revise Flashcards
Specialisation definition
Specialisation occurs when workers are assigned specific tasks within a production process
Division of labour definition
Division of labour is when production is divided up into different stages to enable workers to focus on specific tasks
Price determination
set by demand and supply. Above the equilibrium line is consumer surplus, below is producer surplus
Price mechanism functions
- Rationing (rations and allocate resources)
- Incentive (should they buy?)
- Signalling (reflects market conditions)
Market failure
When the price mechanism causes an inefficient allocation of resources leading to net welfare loss
Types of market failure
- Externalities
- Under-provision of public goods
- Information gaps
Determinants of Price elasticity of supply
- Level of spare capacity
- state of economy
- perishability
- ease of entry
- time period
What are the characteristics of a public good?
- non excludable
- non rivalry
How do governments intervene?
- indirect tax
- subsidies
- maximum/minimum prices
- trade pollution permits
- state provision of public goods
- state provision of information
- regulation
Government failure
When government intervention leads to an inefficient allocation of resources and net welfare loss
Causes of government failure
- distortion of price signals (misallocates resources)
- unintended consequences
- information gaps (government has insufficient knowledge to make rational economic decisions)
Animal spirits
Forces that make markets move in large booms and busts as people buy and sell impulsively rather than calmly using purely rational behaviour
what factors influence labour supply?
- changes in productivity
- changes in education and skill
- demographic changes and migration
- increased health spending
multiplier calc?
- 1 / MPW
- 1 / MPS + MPT + MPM
- 1 / ( 1 - MPC )
output gap?
The difference between actual and potential GDP
Purchasing power parities
an exchange rate of one currency for another which compares how much a typical basket of goods in one country costs compared to that of another.
CPI
a measure to examine the weighted average of prices of a basket of consumer goods
Limits of cpi
doesn’t include housing costs
measures cost of living for AVERAGE household
RPI
an index used to measure inflation including housing costs
Current account
measures trade in goods, services, investment incomes and current transfers
Conflicts between objectives and policies
- inflation vs cyclical unemployment
- low growth vs balance of payments
- high unemployment vs inflation or inequality
- current account deficit vs unemployment
- fiscal deficit vs unemployment / low economic growth
- inequality vs long term economic growth
demand for labour influences
- technology
- number of firms
- product demand
supply for labour influences
- real wage rate offered
- overtime options
- barriers to entry (requirements)
- net migration
Government intervention in the market
- price regulation (price capping RPI-X)
- profit regulation
- quality standards
limits to government intervention in the market
- regulatory capture
- asymmetric information
Synergy is?
When a whole company is worth more than each company on their own
Efficiencies
- allocative (p = mc)
- productive (mc = ac)
- dynamic
- x-effiency (within ac boundary)
Perfect competition characteristics
- many buyers and sellers
- price takers
- homogenous products
- perfect knowledge
- short run profit max
- freedom of entry and exit
- allocative efficiency
- productively efficient
monopolistic competition characteristics
- imperfect competition
- non homogenous products
- many buyers and sellers
- no barriers of entry
- price markers
- imperfect info
- allocatively inefficient
- x-inefficiency
Oligopoly characteristics
- high barriers of entry
- high concentration ratio
- interdependent
- product differentiation
- collusion (overt or tacit)
- concentration ratios
Monopoly characteristics
- 25% market share
- high barriers of entry
- price maker
- price discrimination (third degree)
- allocative inefficient
Third degree price discrimination
Charge different prices for the same good
Monopsony characteristics
- single buyer in the market
- price marker
Contestability characteristics
- access to technology
- low entry or exit barriers
- no sunk costs
- low consumer loyalty
- allocatively efficient
- productively efficient
Absolute advantage
When a country can produce a good using fewer resources and at a lower cost than other countries
Comparative advantage
When a country can produce a good at a lower opportunity cost than another country
Factors affecting the pattern of trade
- comparative advantage
- emerging economies
- trading blocs
- exchange rates
terms of trade
measure of the rate of exchange of one product for another
Terms of trade index
av import price
Factors influencing terms of trade
- Prebisch-singer hypothesis (over time commodity prices fall in relation to manufactured goods so the terms of trade for developing economies falls due to globalisation causing a fall in manufactured prices falling)
- PED
- Exchange rates (increase price better terms)
- population size
Current account influences
- currency (higher, worse)
- economic growth
- deindustrialisation
factors affecting exchange rates
- speculation
- inflation
- gov debt
marshall-lerner condition
devaluation in currency causes a increase in balance of trade if the absolute sum of long run exports and imports are greater than or equal to 1
Kuznet hypothesis
as society moves from agriculture to industry there is more inequality since wages of industrial workers increase faster than farmers
harrod damar model
investment saving and technology changes are needed for economic growth. If saving increases investment increases.
Aid theorists
- Moyo is against it bc it leads to private firms being unable to compete
- Sachs is for it bc it can build up infrastructure
Role of financial markets
- facilitate savings
- lend
- facilitate exchange of goods and services
- forward markets in currencies and commodities
- provide market for equities
