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Economics Y1 > Micro L7 - 12 > Flashcards

Micro L7 - 12 Flashcards

1
Q

What 2 approaches can assumptions follow?

A
  • Deduction, which starts w/ hypothesis
  • Induction, which involved collecting evidence
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2
Q

Compare the two schools of economic thought

A
  • In classical and neoclassical economics decision makers are assumed to be rational (deductive)
  • In behavioural economics decision makers are assumed to have bounded rationality, which is a lack of time, info or ability to process info
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3
Q

What do economic agents require to make rational decisions?

A
  • Time
  • Info
  • Ability to process info (computation)
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4
Q

What is utility in general and what is it for firms?

A

Utility = Satisfaction/Benefit derived from consuming a good
Utility for firms = Profit

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5
Q

What other behaviours prevent rational decision making?

A
  • Habitual behaviours –> used to consuming good/service
  • Consumer inertia –> fear of changing to smth new
  • Social influence
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6
Q

What is demand?

A

Quantity of good/service purchased at a given price over a given time period

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7
Q

Ceteris paribus what is the relationship between price and demand?

A

As price increases, demand decreases vice versa

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8
Q

How is a decrease in price shown on a supply/demand curve?

A

There is an extension in demand and contraction in supply. Movement up the curve for demand and movement down the curve for supply

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9
Q

How is an increase in price change shown on a supply/demand curve?

A

There is a contraction in demand and an extension in supply which is movement down the curve for demand and movement up curve for supply

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10
Q

How is a decrease in non-price change shown on a supply/demand curve?

A

Shift to left

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11
Q

How is an increase in non-price change shown on a supply/demand curve?

A

Shift to right

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12
Q

What are the non-price changes that can affect demand?

A
  • Advertising
  • Change in incomes
  • Change in pop structure
  • Change in tastes/preferences
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13
Q

What are the non-price changes that can affect supply?

A
  • Weather conditions
  • Improvement in tech/innovation
  • Changes in production costs
  • Number of firms in market
  • Change in price of related goods
  • Expected price changes in future
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14
Q

What is supply?

A

Quantity of good/service firms are willing to sell at a given price over a given time period

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15
Q

How is total revenue calculated?

A

Price x quantity

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16
Q

Ceteris paribus what is the relationship between price and supply?

A

As price increases, supply provided increases

17
Q

What assumptions does the supply diagram make?

A
  • Firms are motivated to produce by profit
  • Cost of production of one unit increases as output increases
18
Q

What is excess demand and how is it shown on a supply and demand diagram?

A

Quantity of goods/services purchased exceeds the quantity of goods/services firms are willing to sell at a given price over a given period of time.
Bottom half of graph past equilibrium

19
Q

What is excess supply and how is it shown on a supply and demand diagram?

A

Quantity of goods firms are willing to sell exceeds the quantity of goods purchased at a given price over a given period of time
Upper half of graph past equilibrium

20
Q

What is equilibrium price and what does this look like on a graph?

A

Supply and demand are (close to) equal shown by (Q1, P1) or S and D1 intersection or D and S1 intersection

21
Q

What is market-clearing price?

A

Clears goods at the price they have been set

22
Q

Describe a supply and diagram shift when there is a rise in incomes

A

A rise in incomes results in
- greater demand shown by shift from D1 to D2
- greater quantity demanded shown by shift from Q1 to Q2
- pushes a price increase shown by shift from P1 to P2

23
Q

Describe a supply and diagram shift when there is worsened weather conditions

A

Worsened weather conditions result in
- decreased supply shown by shift from D1 to D2
- decreased quantity supplied shown by shift from Q1 to Q2
- pushes a price decrease shown by shift from P1 to P2

24
Q

Subsidy

A

A payment made by the gov to encourage certain economic activities/industries

25
Q

Direct tax

A

Tax levied directly on an individual/organisation

26
Q

Indirect tax

A

Tax levied on good/service

27
Q

Specific tax and the shift it causes

A

Fixed amount of tax that causes a parallel shift in supply curve

28
Q

Ad Valorem tax and the shift it causes

A

Tax that increases as the amount sold increases, which causes a non-parallel shift in supply curve

29
Q

Give two examples of a direct tax

A

Income tax + Corporation tax

30
Q

Give two examples of a indirect tax

A

Fuel duty + VAT

31
Q

Give two examples of a specific tax

A

fuel duty + beer duty

32
Q

Give two examples of an ad valorem tax

A

VAT + import tariffs

33
Q

Check graph calculations for tax and subsidy graphs

A
34
Q

Inferior goods

A

Goods where demand decreases as income rises eg. value brand products

Economics Y1 (12 decks)

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