Help
Options
Didn't know it?
click below
click below
Knew it?
click below
click below
Don't Know
Remaining cards (0)
Know
retry
shuffle
restart
0:00
Embed Code - If you would like this activity on your web page, copy the script below and paste it into your web page.
Normal Size Small Size show me how
Normal Size Small Size show me how
Economics
Yr 11 ATAR economics Unit 1 concepts
| Question | Answer |
|---|---|
| Efficiency | producing goods that society wants at the lowest cost possible (producers want to maximise profits) |
| Reasons for efficiency | 1. do not want to waste resources 2. produce G+S at the lowest possible price 3. produce the right types of goods 4. markets want to achieve efficiency |
| Marginal Benefit | is the maximum amount a consumer is willing to pay for a good or service |
| What happens to Marginal Benefit when quantity demanded increases? | it decreases |
| Marginal Cost | is the change in the total cost of production that comes from making an additional unit |
| What happens to marginal cost as quantity supplied increases? | it increases. |
| Consumer Surplus | is the difference between what the consumer is willing to pay and what they actually pay |
| Where is consumer surplus shown on a diagram | Below the demand curve and above the new equilibriums price |
| Producer Surplus | is the difference between what a producer is willing to receive and what they actually receive |
| Where is producer surplus shown on a diagram | Above the supply curve and below the new equilibrium price |
| Total Surplus | is a measure of the net benefits to the society for the production and consumption of a good. |
| How is total surplus measured? | CS + PS |
| At what point are resources allocated efficiently? | when marginal cost and marginal benefit are EQUAL |
| MB > MC | benefits are greater than the costs = more demand and less supply (shortage) |
| MC > MB | costs are greater than the benefits = less demand more supply (surplus) |
| Deadweight Loss (DWL) | an avoidable decrease in total surplus because something prevented the market from reaching the optimal output. |
| Is consumer surplus or producer surplus more important? | They are both equally as important. When they are both equal, optimal output is reached and efficiency is maximised. |
| What price is total surplus maximised? | at equilibrium price, where there is no deadweight loss |
| Underproduction | when monopolies (price setters) restrict the production to increase profits. Increased DWL |
| What happens to economic welfare when there is deadweight loss? | there is a decrease in economic welfare |
| Overproduction | When government fiscal tools such as subsidies cause an overproduction of goods (as cost of production has decreased).Increased DWL |
| Price Ceiling | A legislated maximum price producers are allowed to charge in the markets |
| Who does a price ceiling benefit? | low income earners |
| What happens when a price ceiling is introduced? | there will be a shortage (where demand > supply), and therefore a DWL is created |
| Price Floor | a legislated minimum price producers are allowed to charge in the market |
| Who does a price floor benefit? | low income producers |
| What happens when a price floor is introduced? | there will be a surplus (supply > demand), therefore DWL is created. |
| Tax | is a fee charged by the government often to receive revenue and decrease the production of a good or service |
| Tax on price inelastic goods | loss in efficiency is less severe --> smaller impact on the market and smaller DWL is created. |
| Tax on price elastic goods | Loss in efficiency is more severe --> larger impact on the market, and larger DWL is created. |
| Subsidy | is a cash payment from governments to businesses to encourage production of goods and services. |
| example of subsidised industries | Child care |
| Who gains from a subsidy | consumers and producers |
| Does a subsidy create DWL? | Yes |
| Equity | refers to fairness and how society's production is divided amongst its population. |
| Vertical Equity | based on the idea that those who earn more income should pay more tax. |
| Example of vertical equity? | Heart surgeons pay more tax than waitresses. |
| Horizontal Equity | Everyone has a similar income and are provided with the same opportunities to succeed and earn a higher level of income. |
| Example of horizontal equity? | Health care (Medicare) and education (40% attend private schools, and 60% attend public schools) |
| Which market promotes efficiency? | Free market economy (they produce at equilibrium) |
| What is the nature of the relationship between Equity and Efficiency? | Inverse. (free market produces at efficiency, but low income earners and producers fall behind. Whereas price floors, price ceilings and subsidies promote equity, but are inefficient as DWL is created). |
| Market Failure | when resources are not allocated efficiently and total surplus is not maximised, causing deadweight loss |
| Market Power | Refers to the ability of a firm to raise and maintain prices above a level that would prevail in a competitive market |
| Example of Market Power | Monopoly, Duopoly, Oligopoly |
| Barrier to entry | Barriers that prevent new firms from entering a market |
| ACCC | Australian Competition and Consumer Protection |
| Main role of ACCC | promote a competitive market, protect consumers and prevent anti-competitive behaviour |
| Anti Competitive Behaviour | any arrangements or agreements between firms that seeks to restrain competition |
| Microeconomic Reform | are government policies to improve the performance / efficiency of a market |
| Anti Trust Laws | rules that prohibit actions that restrain anti-competitive behaviour |
| Externality | unintended community consequences of a private action, that cause market failure |
| Negative Externality | A cost to the third party other than the producer or the consumer |
| Example of Negative Externality | House near the airport |
| Negative Externalities are = | Overproduced, Undercharged, and socially undesirable |
| Positive Externality | a benefit to the third party other than the producer or the consumer |
| Example of Positive Externality | Friend gets the flu vaccine, so you receive immunity |
| Positive Externalities are = | Underproduced, Overcharged, socially desirable. |
| What is used to solve a Negative Externality | Tax |
| What is used to solve a Positive Externality | Subsidy |
| Rivalry Goods | Consumption by one person reduces the supply to others |
| Excludable | non-payers can be denied consumption of a good or service |
| Private Goods | Are rival and excludable (e.g Pizza) |
| Public Goods | are non-rival and non-excludable (e.g streetlights) |
| Common Property Goods | Rival and non-excludable (e.g fish in the ocean) |
| Club Goods | Non-rival and excludable (e.g Netflix) |
| Free Rider Effect | consumers who do not pay for the good, can still experience that good. |
| What kind of good experiences the free rider effect and why? | Public goods, they are non-excludable |
| Tragedy of the Commons | individuals acting in self interest can diminish the supply/ destroy a shared resource |
| What kind of good experiences the tragedy of the commons? | Common Property Goods, because they do not have property rights |
| Solutions for the Free Rider Effect | the government provides these goods, because there is no incentive for them to be provided by the private sector |
| Solutions for the Tragedy of the Commons | uses regulations, permits and taxes to limit the tragedy of the commons. |
| Example of the government limiting the Tragedy of the Commons | July 2012, where the carbon tax of $23 per ton of carbon dioxide |
Created by:
AC!!
Popular Economics sets