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Microeconomics > Key Words > Flashcards

Key Words Flashcards

1
Q

The Basic Economic problem

A

Resources have to be allocated between competing uses because wants and needs are infinite whilst resources are scarce.

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2
Q

Scarcity

A

The state of being scarce or short in supply. People would like to consume more goods than the economy is able to produce with its limited resources.

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3
Q

Scarce resources

A

Resources which are limited in supply so choices have to be made about their use

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4
Q

Needs

A

The minimum which is needed for a human being to survive.

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5
Q

Wants

A

The desire for the consumption of a good or service

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6
Q

Free goods

A

Goods which are unlimited in supply and their use has no opportunity cost. E.g. Air

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7
Q

Choice

A

An economic choice involves the alternative use of scarce resources

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8
Q

Economic good

A

Goods which are limited in supply and their use has an opportunity cost

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9
Q

Opportunity cost

A

The benefits forgone of the next best alternative

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10
Q

Economics

A

Economics is a social science that studies how individuals, firms, governments and nations allocate scarce resources between competing uses to satisfy their needs and wants.

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11
Q

Division of labour

A

Dividing production process thus allowing workers to concentrate on specific tasks (specialisation)

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12
Q

Factors of production

A

Inputs into the production process such a as land, labour, capital and enterprise

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13
Q

Labour productivity

A

A measure of economic growth within a country. Measures the amount of goods and services produced in on hour of labour.

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14
Q

Positive statements

A

Objective statements that can be tested to be true or false by referring to available evidence

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15
Q

Economies of scale

A

The cost advantage that arises with increased output of a product.

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16
Q

Subsidies

A

A benefit given by the government, typically given to remove a burden in the interest of the public

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17
Q

Diseconomies of scale

A

Refers to the situation where economies of scale no longer functions for a firm. Costs increase as quantity of output is increased.

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18
Q

Pure monopoly

A

When one firm dominates the industry and has 100% market share

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19
Q

Rationing function

A

Occurs when there is a shortage of product therefore price will rise to deter some customers from buying the product.

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20
Q

Oligopoly

A

Is a market structure in which a small number of firms have the large majority of market share.

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21
Q

Signalling function

A

Changes in price provides information to both producers and customers about changes in the market condition.

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22
Q

Duo poly

A

When two firms dominate the market

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23
Q

Natural monopoly

A

When a firm has complete control over their natural resources

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24
Q

Austerity

A

Cuts in government spending

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25
Q

Normative statements

A

Value judgments which are subjective statements of opinion rather than facts that can be tested.

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26
Q

Demand

A

The quantity of goods or services customers are able and willing to buy at different prices in a given time period

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27
Q

Effective demand

A

Demand for goods and services which are backed up by the ability to pay for it

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28
Q

Latent demand

A

Willingness of purchasing a good but no real power to be able to afford it.

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29
Q

Supply

A

The quantity sellers wish to sell at each price in a given period of time

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30
Q

Equilibrium price

A

The set price at which quantity demanded equals quantity supplied.

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31
Q

Derived demand

A

When demand for good X depends on demand for good Y

E.g. Phone and charger

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32
Q

Normal goods

A

A good for which demand increases if income increases and vice versa.

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33
Q

Complementary demand

A

Increase in demand for one good means also an increase in demand for another related good.

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34
Q

Price elasticity of demand

A

The responsiveness of demand to changes in price

%^P

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35
Q

Composite demand

A

A good that is demanded for more than one purpose. Increase demand form one means decreased supply for the other.

E.g. Milk

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36
Q

Income elasticity of demand

A

The responsiveness of demand to changes in income.

%^Y

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37
Q

Cross elasticity of demand

A

The responsiveness of demand in one good when a change in price takes place for another good.

%^P for good Y

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38
Q

Inferior goods

A

When income increases demand decreases and vice versa

E.g. Sainsbury’s basics

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39
Q

Price elasticity of supply

A

The responsiveness of supply to changes in price.

%^P

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40
Q

Short run

A

At least one factor of input is fixed

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41
Q

Long run

A

All factors of production are variable

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42
Q

Legal/working monopoly

A

A firm which has greater than 25% market share

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43
Q

Near monopoly

A

When a firm has above 90% market share

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44
Q

Allocative efficiency

A

Occurs when available economic resources are used to produce a combination of goods and services to best match people’s tastes and preferences

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45
Q

Average cost

A

Total cost of production
———————————
Output

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46
Q

Capital goods (producer goods)

A

A good which is used in the production of other goods and services.

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47
Q

Average revenue

A

In a single product firm, average revenue equals the price of the product.

Total revenue
———————
Output

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48
Q

Collusion

A

co-operation between firms, e.g. Fix prices

Some forms of collusion may be in the interest of the public e.g. Labour training and joint research

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49
Q

Competing supply

A

When raw materials are used to produce one good, they cannot be used to produce another good

50
Q

Demerit good

A

A good like tobacco where social costs of consumption exceed the private cost.

Value judgments are involved in deciding whether a good is a demerit good

51
Q

Competitive market

A

A market in which a large number of buyers and sellers possess good market information and it is easy to enter or leave the market.
Competitive market is one in which firms strive to outdo their rivals
But it does not necessarily meet all the conditions for a perfect competition.

52
Q

Economic growth

A

An increase in the potential level of real output which an economy can produce over a period of time.

53
Q

Disequilibrium

A

A situation in a market where there is excess supply or excess demand.

54
Q

Consumer good

A

A good which is consumed by an individual or household to satisfy their needs and wants.

55
Q

Consumption externality

A

An externality ( + or - ) which is generated in the consumption of a good or service

56
Q

Elasticity

A

A proportionate responsiveness of a second variable to an initial proportionate change in the first variable.

57
Q

Economic welfare

A

The economic well being of an individual, a group in society or and economy.

58
Q

Entry barrier

A

Makes it difficult or impossible for a new firm to enter the market

59
Q

Equilibrium

A

A state of rest or balance between opposing forces

60
Q

Equity

A

Fairness or justness

61
Q

Excess demand

A

When consumers wish to buy more than firms wish to sell, with price below the equilibrium price.

62
Q

Excess supply

A

When firms wish to sell more than consumers wish to buy, with price above the equilibrium price.

63
Q

Exchange

A

To give something in return for something else received

64
Q

Exit barrier

A

Makes it difficult or impossible to leave the market.

65
Q

Externality

A

A public good in the case of an external benefit or a public bad in case in an external call which is ‘dumped’ on the third party outside of the market

66
Q

Finite resources (non renewable resources)

A

Resources which are scarce and run out as it’s used

E.g oil

67
Q

Fixed costs

A

Cost of production which in the short run doesn’t change with output

68
Q

Full employment

A

When all those who are able and willing to work are employed.

69
Q

Geographical immobility of labour

A

Occurs when workers find it difficult to move to jobs in other parts or the country due to reasons such as high housing costs in the locations where jobs exist.

70
Q

Government intervention

A

Occurs when government intervention reduces welfare, and leads to an allocation of resources which is worse than the free market outcome.

71
Q

Immobility of labour

A

The inability of labour to move from one job to another, either due to occupational or geographical reasons.

72
Q

Imperfect competition

A

Any market structure lying between the extremes of perfect competition and pure monopoly

73
Q

Incentive function of prices

A

Prices create an incentive for people to alter their economic behaviour e.g. Higher prices create an incentive for firms to supply more

74
Q

Inequity

A

Unfairness or unjustness

75
Q

Information problem

A

Occurs when people make wrong decisions because they don’t possess or ignore relevant information. Very often they are myopic about the future

76
Q

Joint supply

A

When one good is produced another good is also produced from the same raw materials.

77
Q

Informative advertising

A

Provides consumers and producers with useful information about a good or service

78
Q

Invention

A

Creates new ideas for products and processes

79
Q

Innovation

A

Converts the results of invention into marketable goods and services

80
Q

Limit pricing

A

Reducing the price of a good just above average costs to deter they entry of new firms into the market. Price is set at a level which is likely to make it unprofitable for potential entrants considering coming into a market.

81
Q

Market demand

A

The quantity of a good or service all consumers in a market are willing and able to buy at different market prices

82
Q

Market failure

A

Occurs when the market mechanism leads to a misallocation of resources within an economy, either completely failing to provide the goods and services or providing the wrong quantity.

83
Q

Market share maximisation

A

Occurs when a firm maximises its percentage share in the market which sells its products.

84
Q

Market structure

A

The organisation of a market in terms of the number of firms in the market and the way in which they behave

85
Q

Market supply

A

The quantity of goods and services all firms plan to sell at given prices in a given period of time

86
Q

Merit good

A

When consumed leads to a benefit which other people enjoy, or a good which the king term benefits or consumption exceeds the short term benefits enjoyed by the person consuming the merit good.

E.g. Health care.

87
Q

Missing market

A

Th situation in whichthere is no market because the functions of prices have broken down.

88
Q

Monopoly power

A

The power of a firm to act as a price maker rather than a price taker.

89
Q

Negative externality

A

(Same as external costs)
Occurs when the consumption or production of a good causes costs to a third party.

Social cost is greater than the private cost

90
Q

Occupational immobility of labour

A

Occurs when workers find it difficult or impossible to move between jobs because they lack or can’t develop the skills needed for the new jobs

91
Q

Perfect competition

A

A market which displays the six conditions of:
🔹large number of buyers and sellers
🔹perfect market information
🔹The ability to buy or sell as much as desired at a ruling market price.
🔹the inability of an individual buyer or seller to influence the market price
🔹a uniform of homogeneous products
🔹no barriers to entry or exist in the long run.

92
Q

Positive Externality

A

Which is the same as an external benefit, occurs when the consumption or production of a good causes benefits to a third party. (social benefit>private benefit)

93
Q

Predatory Pricing

A

Temporarily reducing the price of a good below average cost to drive small firms of new market entrants out of the market.

94
Q

Price Ceiling

A

A price above which it is illegal to trade. They can distort markets by creating excess demand.

95
Q

Price Competition

A

Reducing the price of a good or service to gain sales by making it more attractive for consumers.

96
Q

Price Floor

A

A price below which it is illegal to trade. They can distort markets by creating excess supply.

97
Q

Price Maker

A

A firm possessing the power to set the price within the market.

98
Q

Price Taker

A

A firm which passively accepts the ruling market price set by market conditions outside its control.

99
Q

Private Good

A

A good that is excludable and rival.

100
Q

Production

A

A process or a number of processes which convert inputs into output of goods.

101
Q

Production Externality

A

An externality (positive or negative) which is generated in the course of producing a good or service.

102
Q

Prodiction possibility frontier

A

A curve depicting the various combinations of two products that can be produced when all the available resources are fully and efficiently employed.

103
Q

Procuctive efficiency

A

For an economy as a whole this occurs when it is impossible to produce more of one good without producing less of another.

For a firm this occurs when average total cost of production is minimized.

104
Q

Profit

A

The difference between total sales of revenue and the total costs of production.

105
Q

Public Good

A

A good which is non excludable and non rival.

106
Q

Quasi-public good

A

A good which is not fully rival and/or where it is possible to exclude someone from consuming the product.

107
Q

Rationing function of prices

A

Rising prices rations demand for a good.

108
Q

Resource Allocation

A

The process through which the available factors of production are assigned to produce different goods and services.

109
Q

Resource misallocation

A

When resources are allocated in a way which doesn’t maximise economic welfare.

110
Q

Short Run

A

The time period in which at least one factor of production is fixed and cannot be varied.

111
Q

Signalling function Prices

A

Prices provide information to sellers and buyers.

112
Q

Social Benefits

A

The total benefit of an activity including external benefits as well as private benefits.

113
Q

Social Costs

A

The total costs of an activity including external and private costs.

114
Q

Specilisation

A

A worker only performing one task or a narrow range of tasks.

115
Q

Subsidy

A

A payment made by the government usually to producers for each unit of the subsidized good they produce.

116
Q

Substitute good

A

A good in competing demand, in other words a good which can be used in place of another good.

117
Q

Tax

A

A compulsory levy imposed by the government to pay for its activities.

118
Q

Trade

A

The buying and selling of goods and services.

119
Q

Unemployment

A

When not all of those who are able and willing to work are employed.

120
Q

Variant cost

A

Cost of production which changes with the amount that is being produced, even in the short run.

Microeconomics (5 decks)

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