up learn stuff Flashcards
what is market failure
when the pice mechanism leads to a misallocation of resources
what are the 4 types of market failure
postive externalities
negative externalities
information gaps
public goods
what are negative externalities
costs which affect third parties outside the price mechanism
how do you properly define welfare loss
how much welfare the society loses in total as a result of positive/ negative externalities
what is the point called where MSB = MSC
socially efficient equilibrium
what does the effectiveness of indirect tax on externalities depend on
it depends on the cost of the tax, if it achieves the socially eficient equilibrium(P* and Q*)
what does the CAP and TRADE mean(word by word)
CAP: how much pollution is allowed per year
TRADE:
how are tradeable pollution permits handed down and what is done with the rest
tradeable pollution permits are handed out based on the firm’s size. the government will do this until there is only 10% of permits left. these permiits are then auctioned
what is the benefit of tradeable pollution to the government
the government is able to raise revenue from selling the permits on the market.
what is the purpose of minimum prices
inceases the prices, which causes a contraction in demand
what are the 3 main purposes of regulation
- ban goods completely
- set environmental standards
- set legal age restrictions
what are positive externalities
benefits which affect third parties outside the price mechanism
what is another phrase for positive externalities
external benefits
what does the supply curve tell us
the lowest price that suppliers are willing to sell for
where to draw the potential welfare gain in the positive consumption externalities diagram
between the underconsumption gap (Q-Q*)
what is a subsidy and what is its purpose
a money grant given by the government to firms, which encourages firms to increase production
what is the purpose of maximum prices
to create excess demand, encourage the consumption of goods
what are the determinants of elasticity of labour demand(3)
- substitutes
- % of total costs
- time
what does it mean if wages make up a large % of total costs
wage increases have a big impact, firm is responsive so elastic demand
what happens if wages increase in the short run(elasticity demand for labour)
demand will be inelastic because there is not enough time to find substitutes
what are the 3 factors that affect the elasticity supply of labour
- skills and qualifications
- unemployment levels
- time
what happens to wages when the supply of labour is elastic
the wages are lower
what is the elasticity of supply of labour when unemployment is low
inelastic
what happens to the elasticity supply of labour in the short run if wages increase
labour dont have enough time to train or apply for the job meaning it will be unresponsive so inelastic
what happens to wages in the short run when supply is inelastic
wages will be higher(less quantity)
how does unemployment affect the elasticity of labour supply
the higher the unemployment, the more people there are looking for work, so workers will be responsive, so elasticity is high.
what does derived demand mean
the demand for labour is derived from demand for a good/service
what are both sides for increases in productivity
- demand for labour will increase as they become more productive
- demand for labour may decrease as less labour will be needed to produce the same amount of goods
what is the correlation between capital costs and demand for labour
as capital costs decrease the demand for labour decreases
how does migration into the country affect the labour diagram
supply curve shifts to the right
what is an evaluation point for increased income tax
workers may need to work more hours in order to pay for things like mortgages, which may in turn increase the supply of labour.
what are some examples of non-monetary benefits
- private healthcare
- company cars
- free gym memberships
what is the correlation between non-monetary benefits and wages
- the higher the non-monetary benefits the lower the wages(supply curve shifts to the right)
what is the effect of training and education on the labour diagram
- supply will increase since labour has more skills
- demand can increase as labour is more productive
- demand can decrease as less labour is needed to produce the same amount of goods/services
what are 2 examples of sunk costs
- advertising
- R and D
4 features of an oligopolistic market structure
- a few large sellers
- high barriers to entry /exit
- differentiated goods(coca cola and pepsi)
- interdependence
what happens to revenue when PED is inelastic and price is increased/ decreased
- when price is increased = TR increases
- when price is decreased = TR decreases
what are the 3 types of price competition
- price wars
- predatory pricing
- limit pricing
what is predatory pricing
firms decrease pricing below their SR shutdown point in order to steal customers, and cause firms to leave the market(AVC = AR)
what is limit pricing
when an incumbant firm sets prices low enough to limit new competition from entering the market
how do firms benefit in the LR from limit pricing
- firms will have E of S compared to other firms
4 main types of non-price competition
- advertising
- loyalty cards
- branding
- quality
what are risk bearing economies
- when firms use LR supernormal profits to diversify into new areas, reducing the cost of failure in one sector
what is a real world example of risk diversification
richard brandson expanding Vrigin Group into:
- virgin atlantic(commercial planes company)
- virgin games(gaming)
- virgin Active(health and fitness)
what are the 3 types of internal diseconomies of scale
- Alienation(loss of motivation -> decreased productivity -> increase in LRAC)
- Bureaucracy (increase in legal paperwork and amount of staff required to deal with this -> increase in LRAC)
- Communication (longer to share ideas across the firm -> decreasing productivity -> raising LRAC)
whart is the MES point
the quantity where the firm first reaches its lowest LRAC
what are internal economies of scale
reduction in the firm’s LRAC, as a firm’s size increases
what are external economies of scale
when an industry’s size increases which leads to lower LRAC
what is an example of external economies of scale
knowledge was shared in hollywood as the fil industry increased, introducing a new idea (GREEn SCREEN), reducing the costs of having to travel to places to film specific sceneries
what is the difference between variable and fixed costs
- fixed costs do not change with output
- variables costs chnage with output
DMR : inm the SR as more FOP are employed …
the margial returns from these FOP will eventually decrease
what are the 2 types external economies of scale
- knowledge transfers
- recruitment costs
what is the coeffiecient of XED if a good is complementary
negative
what is the coefficient of XED if a good is a substitute
positive
what is the XED is a good is unrelated
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