1、Economics 2nd term Exam studyChp.1 EconomicsScarcity = resources are limited in supply relative to unlimited human wants.Opportunity cost = highest-valued option forgoneEconomic good = Number available insufficient to our wants, has opportunity cost during production.Free good = CAN satisfy our want
2、s , has NO opportunity cost in obtaining them.Traditional economy Previous generations, customs and traditions.Planned economy All resources was owned by government.Market economy All things are owned by private, buyers and sellers decide the price togetherMixed economy Market dominants, 市場主導Chp.2 P
3、roductionProduction = Turning resources goods / servicesConsumer goods = produced for consumers direct consumption.Capital goods = goods consumed for producing other Goods or Services.Primary production = Direct extraction of natural resourcesSecondary production = Turning Raw materials semi-finishe
4、d or finished productsTertiary production = Provision of ServicesChp.3 Division of labour* Division of labour = specializing in doing 1 job or part of a job.Simple Division of Labour = a worker specializes in prodicing a particular goods / servivesComplex Division of Labour = a worker specializes in
5、 a particular stage of prodicing a good / services.* Regional Division of Labour = when a district specializes in producing particular good or service.Advantages of Division of Labour :1) Choosing best person to do the job Increase productivity & Decrease costs2) Pratice Makes Perfect increase produ
6、ctivity3) Economy of Capital Goods lower costs4) Mechanization increase productivity.Disadvantages of Division of Labour1) Monotony - no great job satisfaction2) Greater risk of unemployment their skills are no longer demandedChp.4 Factors of productionLand = resources provided by nature, its supply
7、 involes no opp. Cost, limited in supplyCapital = man made resources to assist productionLabour =Entrepreneurship = human effors which organize all resources, make decisions and bear risks.Labour supply Labour productivity = the output per man-hour can be increased by providing training or teaching
8、on jobs, give more benefit or rewards, mechanization or division of labour ETC. Calculated bu OUTPUT / (no.of work X no. of working hrs per work)Wages payments :1) Piece rate For employer For employeeAdvantages Encourage workerswork hard Fair Disadv. May decrease quality Unstable income2) Time rate
9、For employer For employeeAdvantages Easy to calculate StableDisadv. Worker may lazy Unfair3) Basic Salary + Tips For employer For employeeAdvantages Encourage workers work hard FairDisadv. Difficult to calculate Pressure for worker4) Profit-sharing For employer For employeeAdvantages Workers work ha
10、rd FairDisadv. No bonus when firm get lossOccupational mobility = resources whether can moved to another job easily, can be affected by:1) Monetary Rewards if more higher opportunity costs for changing job2) Non-monetary Rewards like working environment, job satisfication ETC.3) Skill of Workers ski
11、lled workers tend not to change jobs4) Age of worker Young changes more because they wanna try and learn more from diff. job.Geographical mobility = resources whether can move to another workplace.Chp.5 Shot run and long runFixed factors = inputs that do not vary in quantity as output changesVariabl
12、e factors = inputs that vary in quantity as output changesShort run = production period when some of the factors are fixed while others are variableLong run = production period that all factors are variable.The law of diminishing (marginal) returns Occurs in short run onlyWhen a variable factor is a
13、dded successfully to a fixed amount of fixed factors, other things being constant, the marginal product of the variable factor will eventually diminish(decrease).Marginal product = Change of Total output per unit Average product = TP / no. of variable factorEconomies at the Firm Level (Economies of
14、scale)1) Managerial Economies better division of labour 2) Financial Econ Large firms enjoy cheaper and easier credits than small firms as large firms are safer borrowers for banks.3) Marketing Econ Large firms buy resources at lower prices as they usually buy in bulk.4) Rish Bearing Econ a) Product
15、 Diversification - if sales of 1 product drops, firm still has income from other productsb) Market diversification the firm expands into different marketsc) Source Diversification large firm diversifies its sources of raw materials to ensure a steady supply of raw materials at reasonable prices.Dise
16、conomies of scale1) Managerial Disecon. when firm grows larger, organizational structure becomes more complicated.2) Marketing Disecon. its output expands and eventually the market for its product becomes saturated.3) Financial Disecon. already borrowed amount of money, banks not willing to lend mor
17、e as risk.Chp.6 Types of Business OwnershipPublic enterprise a firm owned by the government.Private Enterprise a firm owned privately by individuals.Types No. of owners Business Continuity Legal entity LibilityPrivate Ltd 150 Yes LimitedPublic Ltd 1+Lasting becoz exsistence are not affected by withd
18、rawal Yes LimitedPartnership # 220 Lacking as the partnership can be terminated if any partner dies, retiresNo UnlimitedSole proprietorship Only 1 Lacking as well No Unlimited# It has General and limited partner, limited partner takes no part in management and limited liability.Advantages of sole pr
19、op./ partnership than limited company- Owners can maintain a close relationship with employees high morale 士氣- Lower Profits Tax rate- Sole prop./ partnership/ private Ltd. can keep the accounts secret.Advantages of partnership than sole prop.- More sources of Capital as more partners- Business risk
20、s will be shared among partnersAdvantages of limited company than sole prop./partnership- Limited liability, shareholders have a maximum loss of what they invested only.- Legal entity, shareholders hv no responsibility for legal charges against the company, but only company.- Business Continuity as
21、the company is legal entity.- (Publie Ltd) More sources of capital like issuing shares and bond to invite public subscription.- If newly issued shares all go to new shareholders, existing shareholders share of total capital will be smaller and the control of ownership will be weakened.- Bonds(Debent
22、ures) are the loan to company, bonders are creditors.- (Publie Ltd) Free Transfer of shares in stock exchange.Preference shares Ordinary SharesHolders receive dividends be4 other shareholders. Holders are the last to receive dividends.Fixed rate of dividend. Dividend amount varies with amount of pro
23、fits.Usually hv no decision-making and cant vote. Usually can make decision and can vote.Shareholders BondholdersOwners of company. Creditors of company.May receive dividends from shares. Receive interest from bonds.Receive dividends after bondholders are paid. Receive interest before shareholders a
24、re paid.(Ordinary shareholders) have voting rights. No voting rights.Chp.7 Growth and Integration- Growth can be internal or external, external growth(intergration) is combination of 2 firms.a) Horizontal Intergration combination of firms at same stage of production or produce same products.Motives:
25、 i) Economies of scales like financial economies, 2) Increasing Market shares.b) Vertical (backward / forward) firm combines with another preceding / later stage of production firm. Motives: i) Economies of scales, 2) Better(more stable) supply of materialsc) Lateral combination of firms producing r
26、elated but not competitive products.Motives: i) Economies of scales, 2) Product Diversificationless risks, 3) Better utilization of resources as they are related.d) Conglomerate combination of firms engaging in different types of productionsMotives i) Economies of scales, 2) Better Utilization of re
27、sources, 3) Business Diversification.How to carry out intergration?!1) Takeover 接管 acquires more than 50% of shares,2) Merger buys up 100% of assets of another firms and then the merged firm dissolved.3 Consolidation 合併 4) Cartel 同業聯盟Economic effects of Intergration?!- Economies of scales- Monopoliz
28、ation 壟斷, and consumers have fewer choices and suffer from higher prices.Chp.8 Price determination.Law of Demand the quantity demanded varies inversely with price, other factors hold constant.Law of supply the quantity supplied varies directly with price, other factors hold constant.$ below equilibr
29、ium = excess demand / shortage, or its called excess supply / surplus.Chp.9 Changes of priceNormal(Superior) good consumers will consume more when their income increases, vice versa 反之亦然.Inferior good consumers will consumer LESS when their income increases, vice versa.Demand factorsSubstitutes(in c
30、ompetitive demand) are 2 gds can replace each other to satisfy same want.Complements(in joint demand) 2 gds need to use together to satisfy a want.Derived demand (引申需求)Supply factors Competitive supply Joint Supply when Qs of good A increases, Qs of good B will also increase.Chp.10 Price ElasticityF
31、ormula of Elasticity of Demand / SupplyElasticity Characteristics Ed/EsElastic Demand / Supply % change in Qd/Qs % change in $ Ed/Es 1Inelastic D/S % change in Qd/Qs ?Perfectly inelastic D/S 無論 $ 點變 Qd/Qs 都唔變 Vertical D/S curve Ed/Es = 0Chp.11 Market InterventionPrice ceiling = maximum price set on
32、a good or service.Price floor = minimum price of a good or service.Quota = restriction on total amount of output of sales(supply)Per-unit tax 1) ad valorem tax(given %), 2) per-unit tax(a fixed amount on any gds)Chp.12 Market StructurePerfect Competition1. Large no. of buyers and sellers neither sel
33、ler or buyer could control the market price of a good.2. Homogeneous product Products of all sellers must be identical in the eyes of consumers.3. Free entry and exit no legal restriction, ensures that there are enough sellers in the market.4. Perfect market information(eg. quality, features, price,
34、 etc.) all are available to buyers and sellers.5. Perfect mobility of resources resources can be moved freely at negligible cost.Market Behavior of a firm under perfect competition- Be price taker, as each sellers supply very less to market and cant affect market price by themselves.- No product dif
35、ferentiation, all products are the same in the eyes of consumers, therefore, non-price competition like product differentiation, advertisement are uselessImperfect competition1. same appearance products can be not homogeneous. Advertisement, branding, packages can differentiate one product from othe
36、r.2. Resources are not perfectly mobile3. Maybe some restriction on Entry of market.4. Imperfect information.5. Be price searcher(訂價者), based on the above features of imperfect competition like imperfect info.3 kinds of market structure under imperfect competitiona) Monopolistic competition- LARGE n
37、o. of sellers and buyers- Selling products are similar but differentiated- Freedom of entry and exit.- Market information is easily available but imperfect.b) Oligopoly- Maybe many sellers in market, but only few of them can dominate the market.- Selling products are similar but differentiated- Entr
38、y is restricted as the government regulation / huge capital / high technological requirement.- Imperfect market information- there are interdependence among Oligopolists, consider the reaction of other firm be4 decisions.- rigid price cutting price may cause a price war and firms may lose their reve
39、nue, vise versa.- non-price competitionc) Monopoly- only 1 seller in whole industry.- no CLOSE substitute for its product- entry is extremely difficult or even impossible- market information is highly restricted.Source of power: 1. Government franchise , e.g. KMB2. Government ownership3. Ownership o
40、f Important Resources e.g. special kind of mineral.4. Economies of scale of a firm discourage new firms entering the industry.5. Huge Capital Requirement e.g. electricity companies.F5 topicsChp.7 Public FinanceSome of the sources of Non-Tax government revenue in HK:- Provision of Public services lik
41、e water supply, tunnels, postal services etc.- Fees and charges from different type of licenses.- *Land transaction, sales and interest(Largest amount of revenue)4 Principles of Taxation (by Adam Smith)Equity Everyone should pay taxes in proportion to his income.Certainty Taxpayer should know well w
42、hat his taxes are when they pay.Convenience The collection of tax payment should be convenient to both taxpayer and government.Economy Administration cost(行政費 ) of tax collection should be small in proportion to its yield.Tax Revenue: Direct / Indirect taxDirect tax = the tax burden of it cant be sh
43、ifted to 3rd party.e.g. in HK : 1) Salaries tax, 2) Property tax, 3) profit tax, 4) Estate Duty 遺產稅Indirect tax = tax burden of it can be shifted to 3rd party.e.g. in HK : 1) Duties(煙酒稅 ), 2) Rates(差餉, 5% of 租值), 3) Royalties(專利稅) etc.Progressive / Proportional / Regressive tax.Progressive : tax% as
44、 income.Proportional : tax% constant as income.Regressive : tax% as income.Chp.8 International TradeWhy do we need trade?- Getting goods that are not available locally- Cheaper costs of production- Enjoy higher standard of livingAbsolute advantage: a country is able to produce more gd. with same amo
45、unt of resources.Comparative advantage: a country is able to produce a gd. at lower opp. Cost than other countries.Law of Comparative advantage: It states that total output will increase as long as countries specialize in producing goods in which they have a comparative advantage.Chp.3 MoneyDefine m
46、oney: anything that widely used and generally accepted as a medium of exchange for payment of goods and services, as well as for settlement of debts.Why not barter economy(以物易物 )?!1) Lack of double coincidence of wants, 2) Indivisibility of commodities3) No common measure of value, 4) Inconvenience4
47、 Functions of moneya) a medium of exchange generally accepted in buying Gds/Services or settling paymentb) a unit of account value of G/S are expressed in terms of $c) a store of value convenient to keep wealthd) a standard of deferred payment future payment expressed in terms of $ as well.M1, M2, M
48、3 are divided by functions of money.M1 = legal tender + demand deposit (Hence = medium of exchange)M2 = M1 + savings and time deposits with banks + NCD issued by banks M3 = M2 + deposits in and NCD issued by restricted license banks & deposit-taking companies.Chp.2 National income- Intermediate good
49、s = G/S produced and used as input in producing other gds and for resale.- Final goods = goods for final use or consumption (direct consumption of consumers)- GDP measures the total market value of final G/S produced by all resident producing units of a territory in a specific period of time. Production Approach(Value-added approach) of GDP at factor cost =Sum of value added at all stage of production indirect taxes + subsidies.Production Approach(Value-added approach)
