Unit 3 AOS 1 Flashcards
1
Q
Oppurtunity cost
A
value of next best alternative forgone whenever a choice is made
2
Q
3 basic economic questions
A
-what to produce?
-how to produce?
-for whom to produce?
3
Q
labour resources
A
mental/ physical effort by humans
4
Q
capital resources
A
man made machinery
5
Q
natural resources
A
come from land
6
Q
resources definition
A
types of resources sold as is or used to create goods and services
7
Q
needs and wants of overseas economies
A
specified and cheap aus made g & S
8
Q
needs and wants of the government
A
staff, land
9
Q
needs and wants of households
A
essentials, items to make life more enjoyablen
10
Q
relative scarcity
A
having limited resources to satisfy unlimited wants & needs
11
Q
macro-economics
A
broader picture & specific on the overall state of a countries economy
12
Q
Micro-economics
A
involves looking at operation of smaller parts that make up the australian economy
13
Q
economy definition
A
System that allocated scarce resources to satisfy needs & want of soceity
14
Q
economics definition
A
Study of choice
15
Q
productive/ technical efficiency
A
maximum output using all resources does not adhere to societies wellbeing
16
Q
Dynamic efficiency
A
nersources are reallocated quickly in response to changing needs and tastes of consumers
17
Q
Intertemporal efficiency
A
correct balance is found between current consumption/ spending of income versus saving to finance investment & increase future consumption
18
Q
ppf displays
A
concept of oppurtunity cost, trade off between 2 g &s
19
Q
unattainable on the ppf
A
area displays how current efficiency cannot attain wanted point
20
Q
allocative efficiency
A
efficiency of g & s that best helps society
21
Q
monopoly
A
large firm and only firm, price maker
22
Q
oligopoly
A
relatively few firms, large firms and use brand names to diffrenciate products
23
Q
example of a monopoly
A
melbourne water
24
Q
example of an oligoploy
A
reasturants, hairdressers
25
pure or perfect competition
many small firms, goods are homogenous
26
market definition
a place where buyers and sellers come together to exchange goods and services
27
Australia's market structure
market capatilist economy, most important economic decisions are made through operation of markets rather than the government
28
market structure is commonly based on
-number of buyers and sellers
-how much control a firm has at its selling price
-how easy/ difficult it is for new firms to enter the market
29
pure/ perfectly competitive markets include
-consumer soverighnty (consumers dictate how resources are used)
-firms have no market power
-firms have ease of entry and exit
30
free/ perfect competition markets improve efficiency by
-strong competition=easier resource allocation
-efficiency
-lower prices for consumers
31
How does one achieve a point outside the ppf currently "unnatainable"
-more quantity-make more resources
-more quality-training= labour, education, increase immigrants, decrease retirement age
32
if a point is in the ppc
could mean potential unemployment
33
issues with using the ppf to display the economy
-only shows 2 oppurtunity costs
-resources may not be able to be changed between g & s as easily
-only shows resources, not prices, not adjusted to inflation
34
Australias market system
market capitalist economy
35
planned economy definition
economy where main economic questions are awnsered by the government
36
free market economy
economy where all economic questions are awnsered by individuals
37
steps of the market system
1. buyers and sellers negotiate equilibrium price
2. relative prices change over time due to new non price conditions of demand and supply
3. relative profits change over time
4.resource owners make key economic decisions
38
assumptions in market situations
-all market participants act rational
-buyers want lowest prices and most goods
-sellers want highest price and least goods
39
law of demand definition
quantity of a good/service demanded by consumers varies inversely to price
40
examples of the law of demand
-as price increases, there is a contraction in the quantity demanded
-as price decreases there is an expansion in the quantity demanded
41
movements along the demand curve need to be reffered to as
contractions or expansions
42
movement along the demand curve
are due to price factors
43
shift along the demand curve
are due to factors beyond price
44
examples of shifts along the demand curve
-seasons
-preferences and tastes
45
Theories explaining law of demand
-income effect
-substitution effect
46
income effect definition
when a good or service becomes more expensive/ less affordable, few people have neccassary income to spend on it
47
substitution effect definition
when a good or service becomes more expensive, buyers look for cheaper alternatives
48
the law of supply
supply changes directly with a change in price
49
example of the law of supply
-as price increases, ther is an expansion in the quantity supplied
-as the price decreases, there is a contraction in the quantity supplied
50
theories explaining the law of supply
-profit motive
-consideration of oppurtuniy costs
51
profit motive
as price of a product increases it becomes more profitable and suppliers will be motivated to produce more and increase quantity supplied
52
53
consideration of oppurtunity cost
if sellers recieve higher prices for what they sell, the oppurtunity cost increases, leading them to allocate more resources to the good instead of other goods
54
Non price factors effecting demand (acronym)
STICG DISC
(Seasons, Tastes, Intrest rates, Complimentary, Govt policies,) (Demographics, Disposable income, Substitute Item, Consumer/ business confidence)
55
phrase to remember non price factors effecting supply
Pete Can Lick Iced Tea Cus Tea Is Good
(Productivity cost, Climate conditions, Labour costs, Imported & local raw materials, company Tax rates, Cost of utilities, Technology and productivity, Intrest rates, Governement policies)
56
if the price of a good or service changes the quantity supplied
will change, resulting in a movement along the supply curve
57
factors other than price changes result in
shift in the supply curve
58
when the price of a product is not at equilibrium
the quantity demanded will not equal quantity supplied
59
if demand exceeds supply
-shortage
-suppliers increase price
60
if supply exceeds demand
-surplus
-lower price
61
how disequilibrium caused by increased demand will get back to equilibrium
excess demand= shortage
market will signal to producers to:
-increase price
-at higher price= expansion of supply, contraction of demand to create equilibrium
62
disequilibrium cased by decreased demand will be put back to equilibrium by
excess supply= surplus
market signal to producers to=
-decrease price
at lower price= expansion of demand +contraction of supply
63
disequilibrium cased by increase in supply how to turn back to equilibrium
excess supply= surplus
market signals to producers:
-decrease price
-expansion in demand
-contraction of supply
64
disequilibrium caused by decrease in supply can be turned back to equilibrium by
decrease in supply= shortage
signals to market producers:
-increase price
-contraction in demand
-expansion in supply
65
process of changes in relative prices & its impacts are reffered to as
market mechanism and/ or
price mechanism
66
67
elasticity definition
measures degree of responsiveness or sensitivity of quantity demanded or supplied to a given change in price
68
price elasticity of demand
how responsive the quantity demanded of a good or service is, relative to a change in price
69
demand curves can fall into three categories
-relatively elastic
-relatively inelastic
-unit elastic
70
price elasticity of PED is measured by
PED= percentage change on quantity demanded/ percentage change in its price
71
demand is relatively elastic (high PED)
PED is responsive or high (number is greater than 1 ) if quantity of a particular g/s demanded changes by a larger proportian than the change in price
72
Example of elastic demand
10% rise in price results in a 20% contraction in quantity demanded
73
elastic demand means
if price rises, total revenue consumer purchases decreases
74
how to find revenue
unit price multiplied by quantity demanded
75
when drawn elastic demand is
fairly flat
76
demand is unit elastic
PED is medum (number equals 1) if quantity demanded changes by same proportion as change in price
77
example of unit elastic
10% rise in price = 10% contraction in quantity demanded
78
when drawn unit elastic looks like
demand hcurve has a gradient or -1 (diagonal)
79
demand is relatively inelastic
-low PED
-PED unresponsive or low (number less than 1) if quantity demanded changes by a smaller proportion then change in price
80
example of demad inelastic
10% price, 5% contraction in demand
81
when drawn price inelastic
line is steep
82
Determinants of PED acronym
SPLAT
-sustitutes
-proportion of income
-luxary or neccessity
-addictive
time
83
Substitutes as a determinnt of PED
demand of products with lots of subsides is usually relatively elastic, demand for unique products are usually inelatic more price sensitivity, consumers can switch
84
proportion of income as a PED determinant
consumers wigh up costs vs benifits carefully
85
Luxury or neccesities as a deterimant of PED
demand for neccesities is usually inelastic as people dont have much option in purchasing. demand for luxary g/s is relatively elastic as can be changes or abandoned in demand
86
addictive as a determinant of a PED
goods are more addictive tend to be more inelastic
87
time as a determinant of a PED
in long term, demand becomes more elastic as this allows buyers to find alternatives or substitutes
88
price elasticity of supply definition
measures how responsive quantity supplied of a g/s is, relative to a change in price
89
categories of supply curves
-relatively elastic (high PES)
-relatively inelatic (low PES)
-unit elastic
90
prcie elasticity calculation supply
PES= percentage change in quantity supplied/ percentage change in its price
91
supply is relatively elastic (high PES)
quantity of g/s supplied changes by larger proportion than change in price (number grater than 1)
92
E.g of high elastic PES
10% raise in price = 20 % expansion in supply
93
when drawn high elastic PES
is flat
94
supply is unit elastic
PES is medum, if quanityt supplied changes by same proportion as change in price
-10%=10%
95
unit elastic when drawn
gradient=1, diagonal
96
supply is relatively inelastic
-low PES
unresponsive (number less than 1) if quantity supplied changes by a smaller proportion than price
97
example of PES inelastic
10% price change = 5% expansion in quantity supplied
98
inelastic PES when drawn
steep
99
acronym for determininats of PES
Sam Doesnt have C.A.Ts
in which:
S=storibility
D=Duribility
have
C=capacity (spare capacity)
A=avalibility of spare capacity
T=time period
s
100
storibility as a determinant of the PES
items able to be stored succesfully without deterioration have higher PES, if prices rise supplies can quicly acess extra supply
101
Duribility as a determinant of the PES
if products are more durable they can be more easily acessed for suppliers
102
the avalibility of spare capacity
if production levels can be readily and inexpensively changed by moving resources between industries, supply is likely to be more price elastic. PES is especially high if unused or spare productive capacity, full productive capacity means no room for improvement
103
time period as a determinant of a PES
in short term, oftern difficult for firms to expand supply following a price rise. As firms cannot quickly reply to change in demand. in long term, there is more time to be more responsive
104
role of free and competitive markets
allows for efficient allocation of goods and services
105
pre conditions for a free and competitive market
-lots of buyers and sellers
-firms act as price takers
-products homogenous
106
definition of market failure
price system alone doesnt result in most efficient allocation of resoucres that maximises societies wellbeing
107
the govenment interviens in market failure by
-placing indirect taxes on socially undesirable goods and services
-usuing policies that promote strong competition, cut costs
-paying subsidies to producers or consumers of socially desirable goods and services
108
Types of market failure
-abuse of market power
-assymetric information
-externalities
109
abuse of market power definition
one or few firms gain too much market power (e.g monolpoly, oligoploy) they become price takers oftern restricting competition and output, less efficeint allocations of resources
110
government policies used to reduce abuse of market power
-deregulising markets
-uptaking trade liberalisation and cutting import tarifs
-govt. laws to promote competition
111
assymentric information
occurs when one party of economic transaction has more knowledye abt g/s or conditions prevailing in market
112
government policies used to reduce assymetric information
-government laws about full product disclousure, illegal for sellers to withhold certain infor that could impact buyers decisions
-govt. informative advertising + educational campaigns, makes educational campaigns to educate +inform consumers of poentitial dangers of products
113
externalities
extrea costs or benifits experienced by a third party
114
two types of externalities
negative, positive
115
negative externalities
costs (not always financial) paid by third parties, arsing from production or consumption of a g/s
e.g living next to a factory breathing in smoke
116
positive externalities
benifits of a economic activity that benifit a third party not involved, bad because they do not effeciently allocate goods and services
e.g getting a vaccine benifits the whole community as less likely for them to be sick aswell
117
government policies to reduce externalities
-govt laws
-indirect taxes
-subsidies to consumers buying goods with positive externalities (solar panels)
-govt. can directly provide socially desirable resources (school, healthcare)
118
public goods
g/s that can be consumed collectively by an individual, they are non excludable and non rivalrous
119
non excluadable
those who cannot pay for a g/s cannot be easily excluded
120
free rider problem
in the provision of public goods, consumers do not payt and can still gain benifits
e.g ppl can still gain police protection despite not paying taxes
121
non rivalrous
the use of a public good/ service does not prevent another from eduring this
122
example of non rivalrous
if I use a street lamp, it does not stop another from using this
123
private goods are
excludable (if I go to a checkout and do not have the money, I can be excluded)
rivalrous (my consumption of an apple means others cannot consume the same apple
124
issue with the provision of public goods
because public goods have low profit, they have under production
125
fixes of provision of public goods
goct. budget is used from tax revenue
126
common acess resources
these are non excludable g/s but also rivalrous, as thier provisions can lead to deterioration of them on the planet
e.g beaches, fishing lakes
127
govt. policies to reduce abuse of common acess resources
- protection of fish stocks in rivers and oceans e.g govt limits on catch sizes
-protection of forsets and mariene ariaes e.g national parks, wilsons prometery
-protection of the climate as a common acess resource:
. paris agreement=aimed to cut emissions by 40%
. united nations climate change conference= agreed to zero net emissions by 2050
128
govt policies used to maintain future and current generations
-carbon taxes directly to carbon emission creating firms
- cliamte solutions fund, give money to firms who reduce their emissions
-encouragement of renewable energy to protect common acess resources e.g subsidies
-powering australia plan to reduce climate change, money to a electricity grid
-emission trading scheme to reduce co2 emmisions, puts a price on pollution
129
potential government polices to maintain future and current resources
- could use a carbon tax
-encouragement of renewable energy to protect ca resources
- joining international agreements to help protect common acess resources(kyoto protocol= commitment of govt. to emisiions target)
130
Government intervention in markets that unintentionally lead to decreased efficiency
allocating resources into subsidies for the coal and fuel industry
131
uninetientional problems of allocating resources into the coal industry
- the government subsidises producers of coal and fuel
-overall 29 billion is estimated on environemntal and soical effects
-govt. funds infastructure for coal miners and fuel
132
coal and fuel miners can be good for
- AD
- employment
133
coal and fuel miners is bad because
- increased negative externalities (co2)
- massive oppurtunityu cost, in vic alone the money spent on coal and fuel could hire and educate 377 police officenrs
134
when the price of a product is below equilibrium
it meas that there is excess demand and price will rise
135
entreunership is diffrent from labour as entreupenurship
involves financial risk taking where labour generally does not
136
why do governments intervene in a marketplace
a market will not allocate resources in ways that maximise national welfare
137
