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Bas S Flashcards

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1
Q

What is allocative efficiency?

A

P = MC, meaning resources are allocated to their most valued use and welfare is maximised

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2
Q

What is productive efficiency?

A

Production at minimum average cost (lowest possible cost)

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3
Q

What is dynamic efficiency?

A

Improvements in product quality or production processes over time through innovation and investment

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4
Q

Why is allocative efficiency important?

A

It maximises total welfare and avoids over- or under-consumption

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5
Q

What is consumer surplus?

A

The difference between what consumers are willing to pay and what they actually pay

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6
Q

What is producer surplus?

A

The difference between the price received and the minimum price a producer is willing to accept

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7
Q

What is total welfare?

A

The sum of consumer surplus and producer surplus

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8
Q

What is market failure?

A

When the price mechanism leads to a misallocation of resources and welfare loss

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9
Q

Name four causes of market failure

A

Externalities, public goods, information failure, market power

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10
Q

What is government failure?

A

When government intervention leads to a worse outcome than free markets

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11
Q

What is price elasticity of demand (PED)?

A

The responsiveness of quantity demanded to a change in price

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12
Q

PED formula

A

Percentage change in quantity demanded divided by percentage change in price

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13
Q

What affects PED?

A

Availability of substitutes, proportion of income, time period, necessity vs luxury

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14
Q

What is price elasticity of supply (PES)?

A

The responsiveness of quantity supplied to a change in price

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15
Q

What affects PES?

A

Spare capacity, stock levels, time period, mobility of factors

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16
Q

What is income elasticity of demand (YED)?

A

The responsiveness of quantity demanded to a change in income

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17
Q

What does positive YED mean?

A

The good is a normal good

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18
Q

What does negative YED mean?

A

The good is an inferior good

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19
Q

What is cross elasticity of demand (XED)?

A

The responsiveness of demand for one good to a change in the price of another good

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20
Q

What does positive XED mean?

A

The goods are substitutes

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21
Q

What does negative XED mean?

A

The goods are complements

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22
Q

What is a monopoly?

A

A single firm dominating a market with high barriers to entry

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23
Q

What is monopoly power?

A

The ability of a firm to influence price

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24
Q

What is a monopsony?

A

A market with a single dominant buyer of labour

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25
What is monopsony power?
The ability of an employer to set wages below competitive levels
26
What is an externality?
A cost or benefit affecting a third party not reflected in the price
27
What is a negative externality of production?
A cost to third parties arising from production (e.g. pollution)
28
What is a positive externality of consumption?
A benefit to third parties arising from consumption (e.g. education)
29
What is marginal social cost (MSC)?
The total cost to society of producing one extra unit
30
What is marginal social benefit (MSB)?
The total benefit to society of consuming one extra unit
31
Why do negative externalities cause market failure?
Overproduction occurs because MSC > MPC
32
Why do positive externalities cause market failure?
Underconsumption occurs because MSB > MPB
33
What is an indirect tax?
A tax on expenditure that increases firms’ costs and reduces supply
34
What is a subsidy?
A payment to producers or consumers that encourages production or consumption
35
What is a minimum wage?
A legal price floor in the labour market
36
When does a minimum wage cause unemployment?
When it is set above the equilibrium wage
37
How can a minimum wage increase employment?
In a monopsony by raising wages and labour supply
38
What is a trade union?
A collective organisation that represents workers in wage negotiations
39
How can trade unions increase wages?
By increasing bargaining power of workers
40
What is real wage unemployment?
Unemployment caused by wages being kept above equilibrium
41
What is a public good?
A good that is non-rival and non-excludable
42
Why do public goods cause market failure?
Free-rider problem prevents private provision
43
What is a merit good?
A good that is underconsumed due to information failure
44
Why might governments intervene in labour markets?
To correct monopsony power, protect workers, and reduce inequality
45
What makes good evaluation in a 25-mark question?
Considering elasticity, time period, size of effect, alternative policies, and unintended consequences
46
What is a key requirement for top-band evaluation?
A clear final judgement answering the question directly
47
What is allocative efficiency?
P = MC, meaning resources are allocated to their most valued use and welfare is maximised
48
What is productive efficiency?
Production at minimum average cost (lowest possible cost)
49
What is dynamic efficiency?
Improvements in product quality or production processes over time through innovation and investment
50
Why is allocative efficiency important?
It maximises total welfare and avoids over- or under-consumption
51
What is consumer surplus?
The difference between what consumers are willing to pay and what they actually pay
52
What is producer surplus?
The difference between the price received and the minimum price a producer is willing to accept
53
What is total welfare?
The sum of consumer surplus and producer surplus
54
What is market failure?
When the price mechanism leads to a misallocation of resources and welfare loss
55
Name four causes of market failure
Externalities, public goods, information failure, market power
56
What is government failure?
When government intervention leads to a worse outcome than free markets
57
What is price elasticity of demand (PED)?
The responsiveness of quantity demanded to a change in price
58
PED formula
Percentage change in quantity demanded divided by percentage change in price
59
What affects PED?
Availability of substitutes, proportion of income, time period, necessity vs luxury
60
What is price elasticity of supply (PES)?
The responsiveness of quantity supplied to a change in price
61
What affects PES?
Spare capacity, stock levels, time period, mobility of factors
62
What is income elasticity of demand (YED)?
The responsiveness of quantity demanded to a change in income
63
What does positive YED mean?
The good is a normal good
64
What does negative YED mean?
The good is an inferior good
65
What is cross elasticity of demand (XED)?
The responsiveness of demand for one good to a change in the price of another good
66
What does positive XED mean?
The goods are substitutes
67
What does negative XED mean?
The goods are complements
68
What is a monopoly?
A single firm dominating a market with high barriers to entry
69
What is monopoly power?
The ability of a firm to influence price
70
What is a monopsony?
A market with a single dominant buyer of labour
71
What is monopsony power?
The ability of an employer to set wages below competitive levels
72
What is an externality?
A cost or benefit affecting a third party not reflected in the price
73
What is a negative externality of production?
A cost to third parties arising from production (e.g. pollution)
74
What is a positive externality of consumption?
A benefit to third parties arising from consumption (e.g. education)
75
What is marginal social cost (MSC)?
The total cost to society of producing one extra unit
76
What is marginal social benefit (MSB)?
The total benefit to society of consuming one extra unit
77
Why do negative externalities cause market failure?
Overproduction occurs because MSC > MPC
78
Why do positive externalities cause market failure?
Underconsumption occurs because MSB > MPB
79
What is an indirect tax?
A tax on expenditure that increases firms’ costs and reduces supply
80
What is a subsidy?
A payment to producers or consumers that encourages production or consumption
81
What is a minimum wage?
A legal price floor in the labour market
82
When does a minimum wage cause unemployment?
When it is set above the equilibrium wage
83
How can a minimum wage increase employment?
In a monopsony by raising wages and labour supply
84
What is a trade union?
A collective organisation that represents workers in wage negotiations
85
How can trade unions increase wages?
By increasing bargaining power of workers
86
What is real wage unemployment?
Unemployment caused by wages being kept above equilibrium
87
What is a public good?
A good that is non-rival and non-excludable
88
Why do public goods cause market failure?
Free-rider problem prevents private provision
89
What is a merit good?
A good that is underconsumed due to information failure
90
Why might governments intervene in labour markets?
To correct monopsony power, protect workers, and reduce inequality
91
What makes good evaluation in a 25-mark question?
Considering elasticity, time period, size of effect, alternative policies, and unintended consequences
92
What is a key requirement for top-band evaluation?
A clear final judgement answering the question directly
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