HKDSE Economics flashcards
HKDSE Economics · Build recall with a focused review session.
30 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Opportunity cost
- The value of the next best alternative forgone when a choice is made. It applies to any scarce resource, including time, and excludes sunk costs already incurred.
- Law of demand
- Other things equal, quantity demanded of a good falls as its price rises. The inverse relationship produces a downward-sloping demand curve and reflects diminishing marginal utility.
- Movement along demand curve
- A change in the good's own price changes quantity demanded and is shown as a movement along a fixed demand curve, not a shift of the whole curve.
- Shift of demand curve
- A change in a non-price determinant such as income, tastes, related-good prices, expectations or number of buyers shifts the entire demand curve left or right.
- Price elasticity of demand
- Percentage change in quantity demanded divided by percentage change in price. Demand is elastic when the value exceeds 1, inelastic when below 1, and unit elastic when equal to 1.
- Total revenue test
- If lowering price raises total revenue, demand is elastic over that range. If lowering price reduces total revenue, demand is inelastic. Unchanged revenue indicates unit elasticity.
- Income elasticity of demand
- Percentage change in quantity demanded divided by percentage change in income. Positive values indicate normal goods, negative values inferior goods, and values above one suggest luxury goods.
- Cross elasticity of demand
- Percentage change in quantity demanded of one good divided by percentage change in price of another. Positive values indicate substitutes; negative values indicate complements.
- Price ceiling
- A legally imposed maximum price. It binds only when set below equilibrium, creating a shortage, queues, or non-price rationing such as queuing or ration coupons.
- Price floor
- A legally imposed minimum price. It binds only when set above equilibrium, creating a surplus, as with minimum wage laws producing excess labour supply.
- Tax incidence
- The division of a per-unit tax burden between buyers and sellers. The less elastic side of the market bears the larger share regardless of who legally pays the tax.
- Consumer surplus
- The difference between what a consumer is willing to pay and the price actually paid, measured as the area below the demand curve and above the price line.
- Deadweight loss
- The loss of total surplus from trades not taking place because output differs from the efficient level, as under monopoly pricing, taxes, or binding price controls.
- Profit maximisation rule
- A firm maximises profit at the output where marginal cost equals marginal revenue. If price falls below average variable cost, the firm should shut down in the short run.
- Perfect competition
- A market with many small price-taking firms, homogeneous products, free entry and exit, and perfect information. Long-run equilibrium gives zero economic profit at minimum long-run average cost.
- Monopoly
- A single seller facing the whole market demand curve, with barriers to entry. It sets marginal revenue equal to marginal cost and charges a price above marginal cost.
- Diminishing marginal returns
- As more of a variable input is added to fixed inputs, marginal product eventually falls. This explains rising marginal cost in the short run.
- Gross domestic product
- The market value of all final goods and services produced within a territory during a period. It excludes intermediate goods, transfer payments and second-hand sales.
- Expenditure approach to GDP
- GDP equals consumption plus gross investment plus government spending plus exports minus imports. Only final expenditure counts, so intermediate purchases are excluded to avoid double counting.
- Real versus nominal GDP
- Nominal GDP uses current prices; real GDP uses constant base-year prices. Real GDP isolates changes in output from changes caused by price movements.
- GDP deflator
- Nominal GDP divided by real GDP, multiplied by 100. It covers all goods in GDP and therefore differs in coverage from the consumer price index.
- Consumer price index
- The cost of a fixed basket of consumer goods in the current period relative to a base period, multiplied by 100. It may overstate inflation due to substitution bias.
- Unemployment rate
- The number of unemployed persons divided by the labour force, multiplied by 100. The labour force comprises the employed plus the unemployed who are actively seeking work.
- Demand-pull inflation
- Inflation caused by aggregate demand rising faster than aggregate supply, often driven by higher consumption, investment, government spending or exports when the economy is near capacity.
- Cost-push inflation
- Inflation caused by rising costs of production, such as wage increases above productivity growth or higher raw material prices, shifting aggregate supply leftward and raising the price level.
- Quantity theory of money
- The equation of exchange MV equals PY. If velocity and real output are stable, a rise in money supply produces a proportional rise in the price level.
- Money multiplier
- The reciprocal of the reserve ratio. It shows the maximum total deposit creation from an initial deposit in a banking system with no cash leakage.
- Expansionary fiscal policy
- A rise in government spending or a cut in taxes that increases aggregate demand. It widens the budget deficit and may crowd out private investment through higher interest rates.
- Balance of payments
- A systematic record of all economic transactions with the rest of the world. The current account plus capital and financial account must sum to zero by construction.
- Comparative advantage
- A country has comparative advantage in a good when its opportunity cost of producing it is lower than a trading partner's, which is the basis for mutually beneficial specialisation and trade.