Theory of distribution

Traps in Theory of distribution

• Picks a closely related concept
  Learn related terms as contrasting pairs with one-line definitions, and identify which one the stem describes.
• Uses the everyday meaning of a term
  Economic terms have precise definitions. Recall the textbook definition before matching.
• Gives only part of the answer
  List every component in the definition (GDP = C + I + G + (X − M)) and tick them off before answering.
• Stops at a different economic quantity
  Underline what the question asks for and check the final number is THAT quantity, not a step on the way.
• Uses the wrong arithmetic operation
  Write the definition in words first (TR = price × quantity; ATC = TC ÷ Q) and only then put in numbers. Check units: totals and averages cannot be added.
• Confuses functions of money
  Medium of exchange removes double coincidence of wants; unit of account measures value; store of value keeps purchasing power over time; standard of deferred payment settles future debts.
• Reverses the direction of the effect
  Trace the chain step by step (e.g. buying securities → banks gain cash → money supply rises) and check the sign at every link.
• Labour market misconceptions
  Wages are influenced by demand and supply of labour, trade union bargaining, minimum wage laws and productivity. Unemployment types: frictional, structural, cyclical, seasonal.