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1
Q

government failure definition

A

when government intervention reduces economic welfare, leading to an allocation of resources that is worse than the free market outcome

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2
Q

maximum price definition

A

occurs when a government sets a legal limit on the price of a good or service - with the aim of reducing prices below the market equilibrium price

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3
Q

minimum price definition

A

price floor of a market - suppliers cannot sell the product legally at a lower price - to be effective the min price must be set above the normal free market equiibirum

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4
Q

problems with maximum price (3)

A

shortage - demand is greater than the supply (market distortion)

encourages black market

market will become less profitable for firms

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5
Q

problems with minimum price (3)

A

can be considered unfair

higher prices can increase the incentive for producers to make product

government receives no revenue in this policy

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6
Q

externality definition

A

externalities are spill over effects from production and consumption for which no appropriate compensation is paid or received

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7
Q

4 components of an economic trade-off?

A
  1. Opportunity cost
  2. what goods should be produced?
  3. how the goods should be produced?
  4. Who should receive the produced goods?
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8
Q

define increasing, constant and decreasing returns to scale

A
  1. increasing returns to scale - increase in scale of inputs results in a greater than proportionate increase in output
  2. constant returns to scale - increase in scale of inputs results in a proportionate increase in output
  3. decreasing returns to scale - increase in scale of inputs results in a less than proportionate increase in output
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9
Q

explain the LRAC

A

short run - some inputs are fixed

long run - all inputs are variable

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10
Q

define minimum efficient scale

A

smallest output level where LRAC is minimized

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11
Q

explain how tho tell if TR is increasing or decreasing in terms of MR

A

MR>0 TR increasing
MR=0 TR maximised
MR<0 TR decreasing

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12
Q

4 different objectives of a firm

A
  1. survival/growth
  2. sales revenue
  3. market share
  4. profits
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13
Q

define and describe perfect competition

A

a theoretical model that describes the conditions required for intense competition to take place between firms

  1. large number of buyers and sellers
  2. price takers
  3. sell homogenous products
  4. no barriers to entry/exit
  5. little scope for economies of scale
  6. perfect information

theoretical model/low prices/efficiency benefits

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14
Q

define and describe monopoly

A

a market structure where on firm exerts dominant control of the market

  1. one dominant firm
  2. price maker (monopoly power)
  3. absolute product differentiation
  4. significant barriers to entry/exit
  5. large supernormal profits
  6. high monopoly power

high prices/lower welfare and efficiency

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15
Q

factors of competition (5)

A
  1. number of firms
  2. extent of product differentiation
  3. degree of barriers to entry
  4. availability of information
  5. miscellaneous eg advertising
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16
Q

explain short run profit maximization in perfect competition

A

SHORT-RUN PROFIT MAXIMIZATION

  1. firms can make supernormal profits
  2. encourages new firms to enter into market
  3. firms are productively inefficient

WHOLE MARKET

  1. market supply expands (S1 to S2)
  2. firms enter until SN profits eliminated

LONG-RUN PROFIT MAXIMIZATION

  1. price per unit falls (P1 to P2)
  2. all firms make normal profits
  3. firms are productively + allocatively efficient
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17
Q

2 benefits and 2 disadvantages of monopolies

A
  1. natural monopoly - EOS may results in a monopoly being productively efficient
  2. monopolies may use supernormal profits to generate dynamic efficiency via investment and R and D
  3. price higher than under perfect competition
  4. market failure due to resource misallocation
  5. monopolist is productively inefficient
  6. monopolist is allocatively inefficient
  7. X-inefficiencies due to lack of competition

appropriateness varies industry to industry

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18
Q

define and describe oligopoly

A

market structure that contains a small number of large firms competition against each other

  1. high levels of product differentiation
  2. interdependency between firms
  3. concentrated markets
  4. non-price competition

examples; supermarkets, banking

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19
Q

define and describe contenstability

A

the degree to which a new firm can enter and exit a market

  1. sunk costs involved
  2. barriers to entry
  3. barriers to exit
  4. access to same levels of technonology
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20
Q

define and describe hit and run competition

A

occurs when a new entrant sees supernormal profits being made in a contestable market

HIT

  1. firm enters market
  2. undercuts rivals
  3. steals profits
  4. rivals react

RUN

  1. leaves market
  2. low sunk costs
  3. low exit barriers
  4. keeps profits
21
Q

define efficiency

A

a broad measure of how effectively a firm/market are meeting the economic problem

  1. materials
  2. time
  3. costs
  4. investment
  5. effort
22
Q

name and define the 4 types of efficiency and their diagrams

A
  1. productive efficiency - where a firm produces at eh point where average costs are minimized (minimizing unit costs)
  2. allocative efficiency - when a firm produces at the point where economic welfare is maximized (optimal allocation of resources)
  3. dynamic efficiency - when a firm becomes progressively more efficient over time (invention and innovation)
  4. X-efficiency - when a firm’s average costs are higher than they should be (organizational slack)
23
Q

define and describe public goods

A

goods that are non-rival and non-excludable and likely to be under provided by the market

GOODS SPECTRUM:
pure public goods - non rival AND non excludable
quasi-public good - non rival OR non excludable
private goods - rival AND excludable
free goods - basic needs AND no opportunity cost

CHARACTERISTICS:
non excludability - no person can be excluded from the benefit of the good
non-rival - consumption by one person does not affect consumption ability of others

24
Q

3 leakages and 3 injections into the economy

A
  1. imports
  2. taxes
  3. saving
  4. exports
  5. investment
  6. spending
25
4 FOP and their produce
capital - interest entrepreneurship - profits labour - wages land - rent
26
AD equation and what effects each part
AD = consumption (income, interest rates, confidence) + investment (profits, interest rates, confidence) + government spending (tax revenue, budget deposit, debt burden) + net exports X-M (exchange rates, global demand, relative inflation rate)
27
evaluating AD curve shifts (3)
magnitude of shift? duration of shift? number of shifts? 1. multiplier effect - initial expenditure generates a subsequent trail of expenditure 2. accelerator effect - initial increase in national output stimulates additional investment across the economy 3. automatic stabilizers - fiscal measures which take force automatically when economy expands or contracts
28
three phases of the Keynesian LRAS curve
1. elastic - spare capacity 2. intermediate - close to full capacity 3. inelastic- full capacity
29
short run vs long run growth diagrams
see booklet
30
demand full inflation vs cost-push inflation diagrams
see booklet
31
define and describe unemployment and 4 types with diagrams
the number of people of working age without work, but are actively seeking employment opportunities 1. cyclical unemployment - unemployment caused by a downturn in the economy 2. seasonal unemployment - unemployment caused by peak business periods ending 3. frictional unemployment - unemployment caused by workers moving between jobs 4. structural unemployment - unemployment caused by a long term decline in an industry
32
3 components of the current account
1. goods and services 2. investment income 3. transfers (AID)
33
3 components of financial account
1. financial assets 2. stocks+bonds 3. currency reserves
34
explain two evaluation points of a trade deficit and a trade surplus
trade deficit - recurring deficits - C and M takeover - DEBT ISSUES trade surplus - recurring surplus - exports take over - LOW CONSUMPTION
35
3 trade deficit solutions
1. expenditure reducing policies - reduce G, increase T, contractionary policy 2. productivity enchaining policies - increasing I, training policies, tax breaks, FDI 3. currency devaluation
36
what does phillips curve show and what are on the axis
used to graphically represent a negative relationship between inflation and unemployment y axis=inflation rates x axis=unemployment rate low unemployment = higher inflation low inflation = higher unemployment
37
explain productivity and the 3 types
main determinant of living standards as increases reflect increased production of goods and services from each input labour productivity, capital productivity, total factors productivity
38
determinants of productivity (7)
1. quality of education and training 2. quantity and quality of tech 3. level of competition in markets 4. level off FDI 5. cost of fop 6. interest rates 7. structural economic changes
39
ways of increasing productivity (7)
1. tax and benefit changes 2. promotion of competition in markets 3. improvement in quality of education system 4. improvement in infrastructure 5. overcome labour immobility 6. provision of subsidies for R and D purposes 7. deregulation of markets
40
define the two types of poverty
1. absolute poverty - incomes below what is required to meet basic human needs 2. relative poverty - household incomes below a specific proportion of a country's median
41
4 causes of poverty and 3 types of consequences
1. demographics 2. low wages 3. unemployment 4. tax+benefits 1. individual consequences 2. social consequences 3. national consequences
42
chain of reasoning after a bank rate change
``` 1. bank rate change | 2. changes to savings rate / cost of debt / Exchange rate | 3. AD curve impact | 4. inflation rate impact ```
43
describe the QE process (5)
1. bank of England creates new money 2. Bank of England purchases assets 3. Asset prices increase 4. wealth increases / cost of borrowing is lower 5. higher borrowing/lending/consumption and investment
44
impact of QE (2)
1. improves bank liquidity ratios and facilitates increased lending 2. improved competitiveness by depreciating exchange rate
45
effects of prices of assets rising (2)
1. increases consumer/business confidence via wealth effect | 2. constrains borrowing costs and encourages consumption and investment
46
two types of supply side policies
1. interventionist SSPs - got policies which generate supply side improvements (infrastructure, education, training programs) 2. free market SSPs - policies which provide markets with more freedom, resulting in supply side improvements (reduction in corporation tax, deregulation, labor market reforms)
47
2 chains of reasoning and evaluation for fiscal policy
1. increased got spending, increases employment opportunities 2. increased infrastructure, increase productive capacity, increases sustainable growth over time EVAL: Gvt spending will increase gvt debt over time
48
factors that influence consumer decisions:
rational choices default choices/habit buying popularity of brands rules of thumb anchoring availability how goods are presented social norms

economics (5 decks)

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