Economics 3.2

Front 1

Assumptions re: PPC curve

Back 1

1. Two Goods only
2. Fixed Resources
3. Given level of technology

Front 2

Defn. of PPC curve

Back 2

Shows max. output combinations using resources efficiently. Best possible use with given level of technology and resources.

Front 3

Straight line VS Curved PPC

Back 3

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

Front 4

Allocative Efficiency

Back 4

Requires production efficiency as well as the combination of g/s that consumers desire

Front 5

Market forces - what happens when there is a Shortage/Surplus

Back 5

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

Front 6

Consumer surplus

Back 6

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)

Front 7

Producer Surplus

Back 7

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

Front 8

Deadweight loss

Back 8

A loss of welfare by an individual or group which is not offset by welfare gain to some other individual or group.

Front 9

Price Elasticity of Demand

Back 9

Responsiveness of QTY DEMANDED of a good or service to changeds in PRICE

Front 10

Elasticity of Demand - Revenue method

Back 10

P<> TR unchanged= Unitary

P> TR > = Inelastic

P> TR< = Elastic

Front 11

Cross-Elasticity of Demand

Back 11

Responsiveness of QTY. DEMANDED of one good to PRICE changes in another good.

Substitutes: positive change (P> D>)
Complements: negative change (P> P<)

Front 12

Income Elasticity

Back 12

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

Front 13

Elasticity of Supply

Back 13

Responsiveness of QTY. SUPPLIED of a good to changes in PRICE

Front 14

Incidence of Sales Tax

Back 14

Consumer on top

INELASTIC= more incidence on consumer

ELASTIC= more incidence on producer

Front 15

Incidence of Subsidy

Back 15

Consumer on top

INELASTIC= more incidence on consumer

ELASTIC= more incidence on producer

Front 16

Nominal VS Real Wage

Back 16

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)

Front 17

Reasons for Govt to inforce minimum wage

Back 17

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