Quiz 1: Chap 1 and 2 Flashcards
What is the definition of economics? (Chapter 1)
Economics focuses on how individuals, governments, firms, and
nations make choices in allocating scarce resources to satisfy their
unlimited needs.
What is macro-economics?(Chapter 1)
Macro-economics is the area of economics within a national or international level
What is micro-economics?(Chapter 1)
Micro-economics is the area of economics on the behaviors of individuals and companies.
What is mineral economics?(Chapter 1)
Mineral Economics is the study and research of the business and economic aspects of mineral extraction and use.
What is a market?(Chapter 1)
Market is a place that brings together buyers and sellers.
Name the 7 types of markets?(Chapter 1)
- Spot (cash or physical) markets
- Internet markets
- Auction markets
- Labor (Job) markets
- Stock markets
- Commodity markets
- Future markets
What is the usual name for outcomes of the primary secto?(Chapter 1)
Commodities
What causes instability in the price of mining commodities?(Chapter 1)
demand in mineral commodities.
On what are mining commodities dependent?(Chapter 1)
mining commodities are dependent on the economic growth of the world.
Fill: When the price of oil increases, the _______ for other fuel commodities also tend to increase.(Chapter 1)(Chapter 1)
When the price of oil increases, the demands for other fuel
commodities also tend to increase.
Transportability of a commodity is highly dependent on what?
The transportability of a commodity highly depends on its price.
Name a difference of mining commodities compared to other commodities related to the time to bring new capacity.(Chapter 1)
Adding capacity or construction of a new mine takes time in the mineral
commodities. This time is typically 3-10 years in the mineral industry.
Why does the mining commodities have potential for monopolistic behavior?(Chapter 1)
Elasticity of mineral commodities is low in the short-term.
What happened to the share of commodities in the total dollar value of global export from 1965 to 2013.(Chapter 1)
Even though export quantities commodities increased, goods and services in the tertiary
sector diversified and advanced much more. Therefore, the share of
commodities decreased.
As countries develop, how do their industries shift?(Chapter 1)
Their industries shift from primary to secondary and tertiary sectors
Define demand.(Chapter 1)
Demand is the quantity of a good/service that consumers wish to purchase at each different price.
Name the 3 factors affecting demand in addition to price.(Chapter 1)
- The prices of related goods (substitutes or complements)
- Consumers’ income
- The tastes and preferences of consumers
In the context of demand, to what concept does the availability of substitutes leads.(Chapter 1)
The availability of substitutes leads to an economic concept called opportunity cost.
Describe the demand curve. (Chapter 1)
Describe the demand curve if there is an Increase in the price of a substitute.(Chapter 1)
Describe the demand curve if there is an Increase in the price of a complement.(Chapter 1)
Describe the demand curve if there is a Change in preferences in favor of a good.(Chapter 1)
Define opportunity cost.(Chapter 1)
Opportunity cost is the benefit loss associated with an action when an alternative action is taken.
What is the magnitude of opportunity cost related to?(Chapter 1)
The magnitude of opportunity cost is related to the availability of substitutes
in the mineral industries.
Define supply.(Chapter 1)
Supply defined as the quantity of a good/service brought by producers to market at different sale prices.
Name the 3 factors affecting supply in addition to price.(Chapter 1)
- Input costs
- Production technology
- Government regulations
Describe the supply curve.(Chapter 1)
Describe the supply curve if there is an Increase in input prices.(Chapter 1)
Describe the supply curve if there are Improvements in the production technology.(Chapter 1)
Describe market equilibrium.(Chapter 1)
A case in which supply of a good is exactly equal to its demand. Since there is neither surplus nor shortage in the market, price tends to remain stable in this situation.
Describe the market equilibrium if there is Excess demand.(Chapter 1)
Describe the market equilibrium if there is Excess supply.(Chapter 1)
Describe consumer surplus in words and graphically.(Chapter 1)
The difference between what customers are willing to pay and what they actually pay is called consumers surplus. This is social benefit accruing customers, who buy the good.
Describe producer surplus in words and graphically.(Chapter 1)
- It is difference between what suppliers sell actually at a price and what they are willing to supply. This is social benefit accruing suppliers, who sell the good.
Where is the market most efficient?(Chapter 1)
The market is the most efficient where the consumer and producer surpluses are maximized. At equilibrium, Q, the combined consumer and producer are maximized.
What is the name of the sum of consumer surplus and producer surplus?(Chapter 1)
social surplus or economic surplus
What is market failure?(Chapter 1)
Market failure occurs when market dynamicsdo not work properly or work in wrong direction. Thus, it will not provide socially optimum quantity of a good
or service. It refers to the case where resources are not allocated optimally.
“Theoretically, if the marginal social benefit is equal to the marginal social
cost, optimal resource utilization is achieved.” (Chapter 1)
Define:
-marginal social benefit
-marginal social cost
-Marginal social benefit is the change in benefits when an additional unit of a good or service is consumed.
-Marginal social cost is the change in society’s total cost when an additional unit of a good or service is produced.
Name the 6 reasons for market failure.(Chapter 1)
- Lack of competition (monopoly or monopsony)
- Externalities
- Public goods
- Merit Goods and Demerit Goods
- Asymmetric information – incomplete information
- Government intervention through price floor or ceiling
Explain the market failure of: Lack of competition (monopoly or monopsony).(Chapter 1)
When a market is dominated by a company (or a small group of companies) through setting price power, the competition is distorted. A monopoly may obstruct competition through limiting production
resulting in price increase.
Explain the market failure of: Externalities.(Chapter 1)
An externality occurs when the production or consumption of a good or service generates a negative or positive impact on the third parties, which are not part of production or consumption activity. The third party either
receives a benefit or endures cost.
Explain the market failure of: Public goods(Chapter 1)
These goods refer to the goods that all the people benefit. After the production, anyone can access these goods for free.
So,
Public goods are associated with a market failure because the consumers do not unveil their true preferences about how much they want to consume.
Explain the market failure of: Merit Goods and Demerit Goods give only for Merit goods (Chapter 1)
Merit goods are the goods that generate positive externalities. Their benefits are usually underestimated, or it is difficult to calculate the actual value of them. In a free market, they will be under-consumed.
For example, education, health care, free museums, and vaccination. The reason behind that they are
under-consumed is the lack of knowledge of consumers on how they are beneficial.
Explain the market failure of: Merit Goods and Demerit Goods give only for Demerit goods (Chapter 1)
Demerit goods are the goods that generate negative externalities. They are harmful to consumers. In a free market, they will be over-consumed. For example, smoking cigarettes, junk food, and drugs. Smoking cigarette does not affect a smoker, it also affects non-smokers around the smoker. That’s why it is over-consumed.
Explain the market failure of: Incomplete Information – Information asymmetry(Chapter 1)
Producers and consumers have no same information on a product. The lack of information will impact if a trade takes place, and if so, what price it takes place.
Explain the market failure of: Government intervention(Chapter 1)
Price floors or price ceilings distort the price mechanism in such a way as
to prevent efficiently allocating resources.
Explain the mechanism over time of price ceiling.(Chapter 1)
It sets a maximum price for a good/service.
The short-run supply curve, is fairly steep. So, price variations will not cause big changes in quantity supplied. Then, in the long term, supply will decrease as profitability decreases. Thus, the long-term supply curve will be flatter. As the price ceiling remain in force, excess demand persists.
Black market formation is another consequence.
Explain the mechanism over time of price floor.(Chapter 1)
It set a minimum price for a good/service.
Floor will lead to a surplus in quantity.
I can be effective in the short term.
In the context, of taxation, describe royalties and mining taxes.(Chapter 1)
Royalties or mining taxes are usage-based payments made by one party (the “licensee”) to another (the “licensor”) for the right to ongoing use of an asset.
Explain the Laffer Curve.(Chapter 1)
The Laffer Curve is a theory related to tax implementation. It purports that there is an
optimal tax rate that maximizes the tax revenues.
Explain the Laffer Curve.(Chapter 1)
The Laffer Curve is a theory related to tax implementation. It purports that there is an
optimal tax rate that maximizes the tax revenues.
Describe the effects of an indirect tax such as a sale tax applied to equilibrium.(Chapter 1)
Consumer will encounter a higher price and demand will reduce. Therefore, suppliers will sell less quantity. Supplier thus receive less than the price paid by consumers.
Explain graphically the effect of taxation.(Chapter 1)
Consumers pay a higher price. However, suppliers receive a lower profit and produce less. The government’s tax revenue contains the rectangle CTAB, which is equal to the loss in consumer surplus and the loss in producer surplus.
What 2 factors affect the size of the social cost.(Chapter 1)
- The size of the tax
- The reduction in the quantity sold
In the context of social cost. Fill : The _________ in the quantity sold will depend upon the _______ of demand and supply.(Chapter 1)
The reduction in the quantity sold will depend upon the elasticity of demand
and supply.
In the context of social cost. Fill: The ______ elastic demand or supply is, the larger the social cost will be.(Chapter 1)
The more elastic demand or supply is, the larger the social cost will be.
Demand analysis helps us to understand the effects of demand determinants. Name 3.(Chapter 1)
- Price elasticity of demand
- Cross-price (prices of related goods) elasticity of demand
- Income elasticity of demand
What is the Price elasticity of demand.(Chapter 1)
Price elasticity of demand is the measure of how demand responds to
changes in the own prices of the good
Give the price elasticity of demand formula in 3 forms.(Chapter 1)
Explain the effect of The effects of price elasticity for price and quantity variations for Elastic demand.(Chapter 1)
Elastic demand: small price change leads to large quantity changes,