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17 Cards in this Set
- Front
- Back
Assumptions re: PPC curve
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1. Two Goods only
2. Fixed Resources 3. Given level of technology |
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Defn. of PPC curve
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Shows max. output combinations using resources efficiently. Best possible use with given level of technology and resources.
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Straight line VS Curved PPC
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STRAIGHT: Shows resources that are equally suited to production of either good, opportunity cost is unchanged in producing more units
CURVED: reflects law of diminishing returns. More Opportunity Cost as you move from one end to the other. Shows that resources are more suited to production of one good than another, have to be transferred |
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Allocative Efficiency
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Requires production efficiency as well as the combination of g/s that consumers desire
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Market forces - what happens when there is a Shortage/Surplus
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SHORTAGE: Market forces return it to the equilibrium as consumers bid the price up so the qty. suppled will rise and qty. demanded will fall
SURPLUS: Return to equilibrium, firms will accept lower prices so qty. supplied will fall, qty. demanded rise |
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Consumer surplus
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Monetary value to a buyer of buying a commodity over and above the expenditure necessary to make the purchase ( difference between what consumers are willing to pay, and what they did pay)
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Producer Surplus
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Monetary value to a seller of supplying a commodity, over and about the necessary cost to produce the goods. (Difference between total earnings of supplies for a certain qty. sold, and total costs required to put that qty. on the market) -- below priceline, above S
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Deadweight loss
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A loss of welfare by an individual or group which is not offset by welfare gain to some other individual or group.
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Price Elasticity of Demand
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Responsiveness of QTY DEMANDED of a good or service to changeds in PRICE
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Elasticity of Demand - Revenue method
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P<> TR unchanged= Unitary
P> TR > = Inelastic P> TR< = Elastic |
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Cross-Elasticity of Demand
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Responsiveness of QTY. DEMANDED of one good to PRICE changes in another good.
Substitutes: positive change (P> D>) Complements: negative change (P> P<) |
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Income Elasticity
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Responsiveness of QTY. DEMANDED to changes in INCOME
INFERIOR GOODS: Negative number, qty demanded and income changes= opposite directions NORMAL GOODS: Positive number, same directions |
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Elasticity of Supply
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Responsiveness of QTY. SUPPLIED of a good to changes in PRICE
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Incidence of Sales Tax
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Consumer on top
INELASTIC= more incidence on consumer ELASTIC= more incidence on producer |
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Incidence of Subsidy
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Consumer on top
INELASTIC= more incidence on consumer ELASTIC= more incidence on producer |
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Nominal VS Real Wage
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NOMINAL: return to labour measured in current dollars
REAL: purchasing power of wages- nominal wages adjusted for changes in the price level (Nominal wages divided by CPI) |
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Reasons for Govt to inforce minimum wage
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Feels unregulated market is below subsistence level, or that greater equality of wages is desirable. Because of min. wage, or unions resisting wage cuts, wages might not clear up to equilibrium
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