Flashcards in Economic Methods Part 1 Deck (109)

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1

## What is excess supply and demand?

### The difference between the amount of units demanded and the amount of units supplied when goods are at a certain price, 0 in equilibrium, created by government interference in market

2

## What is important about tax collection?

### It must be higher than tax revenue

3

## Where Qs = a + BP, what is the supply function post-tax and post-subsidy?

### Qs(t) = a + B(P-t) and Qs(k)= a + B(P+k)

4

## Where Pd = a-BQd, what is the reverse demand function post-tax?

### Pd-t = a-BQd

5

## What is the rule with taxation and subsidisation in demand and supply functions?

### The transformation always occurs in the price

6

## What is the consumer share of tax imposed?

### P**-P*, or the post-tax equilibrium price - the pre-tax equilibrium price

7

## What is the percentage consumer share?

### (P**-P*)/t x 100

8

## What is the producers' share of tax imposed and percentage share?

###
£t - (P**-P*) = M or share

M/t x 100 = percentage share

9

## What is the secondary method of taxation?

### Through the total revenue, where firms pay a tax tpq, or a percentage tax multiplied by their total revenue (pq)

10

## What is the calculation for tax revenue?

### Qt x t

11

## What is Pc and Ps

### The price consumers will pay and the price suppliers will pay

12

## Capital and Labour: Substitutes?

### They can be in certain circumstances so straight line on graph, other times not

13

## What is the Cobb-Douglas production function?

### AK^aL^b with A being technology, a the proportion of whole capital put into the single product being viewed on the graph, b is the same but for labour

14

## What is the relationship between a and b and returns to scale?

###
(a+b) > 1 : increasing returns to scale

(a+b) < 1 : decreasing returns to scale

(a+b) = 1 : constant returns to scale

15

## What does MC equate to in terms of cost and output?

### Change in total cost/change in output

16

## What is the break even point?

### MR (Q) = MC (Q), or where TR = TC

17

## What was the belief in macroeconomics before Keynes?

### Assumption that demand will create itself as supply is increased, but stagflation of Great Depression dispelled this idea

18

## Equation for closed economy

### Supply : Y = C + I(r) + G = P(L, K) : Demand

19

## What is the relationship between interest rates and investment?

### Inversely proportional, the lower the interest rate, the higher the level of investment

20

## Which formula's allow the government to influence consumption C?

###
C = f(Yd), a function of disposable income

Yd = Y - t

C = a + bYd where a is autonomous consumption coming from private savings or borrowing and b is induced consumption, affected by income, creating bYd =MPC

21

## What is the formula for b or MPC?

### Change in consumption / change in Y

22

## What is the formula for MPS based off of savings function?

### (1-b)Y

23

## What is the function for national savings?

### Sn (national savings) = Sp (private savings) + Sg (government savings)

24

## What are the two methods for measuring national income equilibrium?

### Keynesian Cross and by use of savings and investment

25

## How does the Keynesian cross work?

### Where Y = AD and AD = C + I + G cross, there is equilibrium. Above this point AD < Y so a tax break should be brought in, where AD > Y, increase taxes

26

## How do savings and investment measurements of national income equilibrium work?

###
As S = I, and I is set as an exogenous variable against

S = -a + (1-b)Y, where these two lines cross, that is the equilibrium point, so therefore interest rates can be adjusted so savings equal investment

27

## How does government affect savings and investment graphs?

### S + T = I + G

28

## What is the formula for an open economy?

### Y = C + I + G + NX(e) where e is the exchange rate, strong net importers have strong exchange

29

## What is Young's Theorem?

### d²y/dwdx = d²y/dxdw

30