Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Economics > Micro > Flashcards

Micro Flashcards

1
Q

Total revenue

A

P x Q

How much money a firm receives in total from sales

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Average Revenue

A

P/ TR ÷ Q

What a business receives on average from each sale.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Marginal revenue

A

change in TR ÷ change in Q (only use if quantity goes up by more than 1)
The additional revenue a firm makes selling 1 extra unit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

If MR = + (TR) (elasticity of demand)

A

TR increases

demand is elastic

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

if MR = 0 (TR) (elasticity of demand)

A

TR stays the same

demand is unitary

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

if MR = - (TR)

A

TR decreases

demand is inelastic

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

decreasing price will (TR)

A

increase TR

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

increasing price will. (TR)

A

decrease TR

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

^ TR =

A

v P x Q ^
Demand = elastic
MR = +

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

v TR =

A

^ P x Q v
Demand = inelastic
MR = -

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Allocative efficiency

A

Welfare is maximised
MC = AR
(Mary Can’t Allocatively Run)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Productive efficiency

A

Average cost at its lowest
MC = AC
(Mary Cant Analyse Corners)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

X inefficiency

A

when as firm is producing above its average cost curve for a given level of output

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

dynamic efficiency

A

how changing technology improves a firms output potential over time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

to be dynamically efficient a firm needs

A

supernormal profit

so it can invest its supernormal profit in R+D

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

the 5 different market structures

A
  1. monopoly
  2. perfect comp
  3. monopolistic competition
  4. oligopoly
  5. monopsony
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

How to calculate the n-firm concentration ratio

A

identify the 4 largest firms
add up market shares of these 4 firms
answer is concentration ratio of the 4 firms

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

monopoly assumptions

A

only 1 firm
profit maximiser
high barriers to entry

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

barriers to entry are

A 
legal barriers 
sunk costs 
economies of scale 
brand loyalty 
anti competitive practices
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

legal barriers

A

stops new firms using incumbent firms ideas (stealing ideas)
patent
copyright
trademark

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

sunk costs

A

the money can’t be recovered if a firm leaves the market
advertising
specialist machinery (no on else can use it)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

what doe high sunk costs mean? and what does this mean for new firms

A

increased cost of failure

deters new firms

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

economies of scale

A

internal economies of scaled used by big firms to reduce their long run average costs.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

what do economies of scale allow monopoly to do

A

keep costs and prices low so small firms can’t compete with their low prices

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

6 internal economies of scale

A 
risk bearing
managerial
financial
purchasing
technical
marketing
(Richards mum flies past the moon)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Brand loyalty

A

strong branding in incumbent firms makes it impossible for any new firms to make any sales

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

anti competitive practises

A

anything a firm might do to reduce or restrict competition

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

technical economies are where

A

companys invest in specialist capital to increase productivity and decreasing their long run average cost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

managerial economies are where

A

companys employ specialists which increase productivity and decrease long run average costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

a marketing economy is where

A

big firms spread their marketing costs across many units decreasing long run average costs big firms

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

The higher the risk

A

the higher the interest rates

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

firms expand and grow bigger

A

they become less risky, so they can borrow at lower interest rates, reducing long run average costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

Risk-bearing economies: big firms can

A

exploit risk bearing economies of scale, then big profits to diversify to new areas reducing the cost of failure in one area

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

Risk-bearing economies: small firms

A

don’t have enough profit to diversity so the cost of failure is high

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

as companies get bigger, they can exploit internal economies to

A

Reduce their long run average costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

economies of scale; in the short run a firm can’t

A

experience internal economies of scale, don’t have enough time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

the 6 internal economies of scale:

A

Purchasing, technical, managerial, marketing, financial, risk bearing, risk-bearing
RICHARDS MUM FLIES PAST THE MOON

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

Purchasing economies

A

when firms expand and are bigger purchases they can bulk buy and negotiate lower prices, reducing their long run average cost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

technical economies

A

when firms invest in specialist capital to increase firms productivity and decrease their long run average costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

internal economies of scale

A

Reductions in long run average cost, as a industry’s size increases

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

alienation

A

decreases their motivation

= productivity falls, and long run average costs rise

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

Bureaucracy

A

all the paper work, managers, filling and secretary that

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

communication

A

when firms get really big communication can really slow down , wastes precious time in a business and increasing long run average costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

Internal diseconomies of scale

A

when a firm expands to much and long run average costs start to rise

Alienation
Bureaucracy
Communication

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

The minimum efficient scale is where

A

a firm first reaches its lowest LRAC

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

external economies of scale

A

a firm’s long run average costs fall, as industry output increases.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q

as the size of the industry increases

A

recruit quicker and at lower pay reducing long run average cost
because the whole industry was growing and employees are attracted

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
48
Q

internal economies of scale are shown as

A

movements along our LRAC curve

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
49
Q

external economies of scale are shown as

A

the LRAC curve will shift downwards

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
50
Q

profit =

A

TR - TC

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
51
Q

opportunity cost

A

the lost opportunity of the next best alternative

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
52
Q

normal profit =

A

0

when TC = TR

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
53
Q

If it’s making less than normal profit,

A

it’s no longer covering its opportunity cost - so it will leave the market.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
54
Q

supernormal profit is

A

the extra profit above opportunity cost

TR > TC

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
55
Q

Explain the shape of the marginal cost curve

A

marginal costs first decreased because of specialisation - workers get more productive decreasing costs
marginal costs then decreased because of the law of diminishing marginal returns - reduces productivity and increases costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
56
Q

ATC =

A

AVC + AFC

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
57
Q

ATC will intercept

A

marginal cost at it lowest point

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
58
Q

Marginal revenue is

A

the additional revenue from selling one extra unit.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
59
Q

marginal cost is

A

the additional cost of selling one extra unit.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
60
Q

profit maximising

A

MC=MR up to AR curve

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
61
Q

Why do some firms grow, while others stay small

A
  • lack the finance to expand.
  • regulations can prevent firms from growing too big because of concerns over consumer exploitation.
  • firms might be worried about diseconomies of scale.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
62
Q

as firms grow bigger, they might experience:

A

the divorce of ownership and control

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
63
Q

divorce of ownership and control can lead to

A

The principal-agent problem

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
64
Q

The divorce of ownership and control can lead to the principal-agent problem is when

A

The principal-agent problem is when the agent (e.g. the manager who runs and controls the business) pursues different objectives to the principal (e.g. the shareholders who own the business)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
65
Q

Organic growth is when

A

a firm grows by investing in itself to increase output.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
66
Q

Inorganic growth is when

A

a firm grows by acquiring, or merging with, another firm

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
67
Q

4 different types of inorganic growth

A
  1. backward vertical integration
  2. forward vertical integration
  3. horizontal integration
  4. conglomerate integration
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
68
Q

backwards vertical integration is when:

A

a firm integrates with another firm who is further away from the consumer in the same production process

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
69
Q

forward vertical integration is when

A

firm integrates with another firm who is closer to the consumer in the same production process

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
70
Q

horizontal integration is when

A

a firm integrates with another firm at the same stage of the production process

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
71
Q

conglomerate integration is when

A

two firms in unrelated industries join together.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
72
Q

pros of organic growth

A
  • keep ownership and control of the firm

- low risk, continue doing what already are and are good at

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
73
Q

cons of inorganic growth

A
  • higher risk - getting involved in a market you know much less about, integrating with unknown markets and new companies
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
74
Q

Vertical integration is when

A

a firm integrates with another firm at a different stage of the same production process.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
75
Q

demergers

A

company separate itself into 2 companies

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
76
Q

If a firm gets too small it will reduce economies of scale, so:

A

Its LRAC will increase

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
77
Q

monopoly

A

there is only 1 firm in the market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
78
Q

assumptions of monopoly

A
  1. only 1 firm
  2. profit max MC=MR
  3. high barriers to entry
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
79
Q

legal monopoly

A

over 25% of market share

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
80
Q

barriers to entry

A
  1. legal barriers
  2. sunk costs
  3. economies of scale
  4. brand loyalty
  5. anti competitive practices
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
81
Q

a monopoly is

A

Productively inefficient, allocatively inefficient, possibly dynamically inefficient, X-inefficient

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
82
Q

natural monopoly

A

A natural monopoly is when it’s naturally most efficient if only one firm is in the market.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
83
Q

2 reasons why a monopoly might be a natural monopoly

A
  1. high sunk costs
    ineficient if another firm entered market
  2. huge internal economies of scales
    can use to make long run average costs super low
    RICHARDS MUM FLIES PAST THE MOON
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
84
Q

price discrimintaion

why are adults charged higher prices and students lower prices for train tickets?

A

Adult demand = more inelastic, adults have higher incomes and less responsive to price changes. can charge adults higher prices.

Student demand = more elastic, students have less money to spend and more responsive to price changes. have to charge students lower prices.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
85
Q

examples of price discrimination in the world

A

bus tickets, cinema tickets, education (scholarships), train

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
86
Q

elastic consumers are charged

inelastic consumers are charged

A

Elastic consumers a lower price - don’t want to loose them

inelastic consumers a higher price - won’t care about higher prices

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
87
Q

Price discrimination is when

A

a firm charges different groups of consumer different prices, but for the same good.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
88
Q

the 3 conditions of price discrimination

A
  1. market power - change prices without loosing all consumers
  2. information - info on consumers elasticity
  3. limit reselling - able to limit elastic consumers from selling cheap tickets to inelastic consumers
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
89
Q

different number of firms =

A

different level of competition

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
90
Q

many buyers and sellers =

A

comp v high

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
91
Q

few large sellers

oligopoly

A

comp low

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
92
Q

competition is high if

A

lots of firms

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
93
Q

competition is there

A

number of firms competing in a market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
94
Q

competition is lower is

A

only a few firms competing

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
95
Q

contestable markets

A

is simply a market with low barriers to entry and exit and doesn’t matter how many firms in the market (e.g. mango low barriers but many sellers, origami low barriers but few sellers)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
96
Q

market that isn’t contestable will have

A

High barriers to entry e.g. high sunk costs and economies of scale

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
97
Q

contestable market is

A

a market with low barriers to entry and exit, easy for firms to enter

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
98
Q

in the long run firms in contestable markets will only be able to make

A

normal profit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
99
Q

who is in charge of making sure big firms stay in line with regulations and competition policy?

A

CMA - competition and markets authority

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
100
Q

the CMA use 4 key types of regulation

A
  1. merger policy
  2. price regulation
  3. profit regulation
  4. performance targets and quality standards
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
101
Q

what is merger policy

A

blocking mergers that might give firms too much market power

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
102
Q

what is price regulation

A

capping the prices firms can charge consumers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
103
Q

what is profit regulation

A

taxing firm profits if they make too much supernormal profit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
104
Q

what is performance targets and quality standards

A

imposing targets and standards so firms don’t provide dodgy goods or services

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
105
Q

the CMA investigates a merger if

A

combined market share over 25% - too much market power and could hurt consumers with higher prices
combined annual turnover over £70m - negatively effect consumers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
106
Q

price regulation

A

limits how much a firm can increase its prices which protects consumers from high prices

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
107
Q

RPI is a measure of

A

inflation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
108
Q

price regulation: what are the 2 types of price cap

A
  1. RPI +K

2. RPI -X

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
109
Q

RPI+K

A

first calculate RPI - increase price in line with inflation
K - supernormal profit; so CMA allow firms to increase their prices by +K so that the firm can invest the K (profit) into new capital = better quality and cheaper good

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
110
Q

RPI -X

A

first calculate RPI - allow firms to increase prices along side inflation
slacking so minus RPI by X so that they can make efficiency improvements gains now in the short run to push costs down

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
111
Q

Regulatory capture is when

A

a regulator begins to favour the company they’re regulating.

low quality standards, increasing price too much -> favours firms and harms consumers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
112
Q

profit regulation is when

A

a firms’ profits are taxed at 100% above a certain limit

- this encourgaes companies to reinvest profits which will mean improved capital

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
113
Q

however profit regulation can mean there is no

A

profit incentive so firms might just get lazier

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
114
Q

CMA wants to

A

increase quality so use targets and standards to get firms to cooperate.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
115
Q

performance targets are

A

targets for firms to meet, to ensue there providing a top quality service

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
116
Q

quality standards are

A

standards of quality that firms have to meet to sell their goods and services

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
117
Q

example of performance targets

A

NHS - each hospital has the performance target of responding to accident and emergency patients in less than 4 hours.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
118
Q

example of quality standards

A

food standards agency

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
119
Q

when is the CMA not effective

A

sneaky firms - the firms lawyers settle the case
play nice to regulators

return to sell poor quality products for high prices and being x-inefficient 1

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
120
Q

to stop firms selling poor quality products for high prices and being x-inefficient what is needed

A

competition - new firms to enter the market and compete with incumbent firms, they will force incumbent firms to lower prices and improve quality of products and stop being so x-inefficient otherwise loose consumers to the new entrances

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
121
Q

how to get new firms to join the market

A

CMA can increase contestability by: lowering barriers to entry, so that it is easier for firms to entry the market and therefore easier to contest incumbent firms

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
122
Q

4 ways the CMA can increase contestability

A
  1. deregulation
  2. privatisation
  3. stopping anti-competitive practises
  4. helping small businesses
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
123
Q

deregulation is where

A

regulations are removed to lower barriers to entry

the result: lower prices, better customer service and increased efficiency (taxis and uber)

124
Q

Privatisation

A

Privatisation is when the government transfers ownership of a public sector firm to the private sector.

pressure to cut costs and max profits which help improve efficiency
e.g. BT, British gas, British airways

125
Q

what usually follows privatisation?

A

deregulation -

e.g.. sky and virgin, easy jet, EDF ->competeing

126
Q

negative of privatisation

A

cut cost too low - reducing quality

increase prices - to exploit consumers

127
Q

Competitive tendering is when

A

The government outsources specific job contracts to the private sector. Private sector firms bid to win the contract, by offering the best deal - the highest quality for the lowest cost. The government then chooses the firm which offers the best value for money - and awards them the contract!

128
Q

Competitive tendering beneficial for the government because,

A

by getting private sector firms to bid against each other for the contract, private sector firms will undercut each other’s prices and offer better quality. This means the government can make sure it’s getting the best deal possible - saving money, and increasing quality.

129
Q

anti-competitive practises

A

Anti-competitive (or restrictive) practices include anything a firm might do, to restrict competition.

130
Q

Predatory pricing is when

A

a firm aggressively cuts its prices below AVC to force out competitors from the market.

In the short run, the firm incurs a loss.
But in the long run, firm forces out its competitors, so they can take over the market - restricting competition.

131
Q

price collusion

A

Collusion is when two or more firms agree to limit or restrict competition.

132
Q

anti-competitive practices include

A

Predatory pricing
price collusion
vertical integration

133
Q

If the CMA catches firms engaging in anti-competitive practices, they can:

A

Set a fine up to 10% of annual revenue
Sentence CEOs to jail time
Name and shame the firm publicly

134
Q

ways to help small business grow

A

subsidies, tax breaks and loans.

135
Q

Access to loans

A

enterprise capital funds to lend out to new business for super low interest rates to help them expand and benefit form economies of scale and compete with big businesses

this will increase contestability and decrease prices

136
Q

R&D tax breaks

A

small to medium size enterprises receive reduce tax rates if they are using their profits to invest into R&D and increase dynamic efficiency

the lower corporation tax will reduce costs and increase supernormal profit so they can do more R&D and come up with new innovations

137
Q

Subsidies

A

gov gives subsidies to small firms
the subsidie will reduce firms costs decreasing AC and MC so firms will be able to drop its prices from P max to P1

makes it easier to compete with big incumbent firms

138
Q

Nationalisation is when

A

the private sector transfers ownership of a private sector firm to the government.
e.g.. railways were nationalised prices set price =to mc allocatively efficient to maximise welfare but at this price making a huge loss

139
Q

who demands labour

A

producers

140
Q

Labour market diagram: Demand curve is downwards sloping because

A

when wages go down can afford to hire more workers

when wages go up they can afford to hire any more workers the demand for labour will decrease

141
Q

Labour market diagram: supply curve is upwards sloping because

A

as wages go up ppl realise they can make more money and will be willing to work more, quantity of labour supplied will increase

as wages go down ppl can’t make as much money working so will be willing to work less, quantity of labour supplied will decrease

142
Q

as wages increase

A

Workers will supply more labour and firms will demand less labour

143
Q

wages decrease

A

Workers will supply less labour and firms will demand more labour

144
Q

in the labour market what do we call excess supply?

A

unemployment

145
Q

As wages decrease back to equilibrium, we’ll see:

A

A decrease in quantity supplied of labour and increase in quantity demanded of labour

146
Q

As wages increase back to equilibrium, we’ll see:

A

An increase in quantity supplied of labour and decrease in quantity demanded of labour

147
Q

above the equilibrium wage there’ll be

A

Excess, supply, unemployment, surplus.

148
Q

below the equilibrium wage, we find that:

A

Quantity demanded of labour is higher than quantity supplied of labour

149
Q

consumer surplus =

A

willing to pay - actually pays

150
Q

consumer surplus is

A

the difference between what consumers are willing to pay and what they actually pay.

151
Q

supply curve =

A

the marginal cost curve

152
Q

the lowest price producers are willing to except is

A

= to marginal cost

153
Q

producer surplus

A

the difference between what producers are willing to sell for and what they actually sell for.

154
Q

YED =

A

YED = % change in quantity demanded / % change in income

155
Q

YED measures

A

How much Qd will respond to a change in income

156
Q

Normal good will always be

A

Positive

157
Q

Inferior goods will always be

A

Negative

158
Q

Inferior goods:

Y increases
So demand …

A

Decreases

159
Q

Inferior goods:

Y decreases
So demand …

A

Increases

160
Q

Normal goods:

Y increases
So demand …

A

Increase

161
Q

Normal goods:

Y decreases
So demand …

A

Decreases

162
Q

So for income inelastic goods, when income increases:

A

quantity demanded will increase by a smaller %

163
Q

Income inealstic good are

A

Necessities

164
Q

Income elastic goods are

A

Luxury goods

165
Q

For a % change in income, quantity demanded of an income elastic good, or a luxury, will:

A

quantity demanded will increase by a larger %

166
Q

Fixed cost

A

Cost that doesn’t change with an increase or decrease in the amount of goods or services produced or sold

167
Q

Variable cost

A

Cost that varies with the level of output

168
Q

Corporation tax

A

% of businesses profits

169
Q

Specific tax is

A

A fixed amount of tax paid of each unit sold

170
Q

Due to specific tax producers will require

A

Higher prices to make up for the tax

171
Q

What happens to the supply curve of a specific tax?

A

Shifts upwards

172
Q

Where is the specific tax shown on a diagram?

A

The space between the 2 supply curves

173
Q

An ad valorem tax is

A

An ad valorem tax is a tax charged as a % of the price of a good e.g. VAT

174
Q

Where is the size of the ad valorem tax shown

A

The vertical distance between the 2 supply curves

175
Q

Tax revenue =

A

Size of tax per unit x q sold

176
Q

Subsidy is shown on a diagram by the

A

Distance between he 2 supply curves

177
Q

Subsidy means that

A

There is more incentive to sell

And the price is decreased

178
Q

Total cost of subsidy =

A

Size of subsidy x quantity sold

179
Q

A subsidy means that our supply curve wil

A

will shift vertically down by the size of the subsidy

180
Q

PED

When is it elastic and inelatsic?

A

Elastic - bigger than 1

Inelastic- 0.

181
Q

Examples of perfectly inelastic goods in the world

A

addictive drugs

life saving drugs

182
Q

as we move closer to 0 demand becomes

A

more inelastic

183
Q

between -1 and 0 =

A

inelastic

184
Q

PED =0

A

demand is perfectly inelastic

185
Q

elastic demand is between

A

-1 and -infinity

186
Q

-1 and -infinity

A

elastic demand is between

187
Q

inelastic

A

between -1 and 0 =

188
Q

PED = ∞

A

perfectly elastic

189
Q

PED = -1

A

unitary demand

190
Q

for unitary demand we need

A

the % change in quantity demanded the same size as the % change in price

191
Q

what she is a unitary elastic demand curve

A

curved like the beginning of a U

192
Q

factors which influence PED

A 
necessity 
addiction and habit 
availability of substitutes 
brand loyalty
proportion of income 
time period

NASBIT

193
Q

a necessity good is an

A

inelastic good

194
Q

a luxury good is a

A

elastic good

195
Q

addictive good will be a

A

inelastic good

196
Q

however habit goods can also be addictive meaning that they are also an

A

inelastic good

197
Q

what is a substitute

A

A substitute is a product which can replace another product e.g. a Samsung and an iPhone.

198
Q

market failure is when

A

the price mechanism leads to a misallocation of resources

199
Q

examples of market failure

A

negative externalities
positive externalities
public goods
information gaps

200
Q

negative externalities are

A

Costs which affect third-parties outside the price mechanism.

201
Q

what are the 2 types of negative externalities

A

negative production externalities

negative consumption externalities

202
Q

negative consumption externalities are

A

when the consumer is creating negative externalities - eg.smoking

203
Q

negative production externalities

A

when the producer is creating negative externalities - eg.pollution

204
Q

private benefits and costs are

A

inside the price mechanism

205
Q

social costs =

A

private costs + private costs

206
Q

social benefit =

A

external benefits + private benefits

207
Q

outside the price mechanism we find

A

external costs and benefits

208
Q

negative production externalities mean the government has to intervene because

A

producers are only thinking about the private costs and benefits

209
Q

what curves does the government consider

A

MSC

MSB

210
Q

net benefit/ welfare=

A

social benefit - social cost

211
Q

in a negative externality diagram; where is over production shown

A

between socially efficient eq (MSC intellects MSB) and market eq

212
Q

what do we label supply in a cost/benefits diagram?

A

MPC

213
Q

what do we label demand in a cost/benefit diagram?

A

MPB

214
Q

in a negative externality diagram; if the distance between the MSC and MPC is getting bigger then

A

external costs are increasing

215
Q

in a negative externality diagram; if the MPC and MSC curves are parallel then

A

external costs stay the same, as quantity increases

216
Q

in a negative externality diagram; When producers and consumers don’t consider the external costs of their actions they end up…

A

Overproducing and overconsuming

217
Q

The result of overproducing and over consuming is

A

a welfare loss

218
Q

social efficient point is

A

MSB=MSC

219
Q

In a free market, producers and consumers only consider their…

A

own private costs and private benefits

So they produce where MPC = MPB

220
Q

indirect taxes make production more

A

costly for firms

221
Q

after the indirect tax…

A

costs have been increases so MPC shifts upwards to insect where MSC =MPB

222
Q

the indirect tax has to be set equal to …

A

the external cost at the socially efficient Eq

223
Q

when MPC+tax intersects MPB at the socially efficient Eq the negative production externality has been

A

internalised

224
Q

what can the government use to internalise negative externalities

A

indirect tax

225
Q

tradable pollution permits

A

if a firm is finding it difficult to reduce pollution and another firm is finding it easy and cheap they can sell their pollution permits to the other firm so that they can producer a bit more pollution.

226
Q

the cap and trade system works by

A
  • first they government sets a cap, how much pollution it will allow each year
  • gives out permits to firms -shared between
227
Q

Firms finding it expensive to reduce their pollution will:

A

Buy permits from firms finding it cheaper to reduce their pollution

228
Q

minimum prices mean that

A

prices are kept high
quantity demanded is low
reducing the overconsumption

229
Q

minimum prices should be set

A

above the Eq price

230
Q

minimum price creates

A

excess supply and the prices legally can’t be reduced causing a disequilibrium

231
Q

minimum price creates

A

excess supply and the prices legally can’t be reduced causing a disequilibrium

232
Q

how can you solve negative externalities

A

min prices
regulation
indirect tax

233
Q

positive externalities

A

Benefits which affect third parties outside the price mechanism

234
Q

Social cost =

A

private cost + external cost

235
Q

Social benefit =

A

private benefit + external benefit

236
Q

in positive externalities the MSB curve is parallel with the …
in negative externalities the MSC curve

A

MPB curve

237
Q

Subsidies are

A

a grant from the government to a firm to increase supply

the gov use tax revenue to encourage the consumption and production of goods that are good for society

238
Q

XED measures

A

how the quantity demanded of one good, good A, will respond to a change in price of another good, good B.

239
Q

XED=

A

%change in QD of goodA / %change in QD of goodB

240
Q

XED= -

A

compliments

241
Q

XED= +

A

substitutes

242
Q

XED= 0

A

unrelated goods

243
Q

Substitute is

A

a product which can replace another product

244
Q

many substitute then

A

elastic

245
Q

few substitutes then

A

inelastic

246
Q

strong brand loyalty

A

inelastic

247
Q

weak brand loyalty

A

elastic

248
Q

large proportion of your income

A

elastic

249
Q

small proportion of your income

A

inelastic

250
Q

short run

A

inelastic

251
Q

long run

A

elastic

252
Q

price increase will

A

lead to a contraction in demand, quantity demanded will decrease.

253
Q

decrease in price will

A

lead to an extension in demand, quantity demanded will increase.

254
Q

An extension in demand only takes place when:

A

price decreases

255
Q

When something other than the price of our good changes, that means:

A

the entire demand curve will shift.

256
Q

demand decreases

A

demand curve shifts to the left

257
Q

producer surplus is

A

the difference between what producers are willing to sell for and what they actually sell for

258
Q

in a positive externality diagram; if the distance between the MSC and MPC is getting bigger then

A

external benefit increases

259
Q

in a positive externality diagram; if the MSC and MPC is parallel then

A

external benefit stays the same

260
Q

what do public goods have in common

A

non-rival and non-excludable

261
Q

free rider problem

A

when people take advantage of being able to use a common resource, or collective good, without paying for it, as is the case when citizens of a country utilize public goods without paying their fair share in taxes.

262
Q

the government deals with incomplete information by using

A

regulation
providing information and advertising
subsidising

263
Q

Incomplete information is when

A

someone doesn’t have full information about the benefits or costs of their decisions.

264
Q

what can incomplete information lead to?

A

under consumption as consumers can see the long term benefits of consuming
also over consumptions were consumers aren’t informed of the long term costs

265
Q

Asymmetric information is when

A

one party knows more than another party in a transaction.

266
Q

the market can fail in four different ways:

A

Negative externalities, positive externalities, public goods, information gaps

267
Q

how the government can step in to address these market failures with a range of different policies

A

Taxes, subsidies, tradable pollution permits, minimum and maximum prices, regulation and information provision.

268
Q

max prices is set

A

below the eq

269
Q

examples of government failure

A
  1. distortion of the price mechanism
  2. the law of unintended consequences
  3. administration costs
  4. information gaps
270
Q

was does max price cause and why

A

excess demand/ shortage

lower price reduces the incentive to supply but more is demanded at this lower price

271
Q

maximum prices can distort the price mechanism by

A

Reducing price below equilibrium, creating excess demand

272
Q

Government failure is when

A

the government intervenes to correct a market failure but makes the allocation of resources even worse than before.

273
Q

minimum prices cause

A

excess supply/ surplus

274
Q

minimum prices can distort the price mechanism by

A

over producing and causing a wastage can lead to dumping

275
Q

Government intervention intends to correct market failures and help society…but

A

Unintended consequences eg. speed bumps

The law of unintended consequences

276
Q

explain how information gaps can lead to gov failure

A

underestimated costs

277
Q

explain how administration costs can lead to gov failure

A

regulation means people needed to regulate

278
Q

what is The law of unintended consequences

A

Government intervention intends to correct market failures and help society…but can cause Unintended consequences eg. speed bumps and ambulances

279
Q

what are the 3 functions of the price mechanism

A

Rationing
incentivising
signalling

280
Q

Free market economies allocated their resources by

A

The price mechanism

281
Q

In a mixed economy all resources are allocated by

A

The government and the price mechanism

282
Q

In a command economy all resources are allocated by

A

the government

283
Q

Division of labour enables:

A

specialisation

284
Q

what is the division of labour

A

where the production process is split up into smaller tasks where each worker is assigned to a different task this allows workers to specialise

285
Q

barter

A

exchange (goods or services) for other goods or services without using money.

286
Q

functions of money

A
  1. medium of exchange
  2. provide a unit of account
  3. provide a store of value
  4. deferred payment
287
Q

positive statment

A

proven statement

288
Q

normative statement

A

can prove

289
Q

opportunity cost is

A

the lost opportunity of the next best alternative

290
Q

ppf

A

just tells us the different combinations that can be produced not the best

291
Q

Elasticity of demand for labour, tells us

A

How responsive demand for labour is to changes in wage

292
Q

few substitute =

A

inelastic demand

293
Q

lots of substitutes =

A

elastic demand

294
Q

wages are a small % of total cost

A

unresponsive inelastic demand

295
Q

wages are a large % of total cost

A

v responsive elastic demand

296
Q

in the short run, if wages increase, demand will be:

A

inelastic because there’s not enough time to find substitutes

297
Q

in the long run, if wages increase, demand will be

A

elastic because there is enough time to find substitutes

298
Q

if demand is inelastic wages will be

A

higher

299
Q

if demand is elastic wages will be

A

lower

300
Q

What are the three key factors which affect labour elasticity of demand?

A

Substitutes
% of total cost
Time

301
Q

in markets where workers require lots of skills and qualifications, supply will be:

A

inelastic

302
Q

in markets where workers require few of skills and qualifications, supply will be:

A

elastic

303
Q

in the short run if wages increase

A

workers don’t have time to train and apply for a job so workers are unresponsive to a change in price, so inelastic supply

304
Q

in the long run if wages increase

A

workers will have lots of time to apply and train for the job so elastic supply

305
Q

Derived demand is

A

demand for a factor of production (like labour) that is derived from the demand of another good/service.

Economics (5 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions