revision for the may mocks (after january) Flashcards
what does SIRA stand for
signals that price is too low/high
incentives to change price
rations excess demand /supply
allocates scarce resources
what is a market
a place where buyers meet suppliers to exchange goods
what is consumer surplus
difference between the price consumers are willing to pay and the price they actually pay (area above the price level and inside the demand curve)
what is the producer surplus
difference between the price that producers are willing to supply products at and the price that is actually charged(area below the price level and inside the supply curve)
what is tax
cost on an individual or firm which reduces disposable income. imposed by the government
what is a subsidy
money grant given to firms to decrease the cost of production
which goods are typically supported by the government
merit goods
what does socially optimum mean
the price and quantity which maximises society surplus
what is market failure
when the market fails to allocate scarce resources at socially optimum level of output and socially optimum price
negative production externalities
when the cost to 3rd parties > private cost of production (overproduction)
what is an externality
external cost/benefit that outside the initial transaction
what is a positive externality
benefit to 3rd parties as a result of the actions of a separate economic agent(MSB >MPB)
what is a public good
a good which is non excludable - no price can be charged for the good
non rival - the quantity doesn’t diminish upon consumption
what does the DWL show
shows the loss of a external benefit OR the gain of an external cost
what is a quasi public good
non excludable but rival good
what are the advantages of a free market economy
promotes competitiveness between firms as the firms are responsive for their own prices.
reduces risk of government failure as government dont know what is demanded
what is government failure
when the intervention of the government result is a net loss
what are 3 microeconomic reasons
elasticity
externalities
demand
what is demand
amount of consumers are able and willing to buy a good
what is indirect tax
tax on consumer expenditure
what does it mean when XED is positive and > 1
substitute and close good
what does it mean when XED is negative and < -1
complement and close good
what is a minimum price
lowest price that can be legally set
what are the determinants of PED
availability of substitutes
time horizon(in the short term consumers dont have time to change their habits)
luxury or necessity
income levels
examples of policies that can be used to control market failure
information provision(can help people make better decisions)
min/max prices
public goods
tax goods that create negative externalities
