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AS Microeconomics > Econ1 Key Terms > Flashcards

Econ1 Key Terms Flashcards

1
Q

Capital goods

A

Goods supplied to other firms (investment goods) to use in the production of other goods.

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2
Q

Tangible goods

A

Physical items that can be touched

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3
Q

Non tangible goods

A

Goods that do not have a physical nature e.g services

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4
Q

Factors of production

A

The resources necessary to producing goods and services: land, labour, capital, enterprise.

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5
Q

Primary sector

A

Industries which involve acquiring raw materials

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6
Q

Secondary sector

A

Industries which carry out manufacturing and processing to convert raw materials into components

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7
Q

Tertiary sector

A

Commercial services which produce and distribute e.g insurance

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8
Q

Quaternary sector

A

The knowledge sector which uses modern technology in research and development to provide information to other industries.

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9
Q

Public sector

A

Provides government with various services

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10
Q

Private sector

A

Not under state control, and so it is run by individuals and firms who aim to make a profit.

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11
Q

Opportunity cost

A

The thing that was foregone when choosing between options.

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12
Q

Economic goods

A

Products or services that are scarce in relation to the demand for them, hence they can command a price when sold.

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13
Q

Free goods

A

Goods and services that can be enjoyed without needing to use scarce resources. They can be used without limits and have a zero opportunity cost.

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14
Q

Consumer goods

A

Goods that are supplied to and consumed by households, not by manufacturers.

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15
Q

Scarcity

A

Economic resources are limited relative to society’s desire for goods and services.

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16
Q

Production possibility curve

A

The maximum output of combinations of goods and services that can be produced through the full and efficient employment of society’s economic resources. It represents society’s full productive potential at any point in time.

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17
Q

Investment

A

The production of additional units of capital, thereby increasing society’s total economic resource

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18
Q

Specialisation

A

Productive activity by individuals, firms and countries focusing on a narrow range of output. Specialisation of labour = division of labour.

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19
Q

Comparative advantage

A

An economic agent enjoys a comparative advantage in a productive activity where the opportunity cost is relatively low.

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20
Q

Market

A

An arrangement where buyers and sellers come into contact and engage in trade.

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21
Q

Product markets

A

Markets where goods and services are exchanged.

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22
Q

Factor markets

A

Markets where factors of production are exchanged.

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23
Q

Demand

A

The quantity of a product that a consumer is willing and able to buy in a period of time.

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24
Q

Supply

A

The quantity of a product that a firm is willing and able to produce in a period of time

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25
Q

Marginal utility

A

The additional utility enjoyed when a consumer increases quantity demanded by a single unit

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26
Q

Income effect of a price change

A

The effect on quantity demand of a price change causing consumer real income to change

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27
Q

Substitution effect of a price change

A

The effect on quantity demanded of a price change causing relative prices to change

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28
Q

Consumer surplus

A

The utility received by a consumer over and above the price they has been paid for a product. It arises where a consumer would be willing and able to pay a price higher than the market price.

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29
Q

Giffen good

A

A product where price and quantity demanded are positively related

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30
Q

Equilibrium market price

A

The price at which the planned demand of consumers and the planned supply of firms are equal. It represents a state of rest in the market, where consumers and firms have no incentive to change behaviour.

31
Q

Disequilibrium market price

A

A market price that gives rise to either excess demand or excess supply. The planned demand does not equal planned supply.

32
Q

Price mechanism

A

The dynamic whereby market prices rise and fall to slim ate any excess demand and excess supply. An efficiently functioning price mechanism will move markets into equilibrium.

33
Q

Rationing function of price mechanism

A

The process whereby a rising market price will eliminate excess demand

34
Q

Signalling function of the price mechanism

A

The process whereby the price of a product communicates info to consumers and firms about value for money/profit opportunities

35
Q

Incentive function of price mechanism

A

The process whereby the price of a product generates opportunity end for consumers and firms to increase their utility/profit by changing demand and supply.

36
Q

Substitute goods

A

Two goods are substitute if they are in competitive demand and a consumer considers them to be alternatives. The cross elasticity of demand for substitute goods is +VE.

37
Q

Complementary goods

A

Two goods are complements if they are in joint demand and a consumer uses them in combination. The cross elasticity of demand for complimentary goods is -VE

38
Q

Derived demand

A

Where the demand in a product market gives rise to a related demand for factors of production to make the product.

39
Q

Joint supply

A

A situation where two or more products are produce simultaneously, so that production of one automatically generates production of another.

40
Q

Composite demand

A

A situation where a factor of production is in demand from more than one product market, so that greater supply of it in making one product inevitably reduced the supply available to make the other product.

41
Q

Price elasticity of demand

A

Measured the responsiveness of demand for a product to a change in its price. It is the percentage change in quantity demanded divided by the percentage change in price.

42
Q

Income elasticity of demand

A

Measured the responsiveness of demand for a product to a change in consumer income. It is the percentage change in quantity demanded divided by the percentage change in income.

43
Q

Normal good

A

Products with a +VE income elasticity of demand, with rising income causing rising demand.

44
Q

Inferior good

A

Products with a -VE income elasticity of demand, with rising incomes causing falling demand.

45
Q

Allocative efficiency

A

Where markets are in equilibrium with neither excess demand or excess supply, and where marginal social costs = marginal social benefits.

46
Q

Allocative inefficiency

A

Where markets are not in equilibrium, with either excess demand or excess supply, and marginal social cost is not equal to marginal social benefit.

47
Q

Subsidy

A

Money paid to firms by the government to reduce the cost of production for firms and shifts the supply curve to the RIGHT.

48
Q

Productive efficiency

A

Products are made at a minimum possible average cost of production.

49
Q

Productive inefficiency

A

Products are not made at minimum possible average cost of production.

50
Q

Equity

A

Distribution of income and wealth in society is considered to be fair

51
Q

Market failure

A

Any situation where markets fail to achieve either efficiency or equity. Society is not making the optimal use of its scarce factors of production.

52
Q

Merit goods

A

Products that are under consumed in a free market

53
Q

Demerit goods

A

Products that are over consumed in a free market

54
Q

Black market

A

An illegal market that develops where there is excess demand for a goods generated by a maximum price. Black market prices are higher than the legal maximum price.

55
Q

Moral hazard

A

A situation where consumers and firms are encouraged by free markets incentives to behave in a way that generates inefficiency and external costs.

56
Q

External cost

A

Spillover cost suffered by society as a whole and not taken into account by consumers and firms trading in markets.

57
Q

External benefits

A

Spillover benefit enjoyed by society as a whole and not taking into account by consumers and firms trading in markets.

58
Q

Economies of scale

A

Factors that reduce the average cost of production as a firm increases its volume of production, thereby increasing productive efficiency in a market.

59
Q

Diseconomies of scale

A

Factors that increase the average cost of production as a firm increases its volume of production = reduced productive efficiency in a market.

60
Q

Government failure

A

A situation where government intervention in a free market fails to improve efficiency / equity or actually reduces efficiency / equity

61
Q

Positive statements

A

Statements that are capable of being tested against empirical evidence and declared either true or false

62
Q

Normative statement

A

Statements that are essentially value judgements and incapable of being declared true or false by reference to any empirical evidence. These statements tend to use ‘should’ and ‘ought to’.

63
Q

Non rivalrous

A

Consumption by one person does not reduce the ability of other people to consume the good. All consumers can enjoy good simultaneously.

64
Q

Non excludable

A

It is impossible to prevent free riders consuming the good despite not having paid for it.

65
Q

Barriers to entry

A

Factors that make it difficult for new firms to break into product markets, thereby strengthening the power of the existing (incumbent) firms.

66
Q

Buffer stocks

A

The quantity of raw materials/products held by the government to stabilise a market price at a target level. Fluctuations of buffer stocks are designed to avoid excess demand or supply arising at the target price.

67
Q

Consumer irrationality

A

Consumers lack information to accurately assess the personal costs and benefits arising from consumption of a product.

68
Q

Tragedy of commons

A

Where external costs cause a market to suffer from allocative inefficiency, as firms and consumers exploit natural resources which are not protected by property rights.

69
Q

Social benefit

A

Private benefit + external benefit. The benefit enjoyed by society from the production of a product.

70
Q

Social cost

A

Private cost + external cost. The total cost suffered by society from the production of a product.

71
Q

Indirect taxation

A

Taxation imposed on goods and services, which raises the cost of production for firms and shifts the supply curve to the LEFT.

72
Q

Cross elasticity of demand

A

Measures the telson signees of demand for a product to a change in the price of a complementary or substitute product. It is the percentage change in quantity demand divided by percentage change in price of the complement or substitute.

73
Q

Price elasticity of supply

A

Measured responsiveness of supply of a product to a change in its price. It is the percentage change in quantity supplied divided by percentage change in price.

AS Microeconomics (2 decks)

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