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Economics > Some Micro Content, including Labour and Financial markets > Flashcards

Some Micro Content, including Labour and Financial markets Flashcards

1
Q

What are the non-price factors that could shift demand?

A

i) Population
ii) Advertising
iii) Substitutes’ price
iv) Income
v) Fashion/tastes
vi) Interest rates
vii) Complement’s price

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2
Q

What are factors that could shift supply?

A

Costs of production:
i) Productivity
ii) Indirect tax
iii) Technology
iv) Subsidy
v) Labour costs
vi) Raw materials

number of firms, weather

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3
Q

What are the functions of the price mechanism?

A

Signalling, incentivising, rationing, allocating

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4
Q

What are the factors that affect price elasticity of demand?

A

i) Number of substitutes
ii) Percentage of income
iii) Luxury/ necessity
iv) Addictive/ habit forming
v) Time period

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5
Q

What are the factors affecting price elasticity of supply?

A

i) Production lags
ii) Stocks
iii) Spare capacity
iv) Substitutability of factors of production
v) Time

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6
Q

What are the assumptions of perfect competition?

A

i) Many buyers and sellers
ii) Homogenous goods- firms are price takers
iii) Firms are profit maximisers
iv) No barriers to entry/exit
v) Perfect information

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7
Q

What are examples of legal barriers to entry?

A

i) Patents
ii) Licences/ permits
iii) Red tape
iv) Standards and regulations
v) Insurance

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8
Q

What are examples of technical barriers to entry?

A

i) Start up costs
ii) Sunk costs
iii) Economies of scale
iv) Natural monopoly

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9
Q

What are examples of strategic barriers to entry?

A

i) Predatory pricing
ii) Limit pricing
iii) Heavy advertising

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10
Q

Is brand loyalty a barrier to entry?

A

Yes

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11
Q

What is the shutdown condition?

A

A firm will only shutdown if AR<AVC.

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12
Q

What are the characteristics of monopoly?

A

i) One seller dominating the market- either pure or legal
ii) Differentiated products- firm is a price maker
iii) High barriers to entry/ exit
iv) Imperfect information
v) Firm is a profit maximiser

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13
Q

What is the definition of price discrimination?

A

When a firm charges different prices to different consumers for an identical good/ service with no differences in costs of production.

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14
Q

What are the conditions necessary for price discrimination?

A

i) Price making ability
ii) Information to separate the market
iii) Prevent re-sale (arbitrage)

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15
Q

What is first degree price discrimination?

A

Firms charge exact price that individual consumers are willing to pay

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16
Q

What is second degree price discrimination?

A

When a company charges a different price for different quantities consumed, such as quantity discounts on bulk purchases. Second degree price discrimination can also refer to fixed capacity.

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17
Q

What is third degree price discrimination?

A

Where a firm segments the market into different elasticities and charges different prices accordingly.

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18
Q

What are the characteristics of natural monopoly?

A

i) Huge fixed costs
ii) Enormous potential for economies of scale
iii) Rational for one firm to supply the entire market (competition is undesirable)
iv) Competition would result in a wasteful duplication of resources and non-exploitation of full economies of scale- allocative and productive inefficiency.

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19
Q

What are the pros and cons of competitive markets?

A

Pros
i) Allocative efficiency
ii) Productive efficiency
iii) X efficiency
iv) Jobs

Cons
i) Lack of dynamic efficiency
ii) Lack of economies of scale
iii) Cost cutting in dangerous areas
iv) Creative destruction

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20
Q

What are the characteristics of monopolistic competition?

A

i) Many buyers and sellers
ii) Slightly differentiated goods
- firms are prices makers
-price elastic demand
iii) Low barriers to entry/exit
iv) Good information
v) Non-price competition
vi) Firms are profit maximisers

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21
Q

What are characteristics of oligopoly?

A

i) Few firms dominate the market
-high concentration ratio
ii) Differentiated goods
iii) High barriers to entry/exit
iv) Interdependence
v) Non-price competition
vi) Profit maximisation not sole objective

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22
Q

What are the characteristics of a contestable market?

A

i) Low barriers to entry/exit
ii) Large pool of potential entrants
iii) Good information
iv) Incumbent firms subject to ‘hit and run’ competition

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23
Q

How has technology impacted contestability?

A

i) Lowered barriers to entry
ii) Increased the pool of potential entrants
iii) Improved information

24
Q

What are the aims of competition policy?

A

i) Prevent excessive pricing
ii) Promote competition
iii) Ensure quality, standards, choice
iv) Regulate natural monopolies
v) Promote technological innovation

25
Q

What are different options for monopoly regulation?

A

i) Price regulation
ii) Quality control and performance targets
iii) Windfall taxes on profits
iv) Merger policy
v) Privatisiation
vi) Deregulation

26
Q

What is invention?

A

The creation of a new idea without it necessarily becoming a commercial reality.

27
Q

What is innovation?

A

Transforming an invention into commercial reality.

28
Q

What is a cost benefit analysis?

A

A decision making tool accounting for the social costs and social benefits of a project over time to establish a Net Present Value.

29
Q

When is total utility maximised?

A

When marginal utility is equal to zero.

30
Q

According to behavioural theory, what is rationality bounded by?

A

i) Time
ii) Processing power
iii) Information

(Bounded self-control)

31
Q

What are 8 cognitive biases?

A

i) Anchoring
ii) Social norms
iii) Availability bias
iv) Framing
v) Loss aversion
vi) Herd behaviour
vii) Choice architecture
viii) Hyperbolic discounting

32
Q

Name 5 behavioural economic policies.

A

i) Framing
ii) Nudges
iii) Default choice
iv) Restricted choice
v) Mandated choice

33
Q

Why is there an inverse relationship between wages and quantity of workers?

A

SR- law of diminishing returns
LR- substitutability of labour and capital

34
Q

Which factors will shift the labour demand curve?

A

i) Change in the final price of the product labour is making
ii) Change in demand for final product
iii) Changes in labour productivity
iv) Change in the price of capital

35
Q

Name four factors which will shift the labour supply curve.

A

i) Wage on offer in substitute occupations
ii) Barriers to entry
iii) Non-monetary characteristics of the job
iv) Size of the working population
v) Overtime
vi) Improvements in the occupational mobility of labour
vii) Value of leisure time

36
Q

Which factors affect the elasticity of labour demand?

A

i) Substitutability of capital for labour
ii) Elasticity of demand for the product
iii) Cost of labour as a percentage of total cost
iv) Time period

37
Q

Which factors affect the elasticity of the labour supply curve?

A

i) The nature of skills required in the job
ii) Length of the training period
iii) Vocation
iv) Time

38
Q

What are the characteristics of a perfectly competitive labour market?

A

i) There are many potential workers and employers
ii) Labour is homogenous and perfectly mobile
iii) There is perfect information
iv) Firms are wage takers
v) There are no barriers to entry/exit

39
Q

Why do wage differentials exist?

A

i) Labour is not homogenous
ii) Non-monetary considerations
iii) Labour is not perfectly mobile
iv) Trade unions and supply restrictions
v) Monopsonies and wage setting ability

40
Q

What are the three types of financial markets?

A

i) Money markets < 1 year (Bonds, interbank lending)
ii) Capital markets > 1 year (Bonds and shares) Primary and Secondary
iii) Currency markets (spot and futures)

41
Q

What are the four functions of money?

A

i) Medium of exchange
ii) Store of value
iii) Measure of value
iv) Standard of deferred payment

42
Q

What is the difference between narrow and broad money?

A

Narrow money only considers the most liquid assets, whereas broad money is a wider measure of the money supply.

43
Q

What is the Fisher Identity?

A

MV=PQ

44
Q

What are the factors affecting the supply of money?

A

i) Reserve requirement
ii) Bank rate
iii) Open market operations

45
Q

What is the information recorded on a bond?

A

Name of the bond, Coupon rate, Maturity date, Market Value

46
Q

What is the relationship between price and yield of a bond?

A

Inverse

47
Q

How do you calculate the money multiplier?

A

1/reserve ratio

48
Q

What do commercial banks do?

A

i) Accept savings
ii) Lend
iii) Act as financial intermediaries
iv) Allow payments from one agent to another
v) Advice

49
Q

What do investment banks do?

A

i) Proprietary trading
ii) Market making
iii) Mergers and Acquisitions
iv) New issues- underwriting

50
Q

What represents a balanced balance sheet?

A

Assets = Liabilities + Capital

51
Q

What is a liquidity crisis caused by?

A

Insufficient liquid assets to cover short term liabilities.

52
Q

What is insolvency caused by?

A

Insufficient capital to cover losses in asset value.

53
Q

What is the role of the Central Bank?

A

i) To implement monetary policy
ii) Act as a banker to the government
iii) Act as a banker to the banks
iv) Regulate the financial system

54
Q

Name four types of financial market failure.

A

i) Speculation and market bubbles
ii) Asymmetric information
iii) Negative externalities
iv) Market rigging

55
Q

What are 8 types of financial market regulation (excluding commercial bank ratios)?

A

i) Ban market rigging with strong enforcement
ii) Prevent sale of unsuitable products to consumers
iii) Maximum interest rates
iv) Deregulation
v) Deposit insurance
vi) Ring fence commercial banking away from investment banking
vii) Set limits on bank lending
viii) Liquidity assurance with conditions and punishments

56
Q

What is the Liquidity Ratio?

A

Current Assets / Current liabilities

Economics (6 decks)

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