Economics for Senior High Schools Year 3 - Revision Flashcards

Comprehensive question-and-answer flashcards covering key topics in Year 3 Economics including Demand Elasticity, Utility, Firm & Industry Equilibrium, Supply Elasticity, Distribution Channels, Price Control, Macroeconomic Variables, National Budget, and Agriculture, Industrialisation & Trade.

What is elasticity of demand?

Elasticity of demand is defined as the degree of responsiveness of quantity demanded to changes in the determinants of demand, such as the price of the commodity itself, consumer income, and the prices of related goods.

What are the three main types of elasticity of demand?

The three main types are Price Elasticity of Demand ($PED$), Income Elasticity of Demand ($YED$), and Cross Elasticity of Demand ($XED$).

How is Relatively Elastic Demand defined, and what is its numerical coefficient?

Relatively elastic demand occurs when a small percentage change in price results in a larger percentage change in quantity demanded. Its coefficient of price elasticity of demand is greater than one ($PED > 1$).

What characterizes Perfectly Inelastic Demand, and what is its numerical coefficient?

Perfectly inelastic demand occurs when the quantity consumers buy does not change at all regardless of how much the price changes ($PED = 0$). An example is essential medication such as blood pressure drugs.

What is the formula for calculating Price Elasticity of Demand ($PED$) using the percentage method?

The percentage formula is $PED = \frac{\% \text{ Change in Quantity Demanded}}{\% \text{ Change in Price}}$.

How is a product classified if its Income Elasticity of Demand ($YED$) coefficient is negative?

If the $YED$ coefficient is negative ($YED < 0$), the commodity is classified as an inferior good.

What does a positive Cross Elasticity of Demand ($XED > 0$) indicate about the relationship between two goods?

A positive $XED$ indicates that the two products are substitute goods (for example, Coca-Cola and Fanta, or OMO and Ariel washing powders).

What is the substitution effect in consumer theory?

The substitution effect occurs when consumers stop buying a relatively more expensive commodity and switch to a cheaper alternative following a change in price, maintaining their satisfaction without increasing spending.

What formula represents the Hicksian decomposition of consumer demand changes?

The formula is $\text{Total Effect} = \text{Substitution Effect} + \text{Income Effect}$.

What is the difference between internal and external economies of scale?

Internal economies of scale are cost advantages enjoyed by an individual firm as a result of expanding its own scale of production, whereas external economies of scale are cost savings that accrue to all firms in an industry due to the growth and location of the industry as a whole.

What are the two necessary conditions for a firm to achieve profit-maximising equilibrium?

First, Marginal Cost must equal Marginal Revenue ($MC = MR$); second, the $MC$ curve must cut the $MR$ curve from below.

Which diagram illustrates the short-run equilibrium condition of a firm under perfect competition?

The short-run equilibrium of a firm under perfect competition occurs where $MC = MR$, as shown in this graph where the rising Marginal Cost curve intersects the horizontal Demand/Marginal Revenue line ($D = MR = AR$) at output quantity $Q$.

What is price discrimination, and what are its three main types?

Price discrimination occurs when a seller charges different prices for the same product or service to different customers for reasons not associated with differences in production cost. The three main types are First-Degree (perfect), Second-Degree (quantity-based), and Third-Degree (group or market-segmentation based).

What four conditions must be present for a firm to successfully practice price discrimination?

1. The firm must possess some degree of market power. 2. The market must be separable into distinct consumer groups. 3. There must be no possibility of resale between markets. 4. The price elasticities of demand must differ across the separated consumer groups.

How is Price Elasticity of Supply ($PES$) calculated using the percentage method?

The percentage formula for Price Elasticity of Supply is $PES = \frac{\% \text{ Change in Quantity Supplied}}{\% \text{ Change in Price}}$.

What is the difference between direct and indirect channels of distribution?

A direct channel transfers goods straight from the producer to the final consumer without middlemen, whereas an indirect channel passes goods through intermediaries such as wholesalers, agents, and retailers before reaching the consumer.

What is a price floor, and what market condition does it typically create when set above equilibrium?

A price floor is the minimum legal price set by the government above the market equilibrium price (such as minimum wage or cocoa producer prices). It typically creates a market surplus (excess supply).

Which diagram illustrates a price floor and its resulting market surplus?

A price floor (labelled as MIN - P) set above the equilibrium price ($P_e$) results in a quantity supplied ($Q_2$) that exceeds the quantity demanded ($Q_1$), creating an economic surplus.

What is a price ceiling, and what market condition does it cause when fixed below equilibrium?

A price ceiling is the maximum legal price set by the government below the market equilibrium price to make essential goods affordable. It causes a market shortage (excess demand).

What economic relationship is described by Okun's Law?

Okun's Law describes an inverse relationship between GDP and unemployment, stating that when real GDP increases, unemployment tends to fall, and when GDP falls, unemployment rises.

Which curve illustrates the short-run trade-off between inflation and unemployment?

The Phillips Curve demonstrates an inverse relationship between the rate of inflation and the rate of unemployment in the short run.

What is the equation for Aggregate Expenditure ($AE$) in an open economy?

The equation is $AE = C + I + G + NX$, where $C$ is household consumption, $I$ is business investment, $G$ is government purchases, and $NX$ is net exports ($\text{Exports} - \text{Imports}$).

What is the formula for the simple expenditure multiplier in terms of the Marginal Propensity to Consume ($MPC$)?

The formula for the simple multiplier is $\text{Multiplier} = \frac{1}{1 - MPC} = \frac{1}{MPS}$.

What is the difference between recurrent expenditure and capital expenditure in the national budget?

Recurrent expenditure consists of regular, ongoing operational spending that does not create new assets (e.g., public sector salaries, utility bills, debt interest), whereas capital expenditure consists of long-term investments that construct or upgrade physical infrastructure (e.g., roads, schools, hospitals).

What is the difference between legal incidence and economic incidence of a tax?

Legal incidence refers to the entity legally mandated to pay the tax to the government, while economic incidence refers to the party (consumer, producer, or worker) that ultimately bears the real financial burden of the tax through price adjustments.

Which diagram shows the tax burden on consumers versus producers when a tax is imposed?

When a per-unit tax is levied, the supply curve shifts upward from $S$ to $S^1$, raising the buyer price to $P^1$ and lowering the net seller price. The top shaded rectangle represents the consumer burden, and the bottom shaded rectangle represents the producer burden.

What is the difference between the theory of absolute advantage and the theory of comparative advantage?

Absolute advantage (Adam Smith) occurs when a country can produce more of a good using the same amount of resources than another country, while comparative advantage (David Ricardo) occurs when a country can produce a good at a lower opportunity cost than another country.

What is the difference between a direct exchange rate quote and an indirect exchange rate quote?

A direct exchange rate quote states the amount of domestic currency needed to purchase one unit of foreign currency (e.g., $\text{GH}\mathbb{\complement}12.00 = \$1.00$), whereas an indirect exchange rate quote states the amount of foreign currency obtained per one unit of domestic currency (e.g., $\$0.083 = \text{GH}\mathbb{\complement}1.00$).