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Economics > Micro Essentials > Flashcards

Micro Essentials Flashcards

1
Q

Three measures of efficiency

A

Allocative

Productive

X-efficiency

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2
Q

Five characteristics of perfect competition

A

Profit maximising

Perfect information

Large number of buyers and sellers

Homogenous goods

Price taker

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3
Q

Three arguments for allowing a monopoly

A

Dynamic efficiency

Economies of scale

Patents - which encourage innovation by firms

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4
Q

Five types of market failure

A

Information failure

Self interest

Tragedy of the commons

Income inequality

Monopoly Power

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5
Q

Four remedies for a monopoly

A

Deregulation

Windfall tax

Quality/performance targets

Privatisation

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6
Q

Three labour market imperfections

A
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7
Q

What is consumer surplus

A

The difference between the amount the consumer is willing and able to pay and the amount they actually pay

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8
Q

Name three types of anti competitive behaviour

A

Limit pricing

Collusion

Mergers

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9
Q

What is a complex monopoly

A

Exists if at least one ???

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10
Q

Three conditions needed for price discrimination

A

Price maker

Good information of consumers

No price seeping

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11
Q

What is a contestable market

A

A market where incumbent firms are under threat of entry by many potential entrants

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12
Q

What is the difference between absolute and relative poverty

A

Absolute - cannot afford basic necessities

Relative- a person earning income just below average (60%)

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13
Q

Name five possible causes of poverty

A

Poor education

Health issues, age

Massive wage inequality

Poverty trap

Poor paying job

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14
Q

5 strategies which government can employ to reduce poverty

A

UBI adv: eliminates relative/absolute poverty dis: may disincentives people to join workforce and to just live off of the wage

Minimum wage adv: encourages people to join workforce and improve human capital to get better job dis:unemployment as firms may not be able to afford

Subsidise education/health care

Progressive taxation

Means tested benefits

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15
Q

Four reasons why tax is collected

A

To internalise negative externalities

Disincentivise unwanted behaviour

Fund public services

Redistribute income

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16
Q

Difference between income and wealth

A

Income - a flow of money over a time period

Wealth - value of assets owned -> can generate income e.g. homes rented

17
Q

What are the different types of tax

A

Proportional tax - everyone is taxed the same regardless of income

Progressive tax - rich pay more tax

Regressive tax - poorer pay more tax

18
Q

Why do average costs fall then rise

A

Economies and diseconomies of scale

19
Q

Name the different types of economies of scale

A

Risk bearing
Financial
Managerial
Technical
Marketing
Purchasing

Internal and external

20
Q

Give different reasons for diseconomies of scale

A

Inefficient communication between workers etc.

Us and them attitude

Workers don’t feel as valued-> decreased productivity

If all raw materials locally were used then would have to pay higher prices to buy materials from elsewhere

21
Q

What stops firms being efficient

A

When there isn’t incentive to cut costs

22
Q

Can monopolies make abnormal profit in the SR

A

Yes and LR

23
Q

Advantages of private ownership

A

Increased focus on efficiency as profits are to be maximised

X-efficient

Profit maximisation

Efficiency (allocative, productive, x-efficient)

Increased quality + choice of goods

Reinvents small profits over time to try getting ahead of other firms

24
Q

The economic problem

A

Infinite needs and wants but limited resources

25
Q

Term for when msrket doesn’t lead to best allocation of resources

A

Allocatively efficient

26
Q

Public goods

A

Non rival - they cannot stop anyone from consuming the good

Non excludable - one person consuming doesn’t exclude someone else from also

27
Q

What do public goods lead to

A

Free rider problem and tragedy of the commons

28
Q

Merit/demerit goods

A

Merit goods produce positive externalities when consumed but are underconsumed in the free market due to irrational consumers not considering long run benefits

Demerit goods when consumed lead to negative externalities in consumption and are overconsumed in the free market as consumers are irrational and don’t consider the long term costs of what they are doing

29
Q

Solutions to merit and demerit goods

A

Subsidies for merit goods to incentivise consumption

Taxes on demerit goods to disincentivise consumption

30
Q

Monopoly

A

A single seller in a market which has high barriers to entry

31
Q

Solutions to a monopoly

A

Deregulation to encourage competition

Windfall tax

Quality control

32
Q

Inequality of income and wealth

A

Low income households have lower standard of living and no assets to bring in income

High income household are the opposite

33
Q

Solutions to inequality of income and wealth

A

Taxes

UBI

Minimum wage

Benefits

Subsidies on merit goods e.g. school

Economics (6 decks)

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