Market Failure
When does Market failure occur?
When Market forces lead to inefficient allocations of resources
What is likely to lead to an increase in AD in an economy?
Increased investment
What does economic growth mean
An increase in national income in real termds
What is the purpose of an index number?
To show percentage changes relative to a base year
When the price of a smartphone drops from $800 to $700 and quantity demanded rises from 20,000 to 25,000 units, is the demand elastic or inelastic?
Elastic
What is most appropriate for increasing the supply of merit goods?
Government subsidies
Why is GNP considered a better measure of welfare than GDP?
Because it includes net property income from abroad
What does supply side policies aim to do?
Increase efficiency and productivity
Which index uses base year quantities as weights?
Laspeyres index
If a company raises the price of its energy drink by 15% and the price elasticity of demand is -0.8, what happens to total revenue?
Increases.
What characteristics of a public good leads to market failure?
Non-rivalry and non-excludability
An increase in Aggregate Supply will:
Increase national income and lower prices
When does a trade surplus occur?
Exports exceed imports
In 2020 (base year), the price of rice = $5 and quantity purchased = 20.
In 2023, the price = $6.
What is the Laspeyres Price Index?
120
A bakery increases bread supply from 1,000 to 1,400 loaves as the price rises from $2 to $2.50. Is the supply elastic or inelastic?
Elastic
If the government imposes a minimum price for a good that is above the market price, in which of the following circumstances will the resulting market surplus be the highest?
Demand is price elastic, and supply is price elastic.
In the circular flow of income, what does injections include?
Investment, government spending, exports
Which type of unemployment occurs when workers’ skills do not match available jobs?
Structural
The current consumer price index is 198.0, with 2007 = 100.
Convert a weekly wage of $421 back to 2007 prices.
212.63
What is ROCE?
ROCE=Profit before Interest and Tax (PBIT)/ Capital employed x100
Why are merit goods under-consumed in a free market?
Consumers underestimate the long-term benefits.
When does equilibrium in national income occur?
Injections = Withdrawals
What is cost-push inflation caused by?
Rising production costs
Eight years ago, material X cost $5 per kg, and the price index most appropriate to the cost of material X stood at 150.
The same index now stands at 430.
What is the best estimate of the current cost per kg of material X?
14.33
Who are the stakeholders most directly affected when a company introduces a product that could replace one of its current products?
Customers of an existing product