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rupert > micro economics > Flashcards

micro economics Flashcards

1
Q

what is scarcity?

A

a situation where people have unlimited wants but limited resources.

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2
Q

what is an economic good?

A

goods that are scarce.

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3
Q

what is a free good?

A

goods that are not normally regarded as being as scarce.

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4
Q

What is a basic economic problem?

A

people must choose how best to use their limited resources because not all needs and wants can be satisfied

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5
Q

what is absolute poverty?

A

lack of basic needs

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6
Q

what is relative poverty?

A

poor by comparison

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6
Q

what is rationality?

A

economic agents acting in their best interest

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7
Q

what is utility in economics?

A

the benefit derived from the consumption of a good or service

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7
Q

what is a positive statement?

A

a statement of factual information

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7
Q

what is a normative statement?

A

a statement involving judgment about what ought to be

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7
Q

what is a value judgement

A

a statement based on opinions and beliefs

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8
Q

what are the rewards for the factors of production?

A

land=rent, labour=wages, capital=interest, enterprise=profit

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9
Q

what is a centrally planned economy?

A

the government guides resource allocation in an economy

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10
Q

what is a mixed economy?

A

a combination of market forces and government interventionsfor allocating resources

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11
Q

what is a market economy?

A

market forces are allowed to allocate resources within their own economy

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12
Q

what does gdp stand for?

A

gross domestic product- the value of all final goods and services produced in a country year

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13
Q

what is a trade-off?

A

a situation where the choice of one alternative requires the sacrifice of another

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14
Q

what is opportunity cost?

A

in decision making, the value of the next best alternative forgone

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15
Q

production possibility curve is?

A

a curve that shows the maximum combinations of goods or services that can be produced in a set period of time

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16
Q

what is a capital good?

A

goods used as a part of the production process, such as machinery or factory buildings

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17
Q

what is a consumer good?

A

goods produced for present use

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18
Q

what is long run economic growth?

A

an expansion in the productive capacity of the economy

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19
Q

why does scarcity arise?

A

economic agents have unlimited wants in the face of finite resources

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20
Q

what does a PPC graph show?

A

the limit that scarcity imposes on possible production combinations of two goods

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21
Q

what is the difference between a movement and a shift on a PPC graph in terms of the resources?

A

movements along a PPC graph show reallocation of resources whereas a shift shows a change in quantity or quality of labour

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22
Q

what would shifts in a PPC graph be a result of?

A

technology, natural disasters, quantity or quality in land labour capital and enterprise

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23
Q

what is barter system?

A

an economy without money so that transactions in goods and services rely on a direct exchange

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24
Q

what is the formula for productivity?

A

units of output/units of input

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25
Q

what is demand?

A

the quantity of a good or service that consumers are willing and able to buy given its price

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26
Q

what is joint demand?

A

goods that are demanded together(interdependent) e.g. printers and ink

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27
Q

what is composite demand?

A

demand for a good that has multiple uses e.g. corn

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28
Q

what is competitive demand ?

A

goods that are in competition with each other e.g. fast food restaurants

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29
Q

what is ceteris paribus?

A

Latin for all things are equal-changes in one variable while holding other influences constant

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30
Q

when is normal good desirable?

A

the quantity demanded increases in response to a rise in consumer income

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31
Q

when is an inferior good favourable?

A

quantity demanded increases due to a reduction in consumers income

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32
Q

what is a competitive market?

A

a market where an individual firm cannot influence the prices because of competition from other firms

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33
Q

what is competitive supply?

A

a firm can use its factors of production to produce alternate products

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34
Q

what is joint supply?

A

a firm produces more than one product together e.g. cattle

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35
Q

what is consumer surplus?

A

the value that consumers gain from consuming a good and service above what they paid for it

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36
Q

what is producer surplus?

A

the difference between the price received by firms of the good or service and the price they were willing to supply a good or service at

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37
Q

Factors that cause the demand curve to shift to the right:

A

something becomes more popular, consumers RDI rises, price of substitutes increase and complementary goods fall

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38
Q

factors that cause demand curve to shift left

A

something becomes less fashionable, fall in consumer RDIs, price of substitutes fall and complementary goods rises

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39
Q

factors that cause supply curve to shift right.

A

decreased cost of production and T, increased technology, number of suppliers, subsidies

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40
Q

factors that can cause shift left of the supply curve.

A

increased cost of production and T, decreased number of suppliers, technology, productivity of factors of production, lower subsidies and poor expectations of future prices.

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41
Q

what is elasticity?

A

a measure of sensitivity of one variable to changes in another variable

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42
Q

What does PED stand for?

A

Price elasticity of demand

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43
Q

what is price elasticity of demand?

A

a measure of sensitivity of quantity demanded to a change in the price of a good and service

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44
Q

what does unitary mean in terms of PED?

A

the percentage rise or fall in price is exactly equal to the percentage fall or rise in quantity demanded (PED= -1)

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45
Q

what is the formula for PED?

A

%change in quantity demanded / %change in price

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46
Q

is PED always a negative?

A

yes

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47
Q

what counts as elastic demand?

A

PED<-1

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48
Q

what counts as inelastic demand?

A

PED>-1

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49
Q

what is YED?

A

Income elasticity of demand

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50
Q

what is an inferior good?

A

the quantity demanded decreases in response to an increase of incomes

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51
Q

What is a normal good?

A

the quantity demanded increases in response to an increase to consumer incomes

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52
Q

what is a superior good?

A

the income elasticity of demand is positive and greater than 1 so that when income rises consumers will spend proportionally more

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53
Q

what is the formula for YED?

A

%change in quantity demanded/%change in income X100

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54
Q

what are the YED values for an inferior good?

A

-1> elastic inferior good
-1< inelastic inferior good< 0

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55
Q

What are the YED values for a normal good?

A

0<normal good<1

56
Q

What are the YED values for a superior good?

A

1< superior goods

57
Q

what is national minimum wage?

A

the minimum pay per hour most workers under the age of 23 are entitled to by law

58
Q

What is the national living wage?

A

what is the minimum pay per hour most workers over the age of 23 are entitled to by law

59
Q

What is XED?

A

cross elasticity of demand

60
Q

what is the formula for cross elasticity of demand?

A

%change in quantity demanded of good A / %change in price of good B

61
Q

what does calculating YED do for a firm?

A

allows firms to predict impact of changes to GDP on demand for their goods or services

62
Q

is an elastic PED demand curve relatively flat or relatively steep?

A

flat because even a small change in demand will have a big difference in quantity demanded.

63
Q

is a inelastic PED demand curve relatively flat or relatively steep?

A

steep because even a big change in price will not cause a change in the quantity demanded

64
Q

what happens to revenue for elastic, inelastic and unitary demand when the price increases?

A

elastic- fall, unitary- doesn’t change, inelastic-rises

65
Q

what happens to revenue when for elastic, inelastic and unitary demand when the rice decreases?

A

elastic- rises, unitary- doesn’t change, inelastic-falls

66
Q

is a perfectly elastic PED demand curve horizontal or vertical?

A

horizontal

67
Q

is a perfectly inelastic PED demand curve horizontal or vertical?

A

vertical

68
Q

why is YED not useful to government or firms?

A

it will be unreliable for firms as they will base it off historical figures and the government cant rely on it as consumer preferences change

69
Q

what does XED tell you about substitute goods?

A

if its a close substitute increases price it will have a high xed value for the quantity demanded e.g. 5, if its a weak substitute an increases in price will have a low xed value for the quantity demanded e.g. 0.5, therefore a firm can identify competitors

70
Q

what does XED tell us about complementary goods?

A

close compliment XED will be something like -5, a weak substitute will have a XED value of somethimg like -0.5

71
Q

What is the marginal principle ?

A

the idea that economic agents may take decisions by considering the effect of small changes from the existing

72
Q

what is rational decision making in economics?

A

a decision that allows an economic agent to maximise their objective, by setting the marginal benefit of and action equal to its marginal cost

73
Q

what is utility?

A

a measure of the satisfaction received from consuming a good or a service

74
Q

what is marginal utility ?

A

The additional utility gained from consuming an extra unit of a good or a service

75
Q

what is the law of diminishing marginal utility ?

A

the more units of a good that are consumed the lower the utility from consuming those additional units

76
Q

what is the difference between the marginal utility and total utility?

A

marginal utility is the benefit gained from one additional unit whereas total utility is the overall benefit gained from consuming the good

77
Q

what is market failure ?

A

a situation in which the free market mechanism does not lead to an optimal allocation of resources,

78
Q

what is private cost?

A

a cost incurred by an individual(firm or consumer) as part of its production or other economic activities

79
Q

what is external cost?

A

a cost that is associated with an individuals production or other economic activities, which is borne by a third party

80
Q

what is social cost?

A

private cost + external cost

81
Q

how do you define a third party?

A

someone who is not involved in the production or consumption of a good or service

82
Q

What is MSC?

A

the marginal social cost is the cost to society of producing an extra unit of a good

83
Q

What is MPC?

A

the cost to an individual of consuming an extra unit of a good

84
Q

what is private benefit?

A

a benefit gained by an individual as a part of its consumption

85
Q

what is the external benefit?

A

a benefit gained by an individuals consumption which spills over into a third party

86
Q

what is social benefit?

A

private benefit + external benefit

87
Q

What is marginal social benefit?

A

the additional benefit that society gains form consuming an extra unit of a good

88
Q

what is marginal private benefit?

A

the additional benefit that a consumer gains from consuming an extra unit of a good

89
Q

what is marginal external benefit?

A

the additional benefit to society, not considering by the individual consuming and extra unit of a good

90
Q

what is the MPC curve the same as (in a free market?)

A

the supply curve

91
Q

what is the MPB curve the same as (in a free market?)

A

the demand curve

92
Q

in a free market producers only consider ___ of their production meaning that hey miss out ___ which will lead to divergent ___ of their production.

A

private costs - external costs - social costs

93
Q

in a free market consumers only consider ___ of their consumption meaning that they miss out ___ which will lead to divergent ___ of their production.

A

private benefits - external benefits - social benefits

94
Q

How is the welfare loss represented on a negative externality of consumption graph

A

the shaded area which is a triangle created by the MPB and the MSC=MPC intersection, Q0 and the MSB line

95
Q

What is the definition of externality?

A

a cost or a benefit to a market transaction, and is thus not reflected in market prices

96
Q

what are some examples of positive externalities of consumption?

A

christmas lights, education, healthcare, vaccination

97
Q

what are some examples of negative externalities of consumption?

A

air pollution, household waste, noise pollution- vehicles, litter

98
Q

How is the welfare gain represented on a positive externality of consumption graph

A

the shaded area which is a triangle created by the MPB and the MSC=MPC intersection, Q0 and the MSB line

99
Q

What does a positive externality of consumption cause in a free market

A

underconsumption

100
Q

What does a negative externality of consumption cause in a free market

A

overconsumption

101
Q

what is information failure?

A

a type of market failure where economic agents lack sufficient information to make fully informed decisions

102
Q

what is asymmetric information?

A

a situation in which some participants in a market have better information about market conditions than others

103
Q

what is adverse selection?

A

a situation where a person at risk is more likely to take out insurance

104
Q

what is moral hazard ?

A

a situation in which a person who has taken out insurance is prone to taking more risks

105
Q

in a competitive market when buyers and sellers have full knowledge of prices, costs, benefits, availability and substitute goods this is known as?

A

perfect information

106
Q

What is a merit good?

A

a good that brings unanticipated benefits to a consumer, such that society believes that it will be under consumed in a free market.

107
Q

What is a demerit good?

A

a good that brings less benefit to consumers than they expect, such that too much consumption will be consumed by individuals in a free market.

108
Q

examples of demerit goods?

A

tobacco, alcohol, gambling, junk food, sugary soft drinks and illegal drugs

109
Q

examples of merit goods?

A

museums, libraries, art galleries, healthcare, education and work training programmes

110
Q

what is a private good?

A

a good that once consumed by one person cannot be consumed by someone else

111
Q

What is a public good?

A

consumers cannot be excluded from consuming the good and the consumption by one person does not affect the amount consumed by another person,

112
Q

What is non-excludability?

A

a situation in which it is not possible to to provide a product to one person without allowing others to consume it aswell

113
Q

what is non-rivalry?

A

a situation in which one person consumption does not prevent the other person consuming it aswell

114
Q

What is non-rejectability?

A

a situation in which an individual cannot avoid consuming a good.

115
Q

What is a free rider problem?

A

when an individual cannot be excluded from consuming a good and so has no incentive to pay for its provision

116
Q

What is zero marginal cost?

A

the cost of providing the good to an extra consumer is zero

117
Q

What is a quasi-public good?

A

a good that has some but not all the characteristics of public goods i.e. it could be non-exclusive and rivalrous

118
Q

examples of private goods?

A

street lights, light houses, defense, nuclear deterrent, firework displays, flood defenses, Wikipedia

119
Q

What is a free rider problem?

A

When an individual cannot be excluded from consuming a good, thus has no incentive to pay for its provision

120
Q

what is an example of a free rider in the economy?

A

A billionaire who has no incentive to pay for nuclear weapons but lives in a country that is protected by nuclear weapons

121
Q

What is a tax?

A

compulsory fee levied on individuals or firms by government

122
Q

what is an indirect tax?

A

a tax levied on expenditure on goods or services

123
Q

what is a direct tax?

A

a tax charged directly to an individual based on a component of income

124
Q

what is the incidence of tax?

A

the way in which the burden of paying a sales tax is divided between buyers and sellers

125
Q

what is a specific tax?

A

a tax of a fixed amount imposed on purchases of a commodity

126
Q

what is an ad valorem tax?

A

a tac levied on a commodity set as a percentage of the selling price

127
Q

What is a commodity?

A

the raw materials used in the production of goods

128
Q

What is the excess burden of sales tax?

A

the deadweight loss to society following the imposition of a sales tax

129
Q

what is the polluter pays principle?

A

an argument that a firm causing pollution should be charged the full external cost that it inflicts on society

130
Q

What is state provision/government expenditure?

A

when it the government decides which goods or services to provide and then spends money providing them.

131
Q

What is the difference between state provision and government expenditure

A

with state provision the government provides the action of carrying out what needs to be done

132
Q

What is price control?

A

a legal maximum or minimum price

133
Q

What is a price floor?

A

a legal minimum price

134
Q

What is a price ceiling?

A

a legal maximum price

135
Q

What is a merger?

A

two or more firms joining to form a new business

136
Q

What is a cartel?

A

an agreement between firms on price and/or output with the intention of maximizing their joint profits

137
Q

What is a buffer stock?

A

a scheme intended to stabilise the price of a commodity by buying excess supply in period when supply is high and selling when supply is low

138
Q

What is legislation?

A

laws created by the government to enforce regulations

139
Q

What is a regulation?

A

rules created by a government to control activities of producers and consumers by changing their behaviour

140
Q

What is prohibition?

A

an attempt to prevent the consumption of a demerit good by declaring it illegal

141
Q

What is information provision?

A

when the government educates the public to help consumers make better decisions

142
Q
A

rupert (19 decks)

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