Brainscape's Knowledge GenomeTM

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


See full index

Economy HL > Microeconomics (2.8 to 2.12) > Flashcards

Microeconomics (2.8 to 2.12) Flashcards

1
Q

What is legislation and regulation for positive externalities ?

A

Laws enforced by the government to ensure certain behavior from consumers and producers.

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

Advantages of legislation and regulation for negative externalities ?

A
  • Effective in reducing externalities from a command and control approach
  • Implemented quickly and can happen over night
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Disadvantages of legislation and regulation for negative externalities?

A
  • Monitoring and enforcing costs incurred by the government
  • Political pushback
  • People may choose to break rules if penalties are not significant enough
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is education and awareness creation for positive externalities?

A

Governments may educate public about benefits of merit goods through advertisements, campaigns and schools to encourage consumption.

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

Advantages of education and awareness creation for positive externalities?

A

Effective campaigns can change consumer behavior for long term.

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

Disadvantages of education and awareness creation for positive externalities?

A
  • Education campaigns only encourage people to change behavior
  • Requires time for message to be accepted and behavior to change
  • Opportunity cost of government spending
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is direct provision?

A
  • Government may directly provide goods and services in public sector to public
  • Change in supply due to direct intervention of providing more supply towards public
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Advantages of direct provision

A

Increase in consumption of good or service that may be unaffordable for low income consumers

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

Disadvantages of direct provision?

A
  • Opportunity cost for government spending
  • Goods and services provided free of charge resulting in overconsumption
  • Government may prioritize to certain groups
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What are subsidies for merit goods?

A

Governments may also provide subsidies to producers to reduce the cost of production to encourage consumption and production.

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

Advantages of subsidies?

A

More accessible towards low income groups due to lower price’s
Producers receive higher profit margins due to government subsidies

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

What are indirect taxes?

A

Placed on the expenditure of goods and services, paid by producers to government to help externalize external costs within market consumers

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

Advantages of indirect taxes?

A
  • Price increase discourages consumption
  • Higher costs discourages production
  • Tax revenue generated for government
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Disadvantages of indirect taxes?

A
  • Low income groups pay higher portion of income for tax
  • Ineffective for goods with inelastic PED
  • Imperfect market information means size of tax is unlikely equal to external costs
  • Emergence of parallel markets, illegal selling of goods
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is legislation and regulation in fixing negative externalities?

A

Laws enforced by government to ensure certain behaviors from consumers and producers

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

Advantages of legislation and regulation for negative externalities?

A
  • Effective in reducing externalities from command and control approach
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Disadvantages of legislation and regulation for negative externalities?

A
  • Monitoring and enforcing costs incurred by government
  • Political pushback
  • People may choose to break rules if penalties are not high enough
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is education for negative externalities?

A

Government may discourage consumption of demerit goods through education and awareness campaigns so public is more aware of negative effects of the goods

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

Advantages of education for negative externalities?

A
  • Effective campaigns may change consumer behavior for long term
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Disadvantages of education for negative externalities?

A
  • Encourages people to change behavior, effectiveness may vary
  • Requires time for message to be accepted and behavior to change
  • Opportunity cost of government spending
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What is collective self governance?

A

Voluntary communal actions that combat negative externalities. Successful campaigns may change social norms and cultural behaviors.

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

What are carbon emissions?

A

Carbon emissions are release of carbon into atmosphere which is one of the most common and significant negative externalities which occur from economic activity.

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

What are carbon taxes?

A

Imposed on consumers for carbon emissions from production activities with aim of minimizing environmental pollution

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

Advantages of carbon taxes?

A
  • Creates incentives for firms to use cleaner technologies in production
  • Internalize externality, producers and consumers pay for environmental costs
  • Tax revenue generated
  • Easily implemented
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Disadvantages of carbon taxes?

A
  • Low income groups pay higher position of income for tax
  • Ineffective for products with inelastic PED
  • Imperfect market information thus difficult to predict accurate level of externalities and carbon tax to achieve socially optimal output
  • Unfair advantage for small firms vs large firms
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What are tradeable permits?

A

Limits level of pollutant to a level determined by government, firms issued with tradeable perms have right to pollute up to level permitted.
- Can freely be traded between firms
- more pollutant producers create, more permits required to purchase
- more environmentally producers may sell excess permits to gain revenue
- Creates incentives for firms to switch to cleaner production technologies

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

Advantages of tradeable permits?

A
  • Limits carbon emissions to predetermined level
  • More incentive to switch to clever technology
  • Consumers / producers pay for external costs
  • Flexibility for firms, can choose to switch to cleaner technology or pay for permits
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Disadvantages of tradeable permits?

A
  • Potential job decrease as increased production cost for producers
  • MNC’s may shift production to other countries to avoid permits
  • Difficult to determine optimal level of pollutant and permits allowed per year
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

What is perfect competiton?

A

Market structure with a lot of suppliers of a particular good or service with many substitutes and low barriers of entry thus making them price takers.

30
Q

What is a monopoly?

A

Market structure with a single supplier for a particular good or service with no substitutes and high barriers of entry making them price makers.

31
Q

What are barriers to entry?

A

Branding
Legal barriers
Anti competitive practices
Domination of resources
Economies of scales

32
Q

What is an oligopoly?

A

Market structure with a few firms that dominate the industry and do not collude together. Market share of the dominant firms that matters.

33
Q

What are characteristics of oligopoly?

A
  • Few large firms
  • High barriers to entry
  • Interdependence
34
Q

What is monopolistic competition?

A

Market structure where many firms exist thus each firm has only small degree of market power

35
Q

What are characteristics of monopolistic competition?

A
  • Many firms in the market
  • Product differentiation as they all sell similar but slightly different product
  • Low barriers to exit or enter the industry
36
Q

Formula for total revenue

A

Price x quantity

37
Q

Formula for Average revenue

A

Total revenue / Quantity

38
Q

Formula for profit

A

Total revenue - Total cost

39
Q

Formula for total fixed cost

A

Average fixed costs x Quantity

40
Q

Formula for average fixed cost

A

Total fixed costs / Quantity

41
Q

Formula for average variable cost

A

Total variable cost / Quantity

42
Q

Formula for total variable cost

A

Average variable cost x quantity

43
Q

Formula for total costs

A

Total fixed costs + Total variable costs

44
Q

Formula for average cost

A

Total costs / Quantity

45
Q

Formula for marginal revenue

A

Change in total revenue / Change in quantity

46
Q

What is abnormal profit?

A

Profit that is greater than normal profit, creating incentives for producers to increase output and for potential rivals to enter the market

47
Q

What is normal profit?

A

Firm earns just enough to cover its total costs of production and remain operational in the industry

48
Q

What are losses?

A

Firm’s total cost of production exceeds total revenue and cannot cover its unit costs of production, they can only remain operational in the short run.

49
Q

What is a natural monopoly?

A

Type of monopoly where economies of scale exists in industry so significant that only one room for one industry to operate in market.

50
Q

What happens if there are 2 firms in a natural monopoly?

A

With one firm there is sufficient demand to provide profit but with second demand both businesses have lower demand and forced to shut down. Natural monopolies typically occur in infrastructure projects, electricity supply, gas and water supply and more.

51
Q

What is allocative efficiency?

A

Socially optimal point where resources are produced in a way that consumers and producer surplus maximized. Thus no resources wasted and social welfare maximized.

52
Q

Why do monopolies lack incentive to provide at allocative efficient level?

A

No incentive due to lack of competition therefore consumers need to pay more for lower output (P>MC)

53
Q

what is productively effeciency?

A

Output level is where AC is minimized, no wastage of resources thus MC = AC.

54
Q

Why do monopolies lack incentive to provide at productively efficient level?

A

Lack incentive to operate at lowest point on AC curve thus will charge at higher prices

55
Q

What is market power?

A

FIrm’s ability to control prices of a product and can be categorised into market structures.

56
Q

Formula for economic profit?

A

Total revenue - Total costs

57
Q

Characteristics of perfect competition?

A
  • Many small firms
  • Homogenous products
  • No market power
  • No barriers to entry
  • ## Prefect information
58
Q

Benefits of perfect competition

A
  • Allocative efficient
  • Productive efficient
  • Low prices for consumers
  • Competition leads to closing down of inefficient producers
  • Market responds to customer tastes
  • Market responds to changes in technology or resources prices
59
Q

Drawbacks of perfect competition?

A
  • Unrealistic competition
  • Limited options to take advantage of economies of scales
  • Lack of product variety
  • Waste of resources in long run adjustment
  • Limited ability for R and D
60
Q

Why are monopolistically competitive firms unsustainable in the long run when making economic profits

A

As producers have perfect information and will enter market for economic profits, new firms increase the number of substitutes thus demand curve for individual firm will decrease. Producers making economic profit will then make normal profit in long run.

61
Q

Why are monopolistically competitive firms unsustainable in the long run when making economic losses.

A

Rational producers will exit market thus less firms in the market meaning less substitutes thus demand curve shifting upwards for individual firms. Thus producers with economic loss will eventually make normal profits.

62
Q

Characteristics for a monopoly?

A
  • Single or dominant firm
  • Dominant power price makers
  • High barriers to entry
  • No close substitutes
63
Q

Why will a monopolistic firm earn economic profits?

A

High barriers of entry means potential firms unlikely to enter the industry to compete for economic profits thus monopolist will continue to earn supernormal profits in long run.

64
Q

Why will a monopolistic firm earn economic loss?

A

Due to high barriers to exit, monopolist will continue to incur economic loss in long run.

65
Q

How does government intervention work with monopolies?

A

At profit maximizing level for monopolistic firm, welfare loss incurred thus social optimal price would be AR=MC but no incentive to do so. Thus subsidy granted to cover losses when producing at P=MC.

66
Q

What are concentration ratios?

A

Sum of market share held by largest firms in the industry.

67
Q

What is collusion?

A

Collusion is an agreement between oligopolists to fix prices and collectively limiting output which creates artificial barriers to entry. This is due to incentive to earn supernormal profits.

68
Q

What are economies of scales?

A

As production increases, long run average costs will decrease as fixed costs are spread over large range of units. Can be internal or external.

69
Q

What is innovation?

A

Large firms with significant market power earn supernormal profit and invested into R and D. Includes innovations in production to allow for more efficient production

70
Q

Risks with oligopolies for market supply?

A

Under profit maximizing assumption, firms always produce at MR=MC, this is allocatively inefficient as P doesn’t equal MC leading to underprovision and consumption of a product leading to welfare loss.

71
Q

Risks with oligopolies for market prices?

A

Restricted output will lead to higher prices reducing consumer surplus as large firms have market power to control prices.

72
Q

Risks with oligopolies for consumer choice?

A

Lack of competition, lowers incentive for large firms to innovate thus consumers have less option to choose from.

Economy HL (6 decks)

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