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Microeconomics > Key words > Flashcards

Key words Flashcards

1
Q

Utility

A

The total satisfaction received from consuming a good or service

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2
Q

Needs vs Wants

A
  • Goods or services that are required to maintain existence e.g. food, water, shelter
  • Goods or services that we desire but are not necessary for maintaining existence e.g. cars, watches, TVs
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3
Q

Goods vs Services

A
  • Tangible products that can be touched and measured e.g. cars, food, washing machines
  • Intangible products that cannot be touched or measured e.g. banking, insurance, healthcare
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4
Q

Scarcity

A

A situation where there are insufficient resources to meet people’s unlimited wants

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5
Q

Scarce resources

A

Factors of production for which demand exceeds supply so they have an opportunity cost

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6
Q

Opportunity cost

A

The benefits forgone of the next best alternative

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7
Q

Factor of production

A

An economic resource used to produce goods and services
* Capital → Interest
* Entrepreneur → Profit
* Labour → Wages
* Land → Rent

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8
Q

Production possibiliity curve

A

A curve which shows the maximum possible output combinations of two goods or services an economy can achieve when using all available factors of production efficiently

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9
Q

Productivity

A

Output of a good or service, per factor of production, per period of time

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10
Q

Demand

A

The quantity of a good or service that consumers are willing and able to purchase at any possible price in a given period of time

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11
Q

Law of demand

A

Ceteris paribus, as price increases for a good or service, demand will decrease. This is because consumers have a fixed income.

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12
Q

Demand curve

A

Shows how much of a product will be demanded at any given price.

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13
Q

Market

A

A place where transactions take place between buyers and sellers

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14
Q

Veblen good

A

A good for which the quantity demanded increases as the price increases, because of its exclusive nature.

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15
Q

Price elasticity of demand (PED)

A

Measures the responsiveness of quantity demanded to a change in price

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16
Q

Price inelastic demand

A

Where the change in the quantity demanded of a product is
insensitive to a change in price
(0 < PED < 1)

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17
Q

Price elastic demand

A

Where the change in the quantity demanded of a product is
sensitive to a change in price
(PED > 1)

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18
Q

Price Unitary Elastic Demand

A

Where the change in the quantity demanded of a product is
equal to a change in price
(PED = 1)

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19
Q

Total revenue

A

The amount of money recieved for goods sold or services sold over
a period of time

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20
Q

Luxury good

A

A good where the quantity demanded increases by a greater amount than the rise in income e.g. iPhones

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21
Q

Necessity good

A

A good where the quantity demanded increases by a smaller amount than the rise in income e.g. bread

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22
Q

Inferior good

A

A good where the quantity demanded decreases when income rises

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23
Q

Cross elasticity of demand (XED)

A

Measures the responsiveness of quantity demanded for one product relative to a change in the price of another product

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24
Q

Substitutes

A

Products that can be used for a similar purpose, such that if the price of one product rises, demand for the other product is likely to rise

Have positive XED value

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25
Q

Complements

A

Products that tend to be consumed together, such that if the price of one product rises, demand for the other product is likely to fall

Have negative XED value

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26
Q

Joint demand

A

Demand for products which are interdependent

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27
Q

Supply

A

The quantity of a good or service that producers are willing and able to offer at different market prices over a period of time

28
Q

Law of supply

A
29
Q

Supply curve

A
30
Q

Price elasticity of supply

A
31
Q

Price inelastic supply

A
32
Q

Price elastic supply

A
33
Q

Price unitary elastic supply

A
34
Q

Merit good

A

A good which creates positive externalities in consumption

35
Q

Demerit good

A

A good which creates negative externalities in consumption

36
Q

Information Failure

A

A lack of information resulting in economic agents making decisions that do not maximise welfare

37
Q

Asymmetric Information

A

A situation in which some economic agents in a market have better information about market conditions than others

38
Q

Moral Hazard

A

A lack of incentive to guard against risk where one is protected from its consequences

39
Q

Government failure

A

When government intervention in a market leads to an inefficient allocation of resources

40
Q

External costs

A

The cost on the third-party for an economic activity

41
Q

Minimum price

A

The lowest price that can be charged by law

42
Q

Competitive market

A

A market where no single buyer or seller can influence market price and output

43
Q

Fixed costs

A

Costs of production which do not change with output

44
Q

Social cost

A

The cost to those involved in the economic activity and to any third party affected

45
Q

Social benefits

A

The private benefit plus the external benefit of an economic activit

46
Q

Externalities

A

Effect on a third party as a result of an economic activity

47
Q

Income elasticity of demand (YED)

A

Measures the responsiveness of quantity demanded to a change in income

48
Q

Subsidy

A

A payment that reduces the cost or price of a good or service

49
Q

Normal good

A

A good where quantity demanded increases when income rises

50
Q

Equilibrium price

A

The price at which quantity demanded and quantity supplied are equal

51
Q

Market failure

A

Occurs when the production or use of goods and services by the market is not efficient

52
Q

Composite demand

A

When goods or services have more than one use, so that an increase in the demand for one product leads to a fall in supply of the other

53
Q

Cross elasticity of demand

A

Measures the responsiveness of quantity demanded of one good to a change in the price of another good.

54
Q

Marginal private costs

A

The additional cost that society gains from comsumption of an extra unit

55
Q

Negative externality

A

Occurs when the social cost of an economic activity is greater than the private cost

56
Q

Positive externality

A

This occurs when the social benefit of an economic activity is greater than the private benefit

57
Q

Price elasticity of supply

A

Measures the responsiveness of quantity supplied to a change in price

58
Q

Market mechanism

A

The mechanism by which the forces of demand and supply determine prices and quantity supplied.

59
Q

Productive efficiency

A

When an economy is using all the factors of production available.

60
Q

Derived demand

A

Demand for a good in order to used to produce another good

61
Q

Income elasticity of demand (YED)

A
62
Q

Price inelastic supply

A
63
Q

Price inelastic supply

A
64
Q

Price inelastic supply

A
65
Q

Price inelastic supply

A
66
Q

Price elasticity of supply

A

Microeconomics (19 decks)

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