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Economics > Micro > Flashcards

Micro Flashcards

1
Q

What is the economic problem?

A

unlimited wants + limited resources - scarcity

the factors of production are scare so we cannot have all we want, we have a number of decisions ‘opportunity cost’

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2
Q

what does mean opportunity cost?

A

the best alternative which is given up when an economic decision is made

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3
Q

Name the four economic resources

A

“CELL”

  • Capital: equipment
  • Enterprise: the idea
  • Land: row materials
  • Labour: staff, employees
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4
Q

How many sectors a production takes place?

A

3 - the process of combining scare resources to produce outpt

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5
Q

Which are the the sectors of production?

A

Primary- extraction of natural resources
Secondary- turning the raw materials into finished goods
Tertiary- providing a service, the finished good int he stores

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6
Q

definition of capital goods

A

used to produce consumption goods in the future

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7
Q

definition of consumption goods

A

bought for final consumption - in a durable (TV, washer machines…) o a non durable (food…) goods

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8
Q

Free goods

A

no opportunity cost - air, ideas…

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9
Q

economic goods

A

products that are scare and have an opportunity cost

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10
Q

Resource Allocation

A

What to produce?
How to produce?
For whom do we produce?

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11
Q

consumers

A

we have limited income so we want maximum satisfaction (utility)

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12
Q

Workers

A

they want maximum gain for working, in different aspects

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13
Q

firms

A

want to maximise profits. a productive organization which sells its output of goods or services commercially

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14
Q

Governments

A

have to make decisions

  • in the best interest of the people they represent
  • based on whether they will be re-elected again
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15
Q

Economic systems
How many are?
Which are?

A

3

  1. Free market economic system
  2. Mixed Economic system
  3. Planned Economic system: where all resources allocated by government
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16
Q

Explain advantage and disadvantages of the

Free market economic system

A

Advantages:

  • free choices
  • businesses compete with each other
  • encourage new business
  • make profitable goods that consumers want
  • prices are influenced by the demand of these goods

Disadvantages:

  • no government involved in providing goods or services
  • only those that can afford can use the services
  • can create booms and recessions
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17
Q

Explain the

Mixed economic system

A

Has both

  • Private Sector: business make their own decisions on what to produce, how it should be produced and what price to charge. their aim is profit
  • Public Sector: made up of Government control
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18
Q

Explain advantage and disadvantages of the

Planned economic system

A

Advantages:

  • Government control - eliminates waste
  • work for everyone

Disadvantages:

  • little production of luxury
  • wages are fixed so no incentive to produce more
  • low efficiency and innovation
  • very little consumer choice
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19
Q

PPC - Production Possibility Curves

A

Because Resources are scare and have alternative uses, therefore, we have to decide how to allocate our resources

  • Productive efficiency: when there is no waist of resources or under using them
  • Allocative efficiency: what to produce? - it s not possible to produce one more TV without making less radios

the PPB can grow or shift to the right when:

  • there is an increase in population - migration or increases on the birth rate
  • new or improvement technology
  • improved in the skills, abilities and motivation of workers thus increase output
  • finding new land - more resources , minerals or row materials
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20
Q

Define division of Labour

A

workers assigned to particular task (specialisation) - breaking the production process

Advantages:

  • increases efficiency
  • less time wasted
  • ‘practice make perfects’

Disadvantages:

  • workers can become bored
  • if a worker is absent, another worker can not stand in for them - efficiency can fall
  • perceived as unfair when one worker has the ‘dirty job’ all the time
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21
Q

normative - economic statement

A

based on opinions - hard to prove

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22
Q

Positive - economic statement

A

facts that can be tested

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23
Q

What is a market?

A

where buyers and sellers come together to exchange products for money

it can be online, shops, fairs….

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24
Q

What is demand?

A

the quantity buyers are willing and able to buy at a given price in a given period of time

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25
Q

individual demand

A

how much a single consumer in the market plans to demand at all the different possible prices of a good or service

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26
Q

market demand

A

the total demand for a good for the total number of consumers

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27
Q

effective demand

A

consumers must have the money to buy goods they need and want

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28
Q

what does mean extension of demand

A

a rise in the quantity demanded due to a fall in price

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29
Q

what does mean contraction of demand

A

a fall in the quantity demanded due to a rise in price

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30
Q

condition of demand

A

a determinant of demand (different from goods and services) that fixes the position of the demand curve

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31
Q

composite demand

A

a good that is demand for more than one purpose

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32
Q

derived demand

A

the demand of a good come from the demand form an other good
- the demand of petrol can come for the demand of cars

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33
Q

Factors that shits the demand curve

word..

A

PASIFICO

P - population: increase or decrease because developments, poor etc
A - advertising: on the product
S - substitutes: a rise or fall in the price - willing to buy a honda because its the increase in price of toyota
I - income: and increase or decrease in consumer spending- un or employment
F - fashion: the trends change over time - nokia-apple
I - interest rates and taxes on income: increase or decrease
C - complements: a complement good - tea + sugar
O - other factors: changes quality, the law, context,…

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34
Q

Inferior goods

A

goods or services for which demand fall when incomes rise

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35
Q

normal goods

A

demand increases when income rise

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36
Q

what is a supply?

A

refers to the amount of a good or services firms or producers are willing to make and sell at different prices

the tiger the price of the product, the more a firm will be willing to supply because more profit can be expected

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37
Q

extension of supply

A

supply increase when price rise

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38
Q

contraction of supply

A

supply decrease when there is a fall in price

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39
Q

Factors that shits the supply curve

word..

A

PINTSWCO

P - productivity: output per worker per period of time
I - indirect taxes: on specific good, and increase in tax the supply curve shift left
N -number of firms entering the market: increase n. of firms therefore, would be more supply
T - technology: supply increase - more advance, efficient
S - subsides: shift right, a payment to a firm, usually given by the government
W - weather
C - cost of production: a rise in cost production (wages, shortage in row materials) shift left
O - other factors: weather, government intervention, future prices expectations

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40
Q

Market Price - Equilibrium

definition

A

the point at which demand and supply meet

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41
Q

what is elasticity:

A

the responsiveness of t=one variable to change in another

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42
Q

how many elasticity of demand are?

Which are?

A

3

formula: percentage change in Q/ percentage change in…

  1. price elasticity of demand (PED): change in price (0 - -1: inelastic; more than -1 is elastic)
  2. income elasticity of demand (IED): more than 1 is elastic
  3. Cross- elasticity of demand (Xped): two goods that are substitutes or complements, or with no discernible demand relationship
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43
Q

Price elasticity of supply

A

PES

formula: percentage change in Q supplied/ percentage change in price

more than 1: elastic
les than 1: inelastic

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44
Q

Production

A

converts inputs (about, capital..) and outputs (goods, services) of goods and services

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45
Q

Labour productivity

2 types
formula

A

production: a firm or a county output
productivity: output per worker

formula: total output in a given period / number of units of labour used

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46
Q

Named the two types of cost

A 
Fixed Cost (FC): cost that do not vary with output
Variable Cost (VC): cost change with output
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47
Q

formulas of cost

how many are?

A

6

total cost (TC): fc +Vc
Average variable cost: vc / output
Average fixed cost: fc / output
Average TC: tc / output
Total Revenue (TR): price * quantity
Profit: total revenue - tc
Average revenue: tr / output
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48
Q

Internal Economies of scale

A

when a firm grows in size and so benefits from lower average costs

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49
Q

Diseconomies of scale

A

when output increases, long-run average cost rises
when the firm grows too large and cost start to rise
-loss of control
- lack of coordination

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50
Q

External Economies of scale

A

firms has a large manufacturing base

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51
Q

monopoly

A

A situation where there is only one firm selling in a market
advantages:
- high profit levels
- innovation can lead to lower cost than in competitive markets
-exploitation of economics of scale

Disadvantage:

  • no incentive to be better
  • limited choice
  • high prices
  • poor quality and services
  • limited supply
  • limited information
  • productive and allocative are inefficiency
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52
Q

monopoly power

A

when a firm has more than 25% of the market share

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53
Q

which are the monopoly power in markets

A
  • Pure monopolist: single seller
  • Working monopoly: a firm with greater than 25% of the total sales
  • Oligopoly: few dominant firms, each has market power
  • Duopoly: two firms take the majority of demand
54
Q

Market Structure

A

the number of firms in a market and the ways they behave in terms of

  • competitiveness
  • the extent to which goods/ services are being produced
  • how barriers affect the operation of the market entry
55
Q

Which are the two types of market structure

A
  1. Perfect competition: does not exist and is the price taker
  2. Monopoly in a concentrated market: rare in the real world and is the price maker
56
Q

Market definition

A

is the place where buyers and sellers meet to exchange a product, good, or service

price are established

57
Q

sub-markets

A

a segmentation of a market

58
Q

what does mean the function of the price mechanism

A

when the allocation of resources is based on the interaction between consumers and businesses to know what goods or services consumers are wiling to buy

-signalling function:
signs that tell business to supply, expand, incentive to rise output, more or other type of things

  • rationing function:
  • ?
59
Q

Define

Market Failure

A

when the market fail to allocated resources in the best interest of society as a whole

occurs when markets outcomes are inefficient because the decision

60
Q

The market failure can occur due to

A 
5
imperfect information
externalities
monopolies
immobility of factors of production
the private sector being unable to provide goods profitably
61
Q

negative externalities

A

occurs when the production or consumption of a good impose external costs on third parties outside of the market

62
Q

is consider market failure when..

A

MPB : MPC - it is allocatively inefficient

63
Q

when a loss of social welfare happens ?

A

when MSC > MPC

64
Q

How can be reduced the externalities?

A

imposing a tax - tax increase a MPC
and therefore, receiverevenue to be used in those problems
allocate resource in the correct way

65
Q

Public goods. what types are

A

3
non-excludability
non-rival consumption
non-rejectable

66
Q

explain the 3 types of public goods

A

non-excludability: all the society can enjoy the good, like fireworks - but this is a ‘free-rider’ problem because some might have pay and other dont (this can produce market failure)

non-rival consumption: the satisfaction the good doesnot take the satisfaction from an other person. street lights etc

non-rejectable: goods that cannot be rejected by the citizens, such as national nuclear defense, police, etc.i can not always be part of it.

67
Q

quasi public good

A

is a near-public good, some characteristics of a public good

68
Q

explain the 2 types of quasi public good

A
  1. semi-non-rival: everyone can enjoy public goods such parks, roads, etc. but it can become crowded
  2. semi-non-excludable: roads are public, but one of them can have toll booths on congested road routes
69
Q

non-excludability and free-riding

A

others pay for a public good they will consume. eg.cure for cancer… NHS
if everyone tries to be a free-rider, no one pays for the good to be produced - leads to social loss of welfare, everyone worse off.

70
Q

de-merit goods

A

are thought to be bad for you

71
Q

explain consequences of de-merit goods

A

consumtion can lead to negative externalities
imperfect information - long term damage
government intervention- taxes on producers or consumers
alcohol, violent films, hands-free mobile phones, etc

72
Q

merit goods

A

is a product that society values and judges that people should have regardless of their ability to pay.
state and private sector provide merit goods
positive externalities

-health service, public libraries, education

73
Q

Indirect Taxes

A

tax on what we buy

74
Q

types of Indirect Taxes

A
  • Progressive Tax: % depends on how much you earn
  • Proportional Tax: the same %, from everyone income
  • Regressive Tax: is generally a tax that is applied uniformly. This means that it hits lower-income individuals harder
75
Q

government subsides

A

any for of government support - financial or other wise

offered to producers and occasionally to consumers

76
Q

Output

A

the number of goods or services produced by a firm

77
Q

needs

A

something essential to survival - food, water, warmth, shelter

78
Q

market

A

where beers and sellers meet to change goods and services

79
Q

merger

A

an agreed coming together of two firms

80
Q

wants

A

something you would like to have but is not essential for survival

81
Q

perfectly inelastic demand

A

the quantity demanded remains the same although the price changes. unresponsive to price

82
Q

integration

A

where two firms come together through merging or are taken over

83
Q

Total Revenue

A

The amount of money a firm receives when selling its products

84
Q

takeover

A

when a firm seeks control of another (friendly or hostile)

85
Q

rational behaviour

A

means people try to make decisions in their self-interest or to maximise their private benefit

86
Q

utility

A

the satisfaction or economic welfare an indivudual gains from consumption a good or service

87
Q

marginal utility

A

the additional welfare, satisfaction or pleasure gained from consuming one extra unit of a good.

88
Q

hypothesis of dimishing marginal utility

A

for a single consumer the marginal utility derived from a good or service disminishes for each additional unit consumed

89
Q

asymmetric information

A

when eithaer the buyer or the seller involved in a potential transaction knows something that is not observable to the other party

90
Q

behavioural economics

A

A method of economic analysis that applies psychological insights into human behaviour to explain how individuals make choices and decisions

91
Q

rule-of-thumb

A

a rough and practical method or procedure that can be easily applied when making desicions

92
Q

bounded rationaly

A

when making decisions, an individual´s rationality is limited by information they have, the limitations of their minds, and the finite amount of time available in which to make decisions

93
Q

bounded self-control

A

limited self-control in which individuals lack the self-control to act in what they see as their self-interest

94
Q

according to Daniel Kahneman what are the 2 systems of how peole think?

A

System 1: decisions are made quickly and little effort is used to analyse the situation. this situation is automatic thinking
System 2: concentration and mental effort are required to work through a problem before a decosopn can be made

95
Q

cognitive bias

A

a mistake in reasoning or in some other mental thought process occurring as a result of, for example, using rules-of-thumb or holding onto one´s preference and belives. regardless of contraryinformation

96
Q

availability bias

A

occurs when individual make judgements about the likehood of future events according to how easy it is to recall examples of similar events

97
Q

anchoring

A

a cognitive bias describing the human tendency to compare and contrast only a limited set of items

98
Q

social norms

A

forms of patterns of behaviour considered acceptable by a society or group within that society

99
Q

economic sanctions

A

restrictions inposed by regulations and/or laws that restrict an individual´s freedom to behave in certaain ways. Breaking a sanction can lead to punishment

100
Q

nudges

A

factors which encourage people to think and act in particular ways. Nudges try to shift group and individual behaviour in ways which comply with desirable social norms

101
Q

altruism

A

concern for the welfare of others

102
Q

fairness

A

the quality of being impartial, just, or free of favouritism. it can mean treating eveeryone the same. fairness involves trating people equally, shering with others, giving others respect and time, and not taking advantage of them

103
Q

choice architecture

A

a framework setting out different ways in which choices can be presented to consumers, and the impact of that presentation on consumer decision making

104
Q

default choice

A

an option that is selected automaticallyy unless an alternative is specified

105
Q

framing

A

how something is presented influences the choices people make

106
Q

mandate choice

A

peole are required by law to make a decision

107
Q

restricted choice

A

offereing people a limited number of options so that they are not overwhelmed by the complexity to the situation. if there are too many choices, people may make a poorly thought-out decision or not make any decision

108
Q

what is the best way to help an individual´s decision-making process?

A

is to provide feedback that enables them to learn from their past performance

109
Q

what is the best way to give a feedback?

A

the best way is a constructive feedback which enhances people feelings of competence and self-control.

by contrast, destructive feedback tends to cause conflict and reduce personal motivation

110
Q

Nudge Theory

A

Nudges must be open and transparents to the general public. governments should be honest with the public and ensure that they explain why they have introduced a nudge, but still allow individuals to make a choice

111
Q

marginal returns of labour

A

the change in the quantity of total output resulting from the employment of one more worker, holding all the other factor of production fixed.

112
Q

law of dimisnishing returns

A

a short-term law whixh states that as a variable factor of production is added to a fixed factor of production, eventually both the marginal and average returns to the variable factor will begin to fall. it is also know as the law of diminishing marginal (and average) productivity.

113
Q

formula of the average returns of labour

A

total output of labour force / # of workers

114
Q

total returns of labour

A

total output produced by all the workers employed by a firm

115
Q

returns to scale

A

the rate by which output changes of the scale of all the factors of production is changed (long-run)
short-run: when is a variable factor of production

116
Q

plant

A

an establishment, such as a factory, a workshop or a retail outlet, owned and operated bt a firm

117
Q

what are the three possibilities of returns to scales?

A

increasing returs to scale
constant returns to scale
decreasing returns to scale

118
Q

increasing returs to scale

A

when the scale of all the factors of production employed increases, output increases at a faster rate

119
Q

onstant returns to scale

A

when the scale of all the factors of production employed increases, output increases at the same rate

120
Q

decreasing returns to scale

A

when the scale of all the factors of production employed increases, output increase at a slower rate.

121
Q

economy of scale

A

as output increase, long-run average cost falls

122
Q

long-run average cost

A

cost per unit of output incurred when all factors of production or inputs can be varied

123
Q

optimum firm size

A

the size of the firm capable of producing at the lowest average csot and thus being productively efficient

124
Q

minimum efficient scale (MES)

A

the lowest output at which the firm is able produce at the minimum achievable LRAC

125
Q

internal economies and diseconomies of scale

A

changes in long-run average costs of production resulting from changes in the size or scale of a firm or plant

126
Q

external economy of scale

A

occur when average or unit cost of production fall, because of the growth of the industry of which the firm is a part

127
Q

external diseconomy of scale

A

occur when average costs of production increases because of the growth of the whole industry or market

128
Q

marginal cots

A

addition to total cost resulting from producing one additional unit of output

129
Q

average fixed cost

A

total cost of employing the fixed factors of production to produce a particular level of output, diiveded by the size of output: AFC = TFC/Q

130
Q

average variable cost

A

total cost of employing the variable factors of production to produce a particular level of output, divided bt the size of output: AVC= TVC/Q

131
Q

average total cost

A

total cost of producing a particular level of output, dived by the size of output; often called average cost: ATC= AFC + AVC

132
Q

PED

A

Definition: Demand is price elastic if a change in price leads to a bigger % change in demand; therefore the PED will therefore be greater than 1. ELASTIC

These are goods where a change in price leads to a smaller % change in demand; therefore PED <1 Between o and -1. Is INELASTIC

It is always a negative number, because demand moves to opposite directions

Economics (4 decks)

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