Crash Course 2024- Part 2a -

MicroEconomic Topics
CSEC ECONOMICS
Date : April 27th 2024

Ms. Kimberly Gonzales

Agenda Section 4 - Market structure & Market Failure

Review of features
Section 3 - Demand Supply &
Elasticity Market Failure :Multiple choice practice
Elasticity : Types & How to Structured question
Calculate Elasticity
2023 Q3 & 2019 Q1B
Coefficient Meaning
Factors affecting Elasticity
Structured question
2023 Q2 & 2022 Q2
Agenda
Section 6 - Economic management and
Section 5 - Financial Sector policy goals & Balance of Payments

Multiple choice practice Brief Review of Fiscal Policy Tools

Paper 2 -Structured question Paper 2 -Structured question 2022 Q4
2023 Q4 a &b
2023 Q5

2018 Q5
 Response
ELASTICITY More response = Elastic
Less response = Inelastic

The Five Degrees of Elasticity of Demand

1. Elastic - Very responsive - PED Coe cient is between 1 and Infinity (1<PED<∞)

2. Inelastic - Not very responsive - PED Coe cient is between 0 and 1 (0<PED <1)

3. Unitary elasticity- An equally proportionate response - PED Coe cient is 1 (PED =1)

4. Perfectly elastic -QD changes without a change in P- Coe cient is Infinity (PED= ∞)

5. Perfectly inelastic -QD does not change as price changes- PED Coe cient is 0 (PED= 0)
Types of Elasticity

PRICE ELASTICITY OF DEMAND

Price Elasticity of Demand measures the The PED Coefficient is

responsiveness of quantity demanded to
always NEGATIVE
changes in price
DEFINITION

PED = % Change in Quantity Demanded

Inverse relationship between
% Change in Price price and quantity

= %ΔQD demanded. ( P ↑D ↓)
%ΔP
FORMULA
Types of Elasticity The YED Coefficient is
usually POSITIVE
INCOME ELASTICITY OF DEMAND
Types of goods and the YED

Income Elasticity of Demand measures

Normal good
the responsiveness of quantity
A good or service in which as YED
demanded to changes in income
Coefficient
DEFINITION income increases demand is +
increases. ( Y ↑D↑ ) positive
YED = % Change in Quantity Demanded
% Change in Income Inferior good

= %ΔQD A good or service in which as YED

Coefficient
%ΔY income increases less is is -
FORMULA
demanded.( Y ↑D ↓) negative
 Types of Elasticity
CROSS ELASTICITY OF DEMAND
Substitutes

Cross Elasticity of Demand measures the

responsiveness of quantity demanded of
Coefficient is Positive
one good to changes in price of another DEFINITION

good

XED = % Change in Quantity Demanded of good X

% Change in Price of Good Y
Complements

= %ΔQD of Good X
%ΔP of Good Y FORMULA

Coefficient is Negative
Types of Elasticity

PRICE ELASTICITY OF SUPPLY The PES Coefficient is

always POSITIVE
Price Elasticity of Supply measures the
responsiveness of quantity supplied to
DEFINITION
changes in price
There is a direct relationship
between price and quantity
PES = % Change in Quantity Supplied
supplied. ( P ↑ S↑)
% Change in Price

= %ΔQS FORMULA
%ΔP
 Factors affecting Price Elasticity Bonus
Slide

of Demand
Price of the good Broadly or narrowly defined
Expensive or Cheap Proportion of Income
Time spent on Good

Addictive or habit Luxury vs Availability of Usefulness

forming Necessity close substitutes
 Bonus

Factors affecting Elasticity of Supply

Slide

Time Barriers to Enter

the Industry Ease of Storage

Number of firms in
the Industry
Ease in production
switching
Availability
of Excess Length of
capacity production
period

saniT
MC Practice
Nicky’s income increases from Suppliers of manufactured goods respond
$100 to $150. The quantity of faster to price changes than suppliers of
shirts she purchased increased agriculture goods MAINLY because
by 100% her income elasticity of
A)Agricultural goods have lower demand
demand for shirts is
B) Agricultural goods take longer to produce
C) Manufactured goods are cheaper to
A)1.5
produce
B)1.75
D)Manufactured goods are subject to quality
C)2.oo
control regulations
D)2.75
CSEC 2023 Q2 & CSEC 2022 Q2
Market Structure
and Failure
Multiple choice
 What are the main differences?

Perfect Competition Monopoly

Many Buyers and Sellers Buyers and Sellers Many Buyers and One Seller
Homogeneous Type of product Unique

Perfect Knowledge Knowledge of the market Imperfect Knowledge

Price Taker & Perfectly Price & Demand curve

Price Maker & Inelastic
Elastic Demand curve Barriers to entry Demand Curve
No Barriers
Short Run / Long Run Profits Strong Barriers
Abnormal Profits and Losses in the SR Abnormal, Normal Profits or
Only. Normal profits in the LR Losses in the LR or SR
 What are the main differences?

Oligopoly Monopolistic
Buyers and Sellers Many Buyers and Many Seller
Many Buyers and Few Sellers
Homogeneous or Differentiated Type of product Differentiated

Imperfect Knowledge Knowledge of the market Imperfect Knowledge

Price Maker & Price & Demand curve

Price Maker & Elastic
Interdependent : Kinked
Barriers to entry Demand Curve
Demand curve or Inelastic
Strong Barriers Short Run / Long Run Profits Little to No Barriers
Long Run Equilibrium: Any Kind of Long Run Equilibrium: Any Kind of
Profit or Loss ECONLABTT Profit or Loss
MC practice
Which market structure has the The market structure that earn normal
most control over setting prices? profits in long run equilibrium are

A)Monopoly A)Perfect competition & monopoly

B) Oligopoly B) Perfect competition & Oligopoly

C)Perfect competition C) Monopolistic competition & Oligopoly

D) Monopolistic competition D) Monopolistic competition & perfect

competition
MC practice
According to economic theory ‘second and Which ofthe following will NOT
smoke’ is an example of occur whenthere is market failure?
.
A)Merit Good
A) A decline iri social welfare
B) Privat Good B) An 'increase in poverty
throughout the economy
C) Negative externality C) Increasing levels
ofunemployment among
D)Positive Externality skilled and unskilled labour
D) Adequate amounts of all goods
andservices for consumers
MC Practice
Which of the following is a A B
long run equilibrium
position for a Monopolistic
firm?

C D
MC practice
Second hand cigarette smoke is Which of the following is NOT TRUE of
an example of a perfect competition ?

A)Positive externality A) Firms are Price Takers

B) Merit good B) products are homogeneous

C) Private good C) No barriers to enter the industry

D) Negative externality D) Firms engage in price discrimination

STRUCTURED QUESTION
STRUCTURED QUESTION
 Crash Course 2023- Part 2 -
MacroEconomic Topics
CSEC ECONOMICS
Date : April 29th, 2023

Ms. Kimberly Gonzales

Financial Sector
Multiple choice
MC practice
The term money supply Which of the following scenarios best describes the
refers to? formal sector?

A)The total gold in reserve A) Emma babysits her neighbours childrent o earn
pocket money
B) Total assets of financial
institutions B) The recycling plant deposits the money earned on a
daily basis to its account at a local bank
C)The stock of money in an
economy at any time C)Freeda formally organizes a meeting turn with eight of
her neighbours
D) Amount of money traded
in the foreign exchange D) The village vagrant collects collects bottles from the
market neighbourhood and takes them to a recycling plant.
MC practice
The main objective of a credit Which of the following functions of money
union is to will be MAINLY affected by inflation in the
long run
A)Encourage summer spending
A)Medium of exchange and store of value
B) Provide credit to government
agencies B) Medium of exchange and unit of
measure
C) Encourage thrift among its
C) Store of value and standard of deferred
members payment
D) Provide investment funds for D) Medium of exchange and standard of
companies deferred payment
MC practice
Which of the following Funds Funds
financial instruments are
SAVERS X BORROWERS
issued by the central bank
on behalf of the
government Which economic agent is represented by X
A)Treasury bills A) Households
B) Corporate bonds
B) Central Bank
C)Equity securities
C)Government
D) shares on the stock
exchange D) Financial institutions
MC practice
The central bank requests an increase in the reserve requirement of
commercial banks. What would be the effect on the operations of
commercial banks

A)Thier liquid assets will be reduced

B) Their ability to creat credit will increase.

C)Their loans to money markets will increase

D) They will attract less deposits from the public

Structured Question
Economic Management and
Policy Goals Review

Problems and Tools

 The Main Goals of Government
Stabilize Prices
1
(Eliminate Inflation)
Unemployment
2

Minimization
Economic Growth
3

( ↑ GDP and combat

Balance of Payment 4 inflation)
Equilibrium (Trade)
Tools used by the government to achieve goals

Monetary Policy (Via Central Bank)

Fiscal policy

Government adjusts its spending

levels through budget Surpluses or
Budget Deficits

Adjust Tax Rates - VAT, Corporation

Taxes, Personal Income Tax

Disposable Income
 Fiscal policy Tools

Contraction or Deflationary Decreased Government Decreases Aggregate

Increasing Taxes
Fiscal policy Spending Demand

Expansionary or Reflationary Increased Government Increases Aggregate

Lowering Taxes
Fiscal policy Spending Demand
Balance of Payments
Components

Quick Look
The Current Account The Trade Account / Visible account
Examples
GOODS

Payments for Import or Export

of Clothing, Cars, Agricultural
Products

The Service Account / Invisible account

SERVICES
Interest payments (income)
Shipping
on International Investments
Tourism TRANSFERS
International Travel
International Insurance
INTEREST Sending and Receiving
Money from relatives
The Capital Account
Investments
1. Investments of residents in another country (debit -)
Records of Capital Investments
and Debt 2. Investment of foreigners into a country (credits +)

Trinidadian buys stock in Apple Canadian banks set up business in

Corporation (debit -) Trinidad(credit +)

Loans
1. Loans taken by residents in another country (credits +)
2. Loans given to foreigners in another country (debit -)

Trinidad business owner repays Trinidad business owner borrows capital

principal on loan (debit -) to set up new factory (credit +)