Micro 1.3 Flashcards
Advantages of specialisation
Uses resources more efficiently
Increases growth rate
Disadvantages of specialisation
Over-reliance on specialised good
Would lead to unemployment
Advantages of division of labour
Increased productivity
Lower costs
Disadvantages of division of labour
Boredom - workers leave job
Workers replaced by machinery
Advantages of command economies
More certainty
More equality
Public goods
Disadvantages of command economies
Government failure
Poor quality from state-owned firms
Advantages of free-market economy
Profit maximisation = Higher wages
Competition leads to low prices
Resources allocated efficiently
Disadvantages of free-market economy
Market failure
Public goods not provided
Pollution
Inequality
Difference between nominal and real income
Real income is adjusted for inflation
What does unit elasticity mean
Change in price brings about equivalent change in demand
Inelastic demand = __________ take more of the tax
Consumers
How does excess supply lead to equilibrium
Producers decrease their supply so more consumers buy their goods
How does excess demand lead to equilibrium
Consumers bid higher prices to buy the good, encouraging suppliers to supply more
3 main functions of the price mechanism
Rationing
Incentive
Signalling
What is rationing
Scarce resources means goods are allocated to consumers who are willing to pay the most
What is incentive
Increasing price means producers are encouraged to produce more
What is signalling
Where price changes signal changes in supply and demand
If PED is more elastic, a relatively _______ tax is required to have an impact
Smaller
Example of non-rival good
Radio
Example of non-excludable
Street lights
Profit max =
Revenue max =
Sales max =
Profit max = MC = MR
Revenue max = MR = 0
Sales max = AC = AR
Long-run shutdown point
When AC > AR
Short-run shutdown point
When AVC > AR
Where is allocative efficiency
P = MC
Where is productive efficiency
Lowest point on AC curve
What is dynamic efficiency
Suffering increased short-run costs to gain decreased long-run costs
What is x-inefficiency
A rise in costs due do a lack of competition causing a fall in productivity
