Term
| What's scarcity, and how does it shape economics? |
|
Definition
| Scarcity is the existence of a limited number of resources. The implication of scarcity is that goods have a certain value which is determined by one's willingness to pay for it (i.e What they're willing to give up). It is what needed to fuel economics. |
|
|
Term
| What's the law of Demand? What's the law of supply? |
|
Definition
| The law of demand describes consumers' willingness to purchase a good as increasing in response to decreasing price. Where as the law of supply describes a supplier's willingness to provide increased amount of goods as the price for those goods is able to be increased. |
|
|
Term
| Describe the Efficiency Vs. Equity issue. |
|
Definition
| An essential trade-off in the field of Economics. In order to be productive, goods must be allocated in a way which increases total revenue (i.e as production inputs). Where as equity describes an equal distribution of goods among society. One cannot disregard either factor, as neglecting a factor will affect the other factor. They must therefore be balanced appropriately. |
|
|
Term
| Do economists assume rationality? |
|
Definition
| Economists typically presume that society is largely rational. This implies that they think at the margin, i.e take into account marginal changes and create economically sensible decisions. |
|
|
Term
| What do people respond to largely? |
|
Definition
| Incentives. These fuel the market economy. A producer is not producing bread in order to solely feed the world, they're doing it as they're able to profit- Remove this profit incentive, and it's unlikely there would be incentive to produce bread. |
|
|
Term
| What's the most effective way to organise economic activity? |
|
Definition
| Through a free-market. "The invisible hand" is said to be responsible for the actions of both "firms" (Suppliers, producers) and of "households" (Consumers, purchasers). This means that consumers will demand a good at a paticular price, and suppliers will cater to this demand accordingly, and vice versa. |
|
|
Term
| Can governments improve market outcomes? |
|
Definition
| They essential enable markets to be run through placing legislation on economic activites (e.g Taking goods from a producer without producer's willingness is illegal). It also has price controls which may improve market outcomes, or be more equity based. |
|
|
Term
| A country's standard of living is dependent on? |
|
Definition
| Their abillity to produce goods and services for trade and revenue creation. |
|
|
Term
| A circular flow diagram shows what exactly? |
|
Definition
| Demonstrates the flow of $$ and resources between households and firms. |
|
|
Term
| The Production Possibiliites frontier is a model which shows the relationship between which two values? |
|
Definition
| A PPF (Or a production posibillities frontier model) depicts the amount of goods which are able to produced in relation to each other. |
|
|
Term
| Why is the production posibillities frontier typically bowed out in shape? |
|
Definition
| The law of diminishing returns implies that as production of a good increases, the larger the assosciated cost. (E.g Increasing output of milk, will decrease the proporiton of rice) |
|
|
Term
A point within the curve demonstrates....???
A point outside of the curve demonstrates....? |
|
Definition
| A point within the curve shows that inefficient production will take place at that point. This is due to the fact that scarce resources will not be put to their potential. A point outside of the curve depicts a currently unattainable point of resources production. |
|
|
Term
What's Comparative Advantage? What's Absolute advantage?
|
|
Definition
| Comparative advantage describes the entity with a lower opportunity cost for producing a paticular good (E.g The United states only has to expend 1 sock in order to produce 2 gloves, where as Japan needs to expend 2 socks in order to produce 1 glove. Therefore, The United States has the comparative advantage is glove producing). Absolute advantage describes the most productive producer in a paticular unit output. (Let's say Japan produces 100 tonnes of CDS per hour, and the USA produces 60 tonnes of CDs per hour- Therefore Japan has the absolute advantage in CD Production. |
|
|
Term
| Describe the conditions necessary for there to be mutual gains in trade...? |
|
Definition
| There must be nations with varying opportunity costs in different good productions. This way, nations will be able to specialise in a paticular good and become more productive, and obtain a larger amount of a good in which they're unproductive in producing, through trade. |
|
|
Term
| How do you determine a range of prices in which trade can occur between two trading partners? |
|
Definition
| First, you must analyse the opportunity costs involved in the production of the good both nations are EXPORTING. This should be the MINIMUM price in which trade can occur. In the event that both nations should have to become substansially better off, it's common to choose a value between the producer's opportunity cost and the purchaser's opportunity cost. This typically is the case, otherwise self-sufficiency would take place. |
|
|
Term
| What's a microeconomy and what's a macro economy? |
|
Definition
| A microeconomy describes the economic activities of households and firms in relation to a paticular change. Where as macroeconomics analyses the affect of a paticular variable on an economy as a whole. It's impossible to analyse a macroeconomy without analysing the microeconomy first. |
|
|
Term
| What's positive analysis and what's normatative analysis? |
|
Definition
| A positive analysis is the description of the way that things are (economically). (E.g Overall consumer demand for sunglasses has decreased with the onset of winter). A normatative analysis is a corrective statement based on a paticular positive analysis. (E.g The government should impose a tax on cigarette smoking due to increased consumption of cigarettes) |
|
|
Term
| Describe which factors cause a shift along the curve, and which factors cause a movement down it? |
|
Definition
| A shift in the demand / supply curve occurs when a non-axis variable (e.g Weather, taxes, price controls, the existence of substitutes and complementary goods, income changes, etc) has an effect on the demand and supply curve, and influences the amount supplied / demanded as a result. Where as a movement along the curve is simply as a result of the axis variable (price) altering. |
|
|
Term
| What are two common issues assosciated with variable graphs? |
|
Definition
Revese casuality= Confusing a variable's influence on another (E.g Stating that crime increases as a result of increased police officers, when it's more probable it's the other way around).
The omitted variable trap= When a variable which has a considerable influence on data is not included in the graph, and it therefore confuses one to come to the conclusion that a paticular variable affects another when it doesn't.. (E.g The presence of lighters in a house, and likelyhood of obtaining cancer being linked.. The variable which has been ommited here is cigarette smoking often takes place in those houses with lighters) |
|
|
Term
| How does one calculate market demand and market supply? |
|
Definition
| Market demand describes the total demand for a paticular good in a market. In order to obtain this total good value, one must add up the individual demand curves of society. Market supply describes the total amount of goods supplied for a paticular price in the market. In order to obtain this value, one must add up the supply curves of all suppliers in a paticular market. |
|
|
Term
| A right shift along a curve describes a? A left shift along the curve describes a? |
|
Definition
| Right shift shows an increase ... Left shift shows a decrease.... |
|
|
Term
| Substitute and complementary goods are related goods. How does a change in the price of a substitute affect a paticular good? How about a complementary good? |
|
Definition
A decrease in the price of a substitute good, would cause the demand for the substitute's good related good to decrease due to the presence of a cheaper alternative. An increase in the price of a substitute good increases the demand for the related good, due to the related good being a cheaper alternative.
A decrease in the price of a complementary good increases the demand for the related good, as they are able to be used in conjuction and at a cheaper price. An increase in the price of a complementary good would decrease demand for the related good as the total cost of buying both would be higher. |
|
|
Term
| In economic terms, what are expectations? |
|
Definition
| Describes ones thoughts on the outcome of a paticular good / service.. (E.g Expecting a higher income, results in an increased CURRENT demand for video games). Suppliers often use factors such as weather and academic dates and predict a paticular increase in the demand of a paticular good. |
|
|
Term
| How does technology influence a supply curve? |
|
Definition
| More advanced technology, means higher productivity for less resources, resulting in a higher supply. |
|
|
Term
| Describe Market Equilibrium.. |
|
Definition
Market Equilibrium is the point at which the quantity demanded by consumers is equal to the quantity supplied by producers. The market is in constant movement towards an equilibrium price.
Market equilibrium increases economic welfare (presuming that externalities such as pollution, second-hand smoke, etc are ignored). |
|
|
Term
| Elasticity describes a paticular quantity variable's (Demand, supply and income) sensitivity to change in prices. What are the different elasticities which exist? |
|
Definition
An elasticity of 0 is said to be perfectly inelastic. At this elasticity, quantity demanded / supplied remains the same regardless of price. A perfectly inelastic slope is vertical.
An elasticity of <1 is said to be inelastic. At this elasticity, the change in quantity supplied / quantity demanded is less than proportional to the percentage change in price.. (E.g The price of boots increases by 7%, overall market demanded increases only by 3%.)
An elasticity of 1 is said to be unit elastic. At this point, any change in price would result in an equal , proportionate change in quantity demanded / quantity supplied. A liner curve.
An elasticity of >1 is said to be elastic. From this point, the quantity demanded / supplied is more than proportional to the price change. Goods which are elastic have a flatter curve.
A perfectly elastic curve is said to be infinitely elastic. The curve is flat, and the quantity demanded / supplied is infinite at a paticular price range (untill the good or service is exhausted, limited) |
|
|
Term
| Name three inelastic goods, name three elastic goods. |
|
Definition
Inelastic goods are paticularly necessity goods, goods in which demand is constant for regardless of price.. Insulin, Heroine, Doctor's visits... Etc
Elastic goods are typically luxury goods, goods which aren't required constantly. The more substitutes available for a paticular good, the less elastic it is said to be. E.g Mustangs, Jet skis, gaming consoles etc. Demand for a silver, custom made PS3 is a lot more elastic than a mass produced one.. And incomparison to heroine, is a lot more elastic.
A short term response is usually inelastic, though longer term responses are more and more elastic..
|
|
|
Term
| What's the equation for the price elasticity of demand...? |
|
Definition
P(ed)= %Change in Quantity demanded / %Change in Price
E.g A good which is typically demanded at 4,000 units at the price of $6, has its price changed to $9 per unit and is now demanded at 1,100 units. Calculate the price elasticity of demand...
(4,000 - 1,100) / ( 2050)
-------------
($6-$9) / ($7.5)
= 2.845
This means that as the price increases, the quantity demanded will increase
by 2.845 times. |
|
|
Term
| What's the equation for the Price elasticity of Supply? |
|
Definition
%Change in Quantity supplied / %Change in price..
For example: The amount Nuka-Cola provided at 5 chips is equivalent to 40,000 units. A recent increase in roaming bandits has lead to a decrease in the price of Nuka-Cola to 4 chips. The amount of Nuka-Cola provided is equivalent to 35,000 units.
[(5000) / (37,500)] / [(1) / ($4.50)]
|
|
|
Term
| How does one calculate Total revenue? |
|
Definition
Total revenue = Price x Quantity
Suppose that Anti-Rads are sold at a price of 50 chips for a total amount of 25. The price of Anti-Rad is valued at 52 chips, but the quantity supplied is now 21.
Initial total revenue= 1250
Final total revenue= 1092 |
|
|
Term
| Price controls are only binding if they are set in a paticular position in relation to the Equilibrium. Where should a price floor be placed? How about a price ceiling? |
|
Definition
The intent of a price floor is to introduce a legal minimum to a paticular good or service in order to encourage continual supply. In order for it to have any immediate effect, it must be placed above the current requilibrium.
The intent of a price ceiling is to introduce a legal maximum to a paticular good or service. This is generally used to promote equality among consumers, through allowing greater access to a paticular good. |
|
|
Term
| Price floors often create which set of conditions? |
|
Definition
| As more are able to access the good and at a lower price, there will possibly be a shortage due to the supplier being less incentivised to supply more product, and the quantity demanded increasing. |
|
|
Term
| What are the conditions that a price floor can create? And what mechanisms take place during these conditions? How about for the conditions that a price ceiling produces? |
|
Definition
A price floor is designed to increase the price of a paticular good or service. As a result, many consumers may demand less of the service. These conditions create a surplus.
A price ceiling often results in a shortage of a paticular good or service. This leads to rationing mechanics / discriminatory supplying. These mechanics are paticularly inefficient, as not all willing consumers will be satisfied. |
|
|
Term
| What are the purpose of taxes, how do they affect consumers and suppliers? |
|
Definition
| Taxes are set by federal, and local goverments in an attempt to increase revenue for public spending.. Taxes, whether they're placed solely on suppliers, or directly onto the consumer, affect both parties negatively (in a direct sense). Consumers may pay higher prices, supply will decrease as suppliers recieve less revenue for same amount of good, employers may higher less people, etc. |
|
|
Term
| What does Welfare economics encompass? |
|
Definition
| It studies the way in how resource allocation can affect economic wellbeing. |
|
|
Term
| What's consumer and producer surplus? |
|
Definition
| Consumer surplus measures economic welfare from the buyer's side. Producer surplus measures economic welfare from the producer's side. |
|
|
Term
| What's the LODMU (Law of Diminishing Marginal Utility)? |
|
Definition
| The Law of Diminishing Marginal Utility describes maximum satisfaction as decreasing, as quantity consumed increases. |
|
|
Term
| What is consumer surplus? |
|
Definition
| Consumer surplus = The maximum price a consumer is willing to pay - The actual price of a good. |
|
|
Term
|
Definition
| Producer surplus describes the amount that a producer recieved for goods - The minimum amount that a supplier would be willing to sell the goods for. |
|
|
