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21 Cards in this Set
- Front
- Back
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Q. What are externalities? |
A. Unintended spill overs or side effects from production or consumption. |
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Q.What are some Govt policies to internalise production externalities? |
A. Regulations and Taxes are two govt policies to internalise production externalities. |
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Q. Define Price Elasticity of Demand |
A. Measures the responsiveness of QD to a change in price |
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Q. Define Demand and state the Law of Demand |
A. Demand is the amount of a good or service a consumer is both willing and able to buy at a range of prices over a given time period.
Law of Demand = As Price increases, the QD decreases and vice versa ceteris paribus. |
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Q. What are Merit Goods? |
A. Merit Goods are the goods that the govt believes are beneficial for individuals to consume more of than would occur in the Free Market. (Associated with Information Failure). |
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Q. What are Demerit Goods? |
A. Demerit Goods are products the govt believes are harmful for individuals to consume. (Associated with Information Failure). |
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Q. Define Information Failure |
A. Information Failure = When people find it hard to make rational decisions when costs occur today but benefits are only received in the future. |
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Q. What are Public Goods? |
A. Public Goods have no price signals and will not be normally provided by the private sector. Public Goods are non-rival and non-excludable. |
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Q. What is Free Rider behaviour? |
A. Free Rider Behaviour exists because of non-excludability by price. Consumers might believe that if they sit back and wait for others to pay, they can enjoy the benefits of the good for free. |
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Q. What are the 3 measurements of Unemployment? |
A. Census Data, Household Labour Force Survey(HLFS) and the WINZ Claimant Count. |
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Q. What are the factors that influence Price Elasticity? |
1. Nature of the product (necessities are inelastic) 2. Proportion of income spent on product 3. Availability of substitutes 4. Passage of time |
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Q. Why is it important for firms to know Price Elasticity of Demand? |
It allows for more appropriate selling prices. It allows firms to predict likely changes in revenue from changes in price. |
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Q. Why is it important for the govt to know Price Elasticity of Demand? |
It allows the govt to know which products to tax for revenue (inelastic products the best). It allows the govt to identify the effects on QD from taxes or subsidies. It identfies which items are best to tax to decrease consumption. |
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Q. Define Income Elasticity of Demand |
A. The degree of responsiveness of changes in QD to a change in income.
Used to classify goods as normal(+) or inferior(-) |
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Q. Significant of Income Elasticity of Demand? |
Incomes tend to rise over time. This allows firms and govt to identify which items would do best over time (Those with Ey > 0). Firms with inferior products would need to change perception about their products. BUT in a recession firms with inferior products likely to perform better. Higher positive Ey most vulnerable in a recession. |
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Q. Define Cross Elasticity of Demand |
A. Measures the extent to which demand for one product changes in response to a change in price of another product.
Helps determine the degree of economic relationship between 2 products.
However, in practice, a change in price of one product may affect demand for products that appear unrelated. |
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Q.Define Supply and state the Law of Supply. |
A. The amount of a product a product is willing and able to produce at a range of prices over a given time period.
Law of Supply = As price increases, quantity supplied decreases and vice versa ceteris paribus. |
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Q. What are the ceteris paribus factors of supply? |
1. Costs of Production 2. Level of technology 3. Efficiency of production 4. Price of related goods 5. Indirect taxes 6. Tariffs/subsidies |
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Q. What are Indirect Taxes and name the 2 types of indirect taxes? |
Indirect Taxes = Taxes levied on produces which is then passed on to customers to some extent.
1. Per Unit Sales = A tax calculated by a set amount per unit of output made.
2. Ad Valorem = Tax is calculated as a % of the price (GST) |
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Q. Define Elasticity of Supply |
A. Measures the responsiveness of changes in quantity supplied to a change in price. |
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Q. What are the technological conditions governing supply? |
1. Extent to which resources are mobile 2. How easy it is to adjust production 3. How readily can products be moved in and out of storage 4. Are products perishable? 5. To what extent is the firm operating at full/spare/over capacity. |
