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Economics 3,4 > U3 AOS1 > Flashcards

U3 AOS1 Flashcards

1
Q

What is microeconomics

A

= study of how individual c’er + bus behave in individual markets

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2
Q

What is macroeconomics

A

= study of economy as a whole or the “top down view” of the economy focussing on aggregate characters

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3
Q

What are needs

A

= items which are essential 2 survival

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4
Q

What are wants

A

= items which are x essential 2 survival h/r enhance our lives

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5
Q

What is relative scarcity

A

= basic economic whereby our unlimited needs + wants are x able 2 be fully satisfied as our resources are limited
-> forces eco. agents 2 make decisions

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6
Q

What is opportunity cost

A

= the value of the next best alternative foregone whenever a decision is made

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6
Q

What is allocative efficiency

A

= most efficient allocation of resources occurs when living standards + welfare are maxed + it is possible 2 further inc living standards by changing the way resources are allocated

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7
Q

What is productive / technical efficiency

A

= when it is x possible 2 inc output without inc inputs t/f max output from inputs

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8
Q

What is inter-temporal efficiency

A

= how well resources are allocated over different time periods so that living standards of current generations are x jeopardising future generations living standards

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9
Q

What is dynamic efficiency

A

= how quickly an economy can reallocate resources 2 achieve allocative efficiency, entails firms being adaptive + creative in responses 2 changing economic circumstances

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10
Q

What is a market

A

= main instrument 4 allocating scarce resources in Aus + method of answering 3 basic eco. Q’s

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11
Q

What are the 3 basic economic questions

A

1) What + how much 2 produce
2) How to produce
3) For whom 2 produce

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12
Q

What are the 4 preconditions of a perfectly competitive market (characteristics)

A

1) c’er sovereignty exists
2) lrg number of buyers + sellers = price takers
3) products are homogenous
4) ease of entry + exit

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13
Q

What are the 3 traditional viewpoints of consumers

A

1) c’er have ordered set of preferences
2) c’er make informed decisions
3) c’er act rationally

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14
Q

What is the market / price mechanism

A

= describes how the forces of D+S influence (relative) prices of g/s which then coordinates the way productive resources are allocated in the economy

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15
Q

What is demand

A

= willingness + ability of c’er 2 purchase g/s

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16
Q

What is the law of demand

A
  • Qty demanded inc, price dec
  • Qty demanded dec, price inc
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17
Q

What is the income effect

A

= dec consumption of g/s whose price has inc due 2 dec in c’ers purchasing power / inc in consumption of a g/s whose price has dec due 2 the inc in c’er purchasing power

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18
Q

What is the substitution effect

A

= dec consumption of a g/s whose price has inc due 2 the changed trade off : the fact that one must give up more of another g/s 2 get more units of the high priced g/s

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19
Q

What is disposable income

A

= income available 4 spending after the receipt of welfare benefits + deduction personal tax

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20
Q

What is discretionary income

A

= disposable income available 4 consumption following the payment of all “x-discretionary” / “x-avoidable” expenditures i.e related 2 food, clothing, shelter

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21
Q

What are the microeconomic demand side non-price factors

A

-> shift of demand curve
1) Changes in disposable income
2) The price of sub
3) The price of compliment
4) Preferences + tastes
5) Interest rates
6) Population demographics
7) C’er confidence (sentiment) = confidence in future state of the economy + job security

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22
Q

What is supply

A

= ability + willingness of p’ers 2 produce

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23
Q

What is the law of supply

A
  • As $ inc the qty supplied inc
  • As $ dec the qty supplied dec
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24
Q

What is the profit motive

A

= particularly given the higher the price, the inc chance of making profit

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25
Q

What are the microeconomic supply non price factors

A

-> result in shifts
1) changes in cost of production
2) number of suppliers
3) Technological change
4) productivity
5) climatic conditions

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26
Q

What is the equilibrium

A

= where qty demanded 4 g/s = 2 qty supplied of g/s

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27
Q

What is the 7 step process of answering changes in demand supply Qs

A

1) explain situation in your own words
2) supply / demand
3) inc or dec
4) shift curve left or right
5) if prices 2 remain at P1, shortage or surplus
6) market forces put upward or downward pressures on price 2 adjust 2 new equilibrium
7) overall impact on price qty

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28
Q

Distinguish b/n movement + shift

A

p.o.d = the factor causing the change
movement = influenced by prices changing that sees contractions + expansions along curve
shift = influenced by non price factors that physically shifts whole curve fav or unfav

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29
Q

What is price elasticity of demand

A

= responsiveness of total qty demanded of a product 2 a change in price of that of a product
-> inelastic = hard 2 change
-> elastic = easy 2 change

30
Q

What is the price elasticity of demand equation

A

= percentage change in qty demanded / percentage change in price

31
Q

Factors affecting the price elasticity of demand + how

A

1) the degree of necessity
= if necessity, c’ers dec likely 2 dec qty consumed x matter price change
2) availability of substitutes
= if x / dec substitutes 4 product then c’er dec likely 2 dec qty consumed x matter price change
3) proportion of income
= inc proportion of income required 2 purchase g/s, inc impact of price change
4) time
= s.t -> c’ers continue 2 make buying decisions on a habitual basis
= m-l.t-> start 2 realise price changes, often occurs with products e.g bills

32
Q

What is the significance of price elasticity of demand

A

-> important measure 4 bus + gov.t
1) bus prefer 2 operate in environment where there is dec PED 4 their g/s as an inc in price will only result in small % change in qty demanded = overall impact = inc rec
2) bus take PED into account when pricing products
3) gov.t consider PED 4 goods when replacing / inc indirect taxes

33
Q

Guide 2 PED values

A

High PED > 1
Medium PED = 1
Low PED < 1

34
Q

What is price elasticity of supply

A

= refers 2 the responsiveness of total qty supplied of a product 2 a change in the price of that product
-> High PES = elastic
-> Low PES = inelastic

35
Q

What is the price elasticity of supply equation

A

PES = % change in Qty supplied / % change in price

36
Q

Factors affecting elasticity of supply (+how)

A

1) Spare capacity
-> lot’s out back = elastic
-> none out back = inelastic
2) Production period
-> short time 2 produce = elastic
-> long time 2 produce = inelastic
3) Durability of goods
-> lasts long time = elastic
-> short life = inelastic

37
Q

Guide 2 PES values

A

High PES > 1
Med PES = 1
Low PES < 1

38
Q

What is the significance of the price elasticity of supply

A

-> PES can affect the viability of a bus as well as their ability 2 respond 2 changing price signals

39
Q

What is the price mechanism

A

= describes how the forces of demand and supply influence (relative) prices of g/s which then coordinates the way productive resources are allocated in the economy

40
Q

What are relative prices

A

= prices of g/s compared 2 the price of another g/s

41
Q

What is consumer sovereignty

A

= ability of c’er in competitive markets 2 direct or allocate resources

42
Q

The effect of competitive markets on allocative efficiency

A

-> right g/s need 2 be produced, in the right way
-> relative prices send signals, producers pay close attention 2 these
-> ease of entry + mobile resources
-> many sellers -> inc competition keeping low prices -> prod efficiency
-> lowest possible prices + maxed MLS

43
Q

The effect of competitive markets on productive efficiency

A

-> homogenous g/s t/f 2 be competitive, producers must dec costs + inc output t/f low prices
-> low barriers 2 entry + exit with mobility of resources = inc comp
-> many sellers = inc comp
-> producers boost productivity = profit max

44
Q

The effect of competitive markets on dynamic efficiency

A

-> when relative prices change, lvls of d. efficiency determined by how quickly producers can reallocate
-> features + assumptions of comp market that will assist process = ease of entry + exit; mobile resources; many sellers = incentive 2 innovate

45
Q

The effect of competitive markets on inter-temporal efficiency

A

-> L.S of future gens may x be taken into account (b/c c’er sovereignty
-> Market x factor in full cost of prod + consumption e.g pollution
-> gov.t intervention required through things like emissions trading scheme

46
Q

What are the behaviours of key economic agents

A

Producers aim 2 max profits
Consumers aim 2 max L.S + utility
Gov.t aim 2 max national L.S

47
Q

What is market failure

A

= when an unregulated market is x able 2 allocate resources efficiently 2 maximise national L.S / welfare
-> over/under allocation of resources 2 production of g/s

48
Q

What are public goods

A

= g/s that are socially desirable + important 2 all, it is x excludable + x depletable / x rivalrous in consumption

49
Q

What do public goods provoke

A

= free-rider problem -> an economic agent who receives benefit from public good h/r x pay 2 use it
t/f reason 4 public goods being market failure

50
Q

Types of market failures

A

1) Public goods
2) Common access resources
3) Externalities
4) Asymmetric information

51
Q

Role and effect of gov.t interventions: Public goods

A

-> in general, role of gov.t intervention = 2 ensure public goods are provided in order 2 address under allocation of resources

1) Gov.t subsidies
2) Direct provision

52
Q

What are common access resources

A

= x owned by anyone + usually do x have a market price making them available 2 anyone h/r they are depletable / rivalrous in consumption b/c 1 person reduces the amount available 2 another

53
Q

How are common access resources a market failure

A

= lack of excludability + absence of price -> excessive production + consumption of goods that use of common access resources
-> overuse = unsustainable = intertemporally inefficient

54
Q

Role and effect of government intervention: common access resources

A

-> ultimate goal is 2 prevent/dec over use of common access resources
1) gov.t regs i.e environmental + licensing
2) indirect taxes i.e ETS
3) Subsidies -> Used 4 RnD

55
Q

What is an externality

A

= results when the wellbeing of a 3rd party x involved in a transaction is affected -> either +ve or -ve, occurring in the production / consumption of a g/s

56
Q

What is a positive externality

A

= when a 3rd party receives a benefit from the production / consumption of a g/s

57
Q

What are examples of positive externatlities

A

prod-> Beekeeper
cons-> Vaccinations

58
Q

How is a positive externality an example of a market failure

A

= all + externalities will -> inefficient allocation of resources via under allocation of resources

59
Q

Role and effect of gov.t intervention: positive externalities

A

1) Subsidies -> dec cost of production
2) Direct provisions = health + edu or RnD

60
Q

What is a negative externality

A

= occurs when a cost is imposed on a 3rd party x involved in a transaction from the production / consumption of a g/s

61
Q

What are examples of negative externalities

A

prod-> pollution
cons-> smoking

62
Q

How are negative externalities an example of market failure

A

= all -ve externalities -> inefficient allocation of resources via an over allocation of resources

63
Q

Role and effect of government intervention: negative externalities

A

1) gov.t regulations
2) indirect taxes i.e excise taxes on petrol/cigs
3) Subsidies
4) government advertising

64
Q

What is asymmetric information

A

= type of market failure where one party has greater info than the other in a transaction -> inefficient allocation of resources (under over al) 2 the prod/consumption of certain g/s over time

65
Q

What is adverse selection

A

= an economic outcome that x maximise wellbeing 4 @least 1 of the parties 2 a transaction due 2 1 party having more info than the other

66
Q

What is moral hazard

A

= occurs when economic agents adjust behaviours without other party being aware, 2 1 that = dec efficient / favourable in society pov after transactions occurred

67
Q

Role an effect of gov.t intervention: asymmetric information

A

1) Gov.t regulations
-> Aus c’er law
-> ACCC
-> Regs 2 ensure p’er gives c’er inc info
2) Gov.t advertising (awareness)
3) Subsidies -> maybe 4 firms who provide meaningful info

68
Q

What is government failure

A

= a term used 2 describe a situation where gov.t intervention fails 2 improve allocation of resources / makes allocation of resources less efficient compared 2 free market outcome

69
Q

What are price controls

A

1) price ceiling
2) price floor

70
Q

What is price ceiling

A

= gov.t failure where sellers of g/s are banned from inc prices above certain lvl

71
Q

What is price floor

A

= gov.t failure where price offered in a market = prohibited from falling below lvl

72
Q

What is an example of price floor

A

= Minimum wage
-> designed 2 protect workers with weak bargaining powers from excessive exploitation in the workforce - currently $23.23

73
Q

How do government failures result in inefficient allocation of resources

A

1) productive efficiency impeded b/c x meet equilibrium t/f inefficient b/c valuable labour underutilised
2) Disturbs price mech t/f low skilled labour wages artificially high t/f disincentives ppl 2 inc skills = inefficient -> dec dynamic efficiency b/c less creativity + adaptability of economy
3) Due 2 inc wages + low skilled work offshored, dec L.S of portions of economy i.e structurally unemployed

Economics 3,4 (6 decks)

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