Year 12 micro Flashcards

1
Q

What is the main economic problem

A
  • There are not enough resources to satisfy our consumption
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2
Q

What are the three main economic agents

A
  • Consumers
  • Producers
  • Governments
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3
Q

What is the opportunity cost

A
  • Next best alternative foregone
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4
Q

Advantages of specialisation

A
  • More efficient
  • Lowers long run average cost
  • Reduces training cost
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5
Q

Disadvantages of specialisation

A
  • Workers may struggle to adapt if the environment changes

- Workers may become bored and therefore less productive

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6
Q

4 uses of money

A
  • Unit of account (comparable)
  • Store of value
  • Medium of exchange
  • Standard of deferred payment
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7
Q

Elements of a mixed economy

A
  • Gov forms public sector and firms form private sector
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8
Q

What is derived demand

A
  • Derived demand is the demand for a factor of production used to produce another good or service
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9
Q

What is 1) joint demand y 2) positive demand

A

1) Complement goods - xped is negative
2) Composite demand happens when goods or services have more than one use so that an increase in the demand for one product leads to a fall in supply of the other

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10
Q

Utility

A
  • Total utility is total level of satisfaction from given level of cons.
  • Marginal is change in satisfaction from each extra unit
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11
Q

What is market equilibrium

A
  • The price at which the market for the product clears
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12
Q

1) Consumer y 2)producer surplus

A

1) Area under demand curve and above market price

2) Area above supply curve and below price

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13
Q

PED

A
  • Responsiveness of demand after a change in price
  • %change in Qd/%change in price
  • 0 = perfectly inelastic
  • 0-1 = inelastic
  • 1 = unit elastic
  • > 1 = elastic
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14
Q

Factors affecting PED

A
  • Habit
  • Substitutes
  • Cost of switching
  • Price in relation to income
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15
Q

YED and types of goods

A
  • %change in Qd/%change in real income
  • Normal goods - positive income elasticity
  • Luxury goods - income elasticity >1
  • Necessities - 0-1
  • Inferior goods - negative income elasticity
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16
Q

XPED

A
  • %change in good x/$change in good y
  • Substitutes have strong + xped - higher the value = closer products are are substitutes
  • xped highly negative when there is complementary relationship
17
Q

PES

A
  • %change in Qs/%change in price
  • > +1 = price elastic
  • < +1 = price inelastic
  • 0 = perfectly inelastic
  • Infinity = perfectly elastic
18
Q

Factors affecting PES

A
  • Spare production capacity
  • Stocks of given product
  • Ease of production factor mobility
  • Time period and production speed
  • Manufactured goods tend to be more price elastic in terms of supply
19
Q

4 functions of price mechanism

A
  • Allocate - scarce resources among competing users
  • Rationing - prices serve to ration scarce resources when demand > supply
  • Signalling - prices adjust to demonstrate where resources are required
  • Incentives - when price increases, Qs increases
20
Q

Assumptions of rational behavior

A
  • Agents choose independently of one another
  • Fixed tastes y preferences
  • Complete information
  • Optimal choice
21
Q

Questioning rational behavior

A
  • Influenced by social surroundings
  • Lack of self control
  • Loss averse
  • Differing choices in different emotional states
  • Strong default to maintain status quo
22
Q

Bounded rationality

A
  • Most agents do not have sufficient info to make fully informed judgement
  • Sacrificing instead of maximising
  • Rule of thumb
23
Q

6 types of market failure

A
  • Neg externalities
  • Pos externalities
  • Public goods
  • Information failures
  • Monopolies
  • Immobility y inequality
    Market failure exists when the competitive outcome of the market is not efficient for whole economy
24
Q

Complete y partial market failure

A

Complete - when the market does not supply products at all (ex. public goods)
Partial - when the market functions but supplies at wrong quantity or at wrong price (ex. neg ex in prod)

25
Q

What are externalities

A
  • Spill over effects from prod/cons for which no appropriate compensation is paid
  • Externalities are not reflected in the market price
  • Neg prod/cons
  • Pos prod/cons
26
Q

P,E and S costs

A

MPC - cost to the producing firm of producing an additional unit of output
MEC - cost to third parties from production of extra unit
MSC - total cost to society MSC=MPC+MEC

27
Q

P,E and s benefits

A

MPB - benefit to cons or business of consuming/selling additional unit of output
MEB - benefit to third parties from consumption of extra unit of output
MSB - total benefit to society MSB=MPB+MEB

28
Q

76

A

76