Challenging flashcards covering complex economic theories, evaluation techniques, and cross-topic synoptic connections for A-Level Economics examination preparation.
20 cards
Front
Under what conditions can a Production Possibility Curve shift inward without a reduction in factor quantities?
Back
A PPC can shift inward due to: (1) technological regression or loss of technical knowledge, (2) destruction of infrastructure from war or natural disasters, (3) institutional collapse reducing productive efficiency, or (4) permanent environmental degradation reducing land quality. This demonstrates that potential output depends on both factor quantities AND factor productivity/technology.
Front
Why might PED and PES both be inelastic in agricultural markets, and what is the combined welfare effect?
Back
Both are inelastic because: PED - food is a necessity with few substitutes; PES - production takes time (growing cycles) and cannot quickly adjust. Combined effect: small supply shocks cause large price volatility, creating significant income instability for farmers. This justifies buffer stock schemes and agricultural subsidies despite their efficiency costs.
Front
Evaluate whether a tax on goods with negative externalities always improves social welfare.
Back
Not always. Limitations include: (1) difficulty measuring accurate external costs leading to over/under-taxation, (2) inelastic demand may require prohibitively high taxes causing equity issues, (3) government failure from lobbying or imperfect information, (4) unintended consequences like black markets. The tax must exactly equal marginal external cost at optimal quantity to maximize welfare.
Front
How does the Marginal Revenue Product theory of wage determination change under monopsony versus perfect competition?
Back
Perfect competition: MRP = Wage (firms are wage takers, horizontal labor supply curve). Monopsony: MRP > Wage because firms face upward-sloping labor supply; hiring additional workers requires raising wages for ALL workers. The marginal factor cost exceeds wage, so monopsonists hire fewer workers at lower wages, creating deadweight loss. Minimum wages can actually INCREASE employment here.
Front
Explain why the Keynesian multiplier may be smaller than theoretically predicted in real economies.
Back
The multiplier k = 1/(1-MPC) assumes all additional income is spent domestically. Real-world leakages include: (1) higher marginal propensity to import (M PM), (2) increased marginal propensity to save as income rises, (3) tax progressivity reducing disposable income, (4) supply constraints causing inflation rather than output growth, (5) debt repayment by households. These create a 'fiscal drag' effect.
Sign up to access the full deck with spaced repetition review.
Sign Up — Free