Unit 3- Macroeconomic decision makers Flashcards
What is real disposable income and its relation to consumer expenditure
Real disposable income refers to the amount of income an individual has after all income and tax related charges have been deducted. If a consumer has a high disposable income their consumer expenditure increases.
What contributes to household earnings and how do they spend that income
Contributes- dividends, rends, investments in saving, wages salaries, and profits from firms
Spent- Goods and services, education, groceries, rent
What are the factors that influence spending in a country and inidvidually
Country- Income, consumer confidence, rate of interests
Individual- real income, gender, age, spending patterns
Why do people save
- availability of saving schemes(govt)
- savings for investment
- if consumer consumer is low
- if there is a higher interest rate
What can government do to instill saving?
- employment opportunities
- high interest rates
- tax cuts
- public goods provision
Why do households and businesses borrow money? What are the influences
Households: Down payment, mortgage, vehicles, personal borrowing, education
Businesses: Investments in factors of production like capital
Main(Influences): Consumer confidence, interest rate, income
What can government do to increase or decrease borrowing in an economy?
Increase-
Reduce interest rates
Increase taxes
Decreases-
Increase interest rates
Decrease taxes
Provide subsides to firms
What are some wage factors that we take into account when selecting a job
- time rate system
- piece rate system
- fixed annual salary
- performance related pay
What are some non-wage factors that we take into account when selecting a job
- holiday entitlement
- hrs of work
- hrs it takes to commute to work
- opportunities for promotion
How is wage determined in the market and what is a labor market?
- Amount of time spent
- Skill set
- Demand for product
- Amount of tasks done(productivity)
- Mobility of a laborer
Laborer market- marketplace where firms and workers meet to fill the demand and supply for labor.
What factors affect demand and supply in a market
Demand
- Change in labor productivity
- Change in consumer demand for product
- Change in price for capital intensive methods
Supply
- Change in size of population
- Change in net advantage for occupation
- Change in provision of quality education
Why will a govt increase minimum wage
- Reduce borrowing, increase saving culture. Also to increase consumption, because more disposable income.
What are factors that affect the demand for factors of production?
- Derived Demand
- Factor productivity
- Factor availability
- Factor price
- Factor substitutes
Three questions to answer (on your own): - How does demand for factor of production affect their price
- How does the price factor of production affect their price
- How does the availability of factors of production affect firms revenue
What is production(how we calculate it) and productivity? (Definitions)
- Productivity- Is the amount made by an employee over a period of time.
- Production-Production is thus, the transformation of raw materials (input) to finished or semi-finished goods and services (output)
What are factors that influence production?
- demand for the good/service
- influenced by the state of the economy
- supply for factor of production
What are the factors that influence productivity
Provide analysis points
- the total output and revenue is more with the same amount of resources
- the total output and revenue is the same with less resources
Analysis:
- increase workers wages- more loyal- increase productivity
- increase output of product- economies of scale
- ability to compete- economic growth
- taxes paid- govt revenue increases
What is total, variable and fixed costs?
Fixed costs: Costs that don’t change despite the output: cost of machinery
Variable cost: Costs that vary directly with the output: If output increases workers wages do too.
Total cost: Sum of total fixed cost+ total variable cost
How do we calculate total variable cost, average fixed cost, average variable cost, average total cost
total variable cost= variable cost x quantity
average fixed cost = total fixed cost / quantity
average variable cost = total variable cost / quantity
average total cost = total cost / quantity
How can we calculate revenue and average revenue per unit? What is break-even level of output?
Total revenue= price per unit x quantity sold
Average revenue per unit= total revenue/ number of units sold
Break- even level of output= is when the output generated, will produce a total revenue that is equal to the total cost. At the break-even level of output firms don’t generate a profit or loss
total revenue = total cost or total revenue - total cost= 0
What are the four objectives of firms, give the reason for why they would want to do that, and how they can proceed.
- Profit Maximization- to increase their profits, firms can either generate more sails from revenue or decrease costs
2- Growth- a company that grows quickly is less likely to fail: generate more sails from revenue or decrease costs, maximize revenue by increasing output and benefits from economies of scale
3- Survival: in the short run all firms aim to do this
4- Social Welfare: Social objective they want to address, require profit to survive but not main objective.
- Profit Maximization- to increase their profits, firms can either generate more sails from revenue or decrease costs
What are the characteristics of competitive markets, and what are competitive markets(definition)? What are some advantages and disadvantages of competitive markets?
Competitive markets have a very high level of competition in them. There are too many buyers and sellers, products are homogeneous there are no barriers for entry of firms, the market sets the price in competition. Advantages:- lower prices, better quality, more choices. Disadvantages: Workers welfare gets ignored, worse quality, too many choices.
What are the characteristics of monopoly markets, and do firms do when they have the monopoly? What are some advantages and disadvantages of monopoly markets?
Firms:
- Set their own prices
- Maximize profit
- Might sell worse quality
- Make use of price discrimination
- Limited variety
Characteristics:
- PED is inelastic
- less variety
- barriers to entry
- one seller
- firms set market price
Advantages:
Consumers: less variety, better quality
Firms: higher prices, guaranteed revenue
Disadvantages:
Consumers: less variety, worse quality
Firms; barriers to entry
What is diseconomies of scale(for large firms)
- labour diseconomies
- management diseconomies
- skill shortage
- regulatory risks
- supply constraints
What are internal economies of scale(for large firms)
- marketing
- financial
- practical
- technical
- risk bearing
