Flashcards in Economic Methods Part 1 Deck (109)
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
What is important about tax collection?
It must be higher than tax revenue
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)
Where Pd = a-BQd, what is the reverse demand function post-tax?
Pd-t = a-BQd
What is the rule with taxation and subsidisation in demand and supply functions?
The transformation always occurs in the price
What is the consumer share of tax imposed?
P**-P*, or the post-tax equilibrium price - the pre-tax equilibrium price
What is the percentage consumer share?
(P**-P*)/t x 100
What is the producers' share of tax imposed and percentage share?
£t - (P**-P*) = M or share
M/t x 100 = percentage share
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)
What is the calculation for tax revenue?
Qt x t
What is Pc and Ps
The price consumers will pay and the price suppliers will pay
Capital and Labour: Substitutes?
They can be in certain circumstances so straight line on graph, other times not
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
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
What does MC equate to in terms of cost and output?
Change in total cost/change in output
What is the break even point?
MR (Q) = MC (Q), or where TR = TC
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
Equation for closed economy
Supply : Y = C + I(r) + G = P(L, K) : Demand
What is the relationship between interest rates and investment?
Inversely proportional, the lower the interest rate, the higher the level of investment
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
What is the formula for b or MPC?
Change in consumption / change in Y
What is the formula for MPS based off of savings function?
What is the function for national savings?
Sn (national savings) = Sp (private savings) + Sg (government savings)
What are the two methods for measuring national income equilibrium?
Keynesian Cross and by use of savings and investment
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
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
How does government affect savings and investment graphs?
S + T = I + G
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
What is Young's Theorem?
d²y/dwdx = d²y/dxdw