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BSNS113 > Term 1 cheat sheet > Flashcards

Term 1 cheat sheet Flashcards

1
Q

If elasticity is greater than one, the good is

A

elastic

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2
Q

If elasticity is less than one, the good is

A

inelastic

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3
Q

If elasticity is equal to one, the good is

A

unit elastic

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4
Q

When is a good less elastic?

A
  • when the price is a small proportion of the total budget
  • good substitutes are not available
  • when a good is a necessity
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5
Q

What is the equation for point elasticity of demand? (2)

A

%ΔQ/%ΔP

ΔQ/ΔP x P/Q = 1/slope x P/Q

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6
Q

What is the midpoint formula for elasticity of demand?

A

(ΔQ/avgQ)/(ΔP/avgP)

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7
Q

When is D elastic and when is it inelastic?

A

Elastic at high prices

Inelastic at low prices

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8
Q

When is S elastic?

A

When inputs are in elastic supply

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9
Q

Total revenue equals

A

Price x Quantity

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10
Q

What is income elasticity equal to?

A

(ΔD/D)/(ΔY/Y)

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11
Q

What is income elasticity for a normal good?

A

it is more than zero

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12
Q

What is income elasticity for an inferior good?

A

it is less than zero

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13
Q

What is the formula for price elasticity of supply?

A

%ΔQs/%ΔP

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14
Q

What does it mean if price elasticity of supply is less than one?

A

suppliers are close to capacity, inputs are in inelastic supply

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15
Q

What is one possible explanation for price elasticity of demand increasing from 0.75 to 1.25?

A

the good has gone from being inelastic to being elastic due to the introduction of a new substitute

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16
Q

What is the formula for cross elasticity of demand?

A

%ΔQd/%ΔP

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17
Q

What is cross elasticity of demand for substitutes?

A

%ΔQd/%ΔP>0

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18
Q

What is cross elasticity of demand for complements?

A

%ΔQd/%ΔP<0

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19
Q

What is positive economics?

A

what things are/how they work

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20
Q

What is normative economics?

A

when called to recommend and suggest what ought to be

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21
Q

What is resource heterogeneity?

A

resources differ in their productive characteristics

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22
Q

How can opportunity cost be calculated on a PPF?

A

by the slope: ΔQg/ΔQs

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23
Q

When does marginal cost increase on a PPF?

A

as Qs increases

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24
Q

What is technically efficient on a PPF?

A

all resources are fully employed and being used in their most effective combinations

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25
Q

Does trading shift the PPF?

26
Q

Q (goods) = f(….

A

resources, technology, time, services

27
Q

Assuming ceteris paribus, Q (goods) =

A

f(services)

28
Q

A country has an absolute advantage if

A

it makes more of the good than another country does

29
Q

A country has a comparative advantage if

A

its opportunity cost of making a good is lower

30
Q

Where does the terms of trade fall?

A

between the two opportunity costs

31
Q

Specialised labour and capital leads to what? Why is this?

A

economies of scale because as size increases, you can take advantage of specialised people and equipment

32
Q

Points above the PPF are what?

A

unobtainable combinations

33
Q

Points above the LRAC curve are what?

34
Q

Points below the PPF are what?

A

inefficient combinations

35
Q

Points below the LRAC curve are what?

A

unobtainable

36
Q

Where do small firms costs fall on the LRAC curve?

A

they are early on ie. high costs, small output

37
Q

Where do large firms costs fall on the LRAC curve?

A

they are later on ie. low costs, high output

38
Q

What seven things does quantity demanded depend on?

A 
price of the good
income
price of compliments
price of substitutes
number of consumers
tastes
expectations of future prices
39
Q

What are three reasons the demand curve slopes downwards?

A

substitution effect
income effect/purchasing power
Law of DMU

40
Q

What is the horizontal interpretation of the demand curve?

A

it shows the quantity demanded at each price

41
Q

What is the vertical interpretation of the demand curve?

A

it shows the quantity at increasing marginal utility

42
Q

We buy things when MV is what?

43
Q

Suppliers produce things when what?

44
Q

What five things does quantity supplied depend on?

A 
price of the good
price of inputs
number of suppliers in a relative market
technology
expectations of future prices
45
Q

What is the vertical interpretation of the supply curve?

A

it shows the quantity at increasing marginal cost

46
Q

What is the horizontal interpretation of the supply curve?

A

it shows the quantity supplied at each price

47
Q

What is marginal cost equal to?

48
Q

Why does the supply curve slope upwards?

A

due to the law of diminishing marginal returns

49
Q

What is the law of diminishing marginal returns?

A

Additions of variable factors (L and K) yield progressively smaller increases in output

50
Q

What does L stand for in the law of diminishing marginal returns?

A

variable inputs

51
Q

What does K stand for in the law of diminishing marginal returns?

A

fixed inputs

52
Q

If demand and supply both decrease, what happens to Qe and Pe?

A

Qe decreases but the change in Pe is indeterminate

53
Q

If demand and supply both increase, what happens to Qe and Pe?

A

Qe increases but the change in Pe is indeterminate

54
Q

If demand decreases and supply increases, what happens to Qe and Pe?

A

Pe decreases but the change in Qe is indeterminate

55
Q

If demand increases and supply decreases, what happens to Qe and Pe?

A

Pe increases but the change in Qe is indeterminate

56
Q

If NZ has a comparative advantage in the production of a good compared to the rest of the world, does NZ export or import?

57
Q

If the rest of the world had a comparative advantage in producing a good compared to NZ, does NZ export or import?

58
Q

What are four inhibitors to efficient market function?

A
  1. difficulty excluding access to scarce resources (MV < MC)
  2. barriers to competition (MC > MV)
  3. limited information about prices or product characteristics
  4. macroeconomic instability
59
Q

What is a private good?

A

easy to exclude, rival in consumption

60
Q

What does it mean when a good is rival in consumption?

A

no one else gets to consume it

61
Q

What does it means when a good is easy to exclude?

A

it is easy to stop others consuming it

62
Q

What is a club good?

A

non-rival in consumption, easy to exclude

BSNS113 (14 decks)

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