What is progressive tax system?

A

When high-income people are taxed more than low-income people.

40
Q

What is proportional tax system?

A

Everyone pays the same % tax

41
Q

What is regressive tax system?

A

When low-income people are taxed more than high-incomes people.

42
Q

State the policies to reduce poverty

A
  • Progressive taxes
  • Reducing unemployment
  • National minimum wage
  • Welfare benefits
  • EDUCATION AND TRAINING
  • Promotion of ‘‘trickle down’’
43
Q

What is the market failure?

A

When the free market leads to a misallocation of resources in an economy.

44
Q

What is the complete market failure?

A

When the market is missing and it completely fails to provide a good or service.

45
Q

What is the partial market failure?

A

a market for a good or service exists but is under or overproduced ie. does not maximise economic welfare.

46
Q

What are the function of prices?

A
  • Signalling function (tells producers when to + or - production)
  • Incentive function (higher prices means higher profit so producers incentivised to produce more)
  • Rationing function (when prices increase, excess demand is removed, helping the market to clear i.e supply=demand)
  • Allocative function (resources go intro growing markets and out of declining markets)
47
Q

What is a public good?

A

A public good is one which is non excludable and non-rival

48
Q

What is non excludable?

A

Non-paying customers cannot be excluded once the good is produced e.g. streetlights.

49
Q

What is non-rival?

A

One person’s utility is not diminished by another person’s utility e.g the radio as my use doesn’t diminish someone else’s use.

50
Q

What is a free-rider?

A

A free rider is someone who wants others to pay for a public good but plans to use the good themselves; if many people act as free riders, the public good may never be provided.

51
Q

What are private goods?

A

Private goods are excludable and rival in its consumption.

52
Q

What are quasi-public goods?

A

Nearly public goods. Almost partially excludable or rival e.g. roads become more rival and they fill up.

53
Q

What is an externality?

A

An externality is the knock on effect of an economic activity on a third party.

Micro economics mocks (1 decks)

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