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Aqa a level economics paper 1 > Micro economics > Flashcards

Micro economics Flashcards

1
Q

Main Reasons for government intervention? (3)

A

Correct market failure, achieve a more equal distribution of wealth and income, improve performance of economy.

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2
Q

Why is there government intervention?(2)

A

one or more of the three functions of price mechanisms break down, change allocation of scarce resources to improve social or economic welfare.

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3
Q

Types of government intervention with demerit and negative externalities? (3)

A

regulation, taxation and quantity control

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4
Q

What is government failure?

A

When the costs of intervention outweigh the benefits.

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5
Q

2 main types of pricing strategy?

A

price agreement and price leadership

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6
Q

Composite demand?

A

A good that is demanded for more than one purpose so an increase in demand for one purpose reduces the supply for the other purposes.

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7
Q

Price competition examples?(3)

A

Predatory pricing, limit pricing and price wars

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8
Q

Non price competition examples?

A

loyalty cards, advertisement, branding

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9
Q

Oligopoly features?(5)

A

high barriers to entry and exit, many small buyers and sellers, interdependency, differentiated goods and price setters

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10
Q

Allocative efficient definition?

A

Where demand=supply maximising society surplus (P=MC)

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11
Q

Public goods?(2)

A

non excludable, non rivalry

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12
Q

Quasi public good?

A

Can become rival

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13
Q

Partial market failure?

A

wrong quantity or price of goods produced

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14
Q

Market failure?

A

Inefficient allocation of scarce resources in a free market

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15
Q

What are external costs and benefits caused by?

A

externalities

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16
Q

Merit goods?(2)

A

under consumed/produced in a free market, positive externalities in consumption

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17
Q

Demerit goods?(2)

A

negative externalities in consumption, over consumed in free market

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18
Q

What does maximum price do to consumers? (2)

A

Increases consumption and makes necessity more affordable

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19
Q

Disadvantages of maximum price?(3)

A

creates excess demand therefore shortage,firms can leave the market as profit maximisers (leading to less options and potentially lower quality goods), could create a black market

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20
Q

Minimum price affect?(2)

A

suppliers get a guaranteed price, excess supply and contraction in demand

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21
Q

Indirect tax?

A

Increase production costs shifts supply left

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22
Q

Direct tax?

A

Lowers consumer/ firms disposable income

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23
Q

Government intervention with positive externalities?

A

Subsidies encourages production and leaves a lower price for consumers so an extension in demand

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24
Q

What is the effect of an indirect tax if demand is inelastic?

A

firms will pass on price to consumers

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25
Q

Factors which affect Ped?(4)

A

availability of subsititutes, time, proportion of income, whether good is luxury or necessity

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26
Q

Xped?

A

Measures the responsiveness of quantity demanded of good A to a change in price of good B.

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27
Q

Factors of monopolistic competition? (5)

A

product differentiation, price making power, elastic demand curve, barriers to entry and exit are low and low concentration ratio

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28
Q

Factors affecting pes?(4)

A

time,raw materials needing to be extracted, availability of spare capacity, ability to alter production methods

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29
Q

Marginal cost?

A

extra cost when producing one more unit

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30
Q

Causes of market failure?(6)

A

Imperfect information, public goods, merit and demerit goods, externalities, inequalities in wealth and income, factor immobility

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31
Q

3 conditions for price discrimination?(3)

A

Price maker (monopoly, market power), limit reselling and have information about consumers ped

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32
Q

Economies of scale barrier to entry explanation?

A

Incumbent firms can keep their prices low and costs creating a barrier to entry as new small firms cannot enter the market and compete or price

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33
Q

What shifts the ppf outwards? (5)

A

improvements in technology, introduction of new resources, increased productivity, increased supply of labour through immigration, improvements in education and training

34
Q

Examples of anticompetitive practices?

A

Collusion, predatory pricing and vertical integration

35
Q

Predatory pricing?

A
36
Q

Productive efficiency?

A

Maximising output at lowest point of AC curve, full exploitation of economies of scale

37
Q

Examples of barriers to entry? (4)

A

high start up costs, sunk costs, high MES and laws and regulations

38
Q

Privatisation?

A

When the government sells state owned company to the private sector as it has become x inefficient- no profit incentive

39
Q

Collusion definition?

A

When two or more firms come together to limit competition

40
Q

Examples of government intervention?(6)

A

subsidies, price controls, taxes, regulation, advertisement, state provision

41
Q

3 main examples of government failures occurring?

A

imperfect information, unintended consequences, enforcement costs very high (subsidies, price controls)

42
Q

What efficiency are firms in perfect competition?

A

static (productively and allocatively)

43
Q

What does dynamic efficiency require?

A

Supernormal profit so firms lack the means

44
Q

Monopolistic competition definition?

A

A market with many firms selling slightly different products

45
Q

What happens to monopolistic firms supernormal profit in the long run?

A

Gets eroded away as new firms enter the market due to low barriers to entry and knowledge widely available. Leads to a shift left of demand as more choice for consumers from other firms.

46
Q

characteristics of a perfect competitive market?(4)

A

many buyers and sellers, homogenous products, no barriers to entry and exit, sellers and buyers have perfect knowledge

47
Q

Characteristics of a Monopoly?(5)

A

Price maker as only one firm (100% market share), high barriers to entry and exit, supernormal profits in the short run and long run, differentiated products and imperfect information

48
Q

Contestable markets?

A

low barriers to entry and exit

49
Q

monopolistic competition?

A

many sellers with price setting powers

50
Q

What profits are possible in the short and long run in monopolistic competition?

A

short run- supernormal profits
long run-normal profits as supernormal profits eroded away (low barriers to entry)

51
Q

Define Consumer surplus?

A

the difference between the price consumers and willing/able to pay for a good/service and the price they actually pay

52
Q

Define producer surplus?

A

The difference between the price producers are willing and able to s

53
Q

internal economies of scale? (6) RMFPTM

A

technological, financial, purchasing, marketing, managerial and risk bearing

54
Q

What is internal economies of scale?

A

when firms become larger and average costs fall with increased output

55
Q

external economies of scale? (2)

A

more training facilities and roads improved

56
Q

Inelastic number?

A

below 1

57
Q

elastic number?

A

above 1

58
Q

Monopoly power definition?

A

When a firm has the ability to set prices (price makers)

59
Q

Monopolistic competition features?

A

many small buyers and sellers, low barriers to entry and exit, price makers

60
Q

Deregulation definition?

A

Removing regulations from markets lowering barriers to entry and encouraging competition

61
Q

Factors which affect elasticity of labour demand?(3)

A

time, substitutes and % of total cost

62
Q

What type of demand is for products which take a high proportion of your income ?

A

Elastic as expensive goods consumers shop around for the best price

63
Q
A
64
Q

Regressive indirect tax eval?

A

Tax takes greater proportion of income of poor than rich so overuse indirect tax promotes more unequal distribution of income which is a market failure and leads to government intervention.

65
Q

Law of diminishing returns definition?

A

When a variable factor of production increases while others stay fixed (short run)

66
Q

Barriers to entry examples (4)

A

sunk costs, economies of scale, brand loyalty and patents,

67
Q

Monopoly evaluation?

A

dynamic efficiency? give profit to shareholders via dividens, save it or pay off debts or workers higher wages so not necessarily reinvested, DOS- size of firm, objective of monopoly assume its profit max but what if sales max?, type of good-luxury good we can pay higher prices for

68
Q

Cons of monopolies?(4)

A

x inefficiency, allocative inefficiency, productive inefficiency and inequalities in necessity markets (food and drink lower income won’t afford)

69
Q

Pros of monopolies?(3)

A

dynamic efficiency, usage of economies of scale large size ( car market), cross subsidisation (large profits can subsidise loss making good

70
Q

Profit satisficing?

A

When a firm makes enough profit to satisfy influencers and stay in the market but may pursue other objectives

71
Q

Marginal physical product of labour?

A

Amount of output produced by each extra worker

72
Q

Marginal revenue product? (MRP)

A

extra revenue an additional worker brings in

73
Q

Labour market shifts?(

A

migration, income tax and benefits, cost of capital,

74
Q

Where does a monopsonist profit maximise?

A

Where MCL=ACL

75
Q

Labour market failure?

A

occupational immobility (labourers lack the skills for new jobs hence becoming structurally unemployed), geographical immobility

76
Q

Wage differential definition?

A

Wage rates differ due to economic factors such as MRP, elasticity of labour supply

77
Q

Complete market failure?

A

When good would not be provided without government intervention (public good)

78
Q

Contestable markets?

A

When there is the threat of competition in a market- features are competitive market features

79
Q

Diminishing marginal utility?

A

As you consume more of one good the satisfaction will decrease from each extra good consumed

80
Q

4 main causes of government failure?

A

Law of unintended consequences, imperfect information, administration costs and distortion of the price mechanism

81
Q
A

Aqa a level economics paper 1 (1 decks)

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