Economics EOY

Need to learn all of these terms

Demand

The quantity of a good or service that consumers are willing and able to purchase in a given period of time at a given price, ceteris paribus

Supply

The quantity of a good or service that producers are willing and able to provide in a given period of time at a given price, ceteris paribus.

What is price equal to in a monopoly

AR

What is price equal to in PC

MC

Law of demand

Ceteris paribus, the quantity demanded of a good varies inversely with its price.

Market failiure

Occurs when there is allocative inefficiency in the market, resulting in a loss of societal welfare

Law of supply

Ceteris paribus, the quantity supplied of a good varies directly with its price

Substitute

A good or service that can be used in the place of another and satisfies similar needs and wants.

Perfect competition

An idealised form of market structure wherein homogenous goods are provided, there are no barriers to entry and exit and firms are price-takers.

Market

A process where buyers and sellers come together to carry out economic transactions

Monopolistic competition

A market structure where there are many firms and there are no barriers to entry but there is product differentiation.

Monopoly

A market structure where there is one single firm who sells a good or service. They set their own prices and there are very high barriers to entry.

Demerit good

A good that is overconsumed in society and produces negative externalities of consumption.

Merit good

A good that is underconsumed and produces positive externalities of consumption.

Negative externalities

The costs resulting from the production/consumption of a good or service incurred by third-parties

Positive externalities

The benefits resulting from the production/consumption of a good or service incurred by third-parties.

Factors affecting PED

Substitutes, addictiveness, time period, income proportion and necessity?

Social surplus

Measured as the sum of the consumer and producer surplus

Allocative efficiency

Occurs when resources are distributed and an optimal quantity of goods and services and produced in society to maximise social welfare

Factors affecting PES

Spare capacity, time period, ease of production, availability of fop, length of production

Merit goods

Goods that are deemed to be good by the government but are underconsumed by consumers, causing a market failure due to consumption under the socially optimum output level.

PED

The responsiveness of the quantity demanded of a good or service to changes in its price.

PES

The responsiveness of the quantity supplied of a good or service to changes in its price.

YED

The responsiveness of the quantity demanded of a good or service with respect to changes in income.

Public goods

Public goods are goods that are non-rivalrous and non-excludable and will not be provided by the free market.

Carbon tax

A fee levied by the government on the production of carbon gases, representing a tax on emissions

Subsidy

An amount of money provided to the producer to decrease the cost of production and thus make the good cheaper for the consumer

Adverse selection

When one party has more information before a transaction

Moral hazard

When one party has more information after a transaction

Condition for allocative efficiency

P = MC

Condition for productive efficiency

AC = MC

Condition for dynamic efficiency

The firm should be making supernormal profits that can be reinvested into R&D.

Asymmetrical information

Asymmetric information refers to missing, unbalanced or inaccurate information that exists when one economic agent has more information than the other

Economies of scale

The cost advantages that businesses receive when they increase their production volume

Diseconomies of scale

When a company grows so large that its cost per unit begins to increase

Monopoly power

The ability of a firm to set its own prices due to a lack of competition in market

Market power

The ability of a firm to set its own prices.

What does interdependence comprise of

Strategic decision-making and conflicting incentives

Consumer surplus

The difference between the maximum price the consumer is willing and able to pay and what they actually pay

Producer surplus

The different between the minimum price the producer is willing and able to receive and the price they actually receive

Natural monopoly RWE

Indian Railways

Price floor RWE

2585 rupees wheat cap in India

Monopolistic competition

Detergent market

Perfect competition RWE

US Corn market

Price ceiling RWE

RM 9.5 for chicken in Malaysia before 2023

Legislations to prevent monopoly power

Price restrictions, regulations for mergers

Regulation

A law that is legally binding for consumers and works towards fulfilling a certain public/welfare objective

LRAC

The long-run average cost is the average per unit cost of production when all prices are variable.

SRAC

The long-run average cost is the average per unit cost of production when at least one factors of production is constant

Barriers to entry

Barriers to entry are factors that prevent or restrict new firms from entering an industry, allowing existing firms to maintain market power

Common access resources

Common access resources are natural or man-made resources that are non-excludable but rivalrous

Price mechanism

The system by which the forces of demand and supply determine prices and allocate resources in an economy

Types of barriers to entry

Economies of scale, branding, patents

Production possibilities curve

An economic model that represents the maximum possible combinations of the production of two goods relative to one another, assuming that the economy can produce only two goods, the state of technology is static and the FOPs required are the same

Tradable permits

The government sets a maximum limit on pollution and issues permits that firms can buy and sell, allowing them to emit a certain amount

Bounded self-control

Bounded self-control is when individuals fail to act in their own long-term best interests due to lack of willpower, even if they understand the consequences

Substitution effect

When the price of a good decreases, consumers will consider purchasing it over the alternate substitutes

Income effect

When the price of a good decreases, the consumer’s real income and purchasing power increases, enabling them to buy a larger quantity of it

Factors of production

Factors of production are the scarce economic resources used to produce goods and services, namely land, labour, capital and entrepreneurship

Price mechanism

The price mechanism is the system where prices are determined by demand and supply, allocating resources in a market.

Frictional unemployment

Occurs when move between jobs or search for work

Structural unemployment

Occurs when the workers’ skills are misaligned with the requirements of jobs

Seasonal unemployment

Occurs when certain workers cannot carry out their labour in certain seasons (farmers)

Cyclical unemployment

Occurs due to economic downturns or recessionary behaviour exhibited by economies

Factors affect LRAS

Factors affecting SRAS

Factors affecting AD

Anything that affects C + I + G + (X-M)

Interest rates

Future price expectations

Consumer confidence

Disposable income

Government policy

Other indices apart from GDP/GNI

Happy planet index, OECD better life, Big Mac index (PPP)