Normative properties Flashcards

1
Q

What is a welfare analysis?

A

Resources are allocated efficiently or not

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2
Q

What is consumer surplus?

A

The difference between the price consumers are willing and able to pay for a good and what they actually pay
- usually below demand curve and above price line

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3
Q

What is producer surplus?

A

The difference between the price producers are willing and able to supply and the price they actually receive
- usually above supply and below price line

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4
Q

What is society’s surplus?

A

Consumer surplus + Producer surplus

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5
Q

What are interrelated markets?

A

Joint demand, complements
e.g Razor + blades, printer + ink

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6
Q

How to show interrelated markets on graphs?

A

Price and quanity of one
and then next to it the price and quanity of other

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7
Q

What is competitive demand?

A

Substitutes, increased competition
e.g Coke + pepsi, Iphone+ galaxy

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8
Q

What is derived demand?

A

Input demand
e/g holiday+ Airtime travel, Cars+ allumin
- both increase

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9
Q

What is Composite demand?

A

2 goods that require the same input therefore increase production of one leads to decrease supply in other
e.g Cheese + butter = milk
Bread + livestock = wheat

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10
Q

What is joint supply?

A

Increased production of one good leads to increased supply of other
e.g honey+ beeswax, Crude oil + petroleum

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11
Q

What does price elasticity of demand measure?

A

PED
The responsiveness of quantity demanded given a change in price

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12
Q

How to work out the price elasticity of demand?

A

percentage change in quanity demanded/ perchange change in price

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13
Q

What is the Law of Demand

A

That price elasity of demand is always negative

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14
Q

When is demand elastic?

A

If greater than 1
- Any price change, there is a grater proportional change in quantity demanded

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15
Q

When is demand inelastic?

A

Less than 1
- when price change, quanity demanded will change but less t

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16
Q

What does 0 mean for PED?

A

Demand is perfectly inelastic so no change

17
Q

What are the 3 social welfare functions?

A
  1. Utilitarian
  2. Weighted
  3. Rawlsian
18
Q

What is Utiliarian social welfare?

A

Social welfare sum up everyones utility and weighing this equally
e.g allocations - 3 roommates, 21 meals and 1 kitchen, could do 7 = or 10,10 an 1

19
Q

Negative of utilitarian social welfare

A

Doesn’t consider inequality, some people are worse off

20
Q

What is weighted social welfare?

A

Can add different weights based on importance

21
Q

What is Rawlsian social welfare?

A

Looks at only 1 person’s utility, one whos worse off
- ‘brings up the bottom’

22
Q

What is Utility?

A

The usefulness/ enjoyment a consumer gets from service or good

23
Q

What does a welfare analysis achieve?

A

To see if resources have been allocated efficently or not

24
Q

What is the Utilitarian welfare criterion?

A

Optimal societal outcome maximises sum of individual welfares
- identifying stakeholders, finding individual welfare, then plus the overall welfare

25
What is market equilibrium?
Price that clears the market as people are willing to pay is = to supply
26
What is deadweight loss?
Reduction of society surplus Units that should/ not be produced
27
How to find DWL?
Find Marginal benefit than marginal costs and equilibrium point
28
What is the first welfare theorem?
A perfectly competitive equilibrium maximises social welfare, as production and consumption are at optimal levels without DWL
29
What is the second welfare theorem?
Any efficient outcome can be achieved through competitive prices, provided surplus are appropriately redistributed before transactions
30
What is central planning systems?
Government decisions over market meaning they can't efficiently respond to supply and demand
31
What does competitive equilibrium allocate?
Resources under perfect competition, achieveing equity requires redistribution without price change (ALLOCATIVE EFFICIENTLy) without price changing
32
Applications for DWL
- Exercise taxes = introduce DWL by reducing consumer and producer surplus, as this surplus to govenment revenue - Price support = policies to maintain price equilibrim - Price floors - restrict price below certain threshholds kleading to rationality
33