micro definitions

Question 1

market

Answer 1

where buyer sand sellers of goods or services are linked together to carry out an exchange

Question 2

demand

Answer 2

quantity of goods/ services consumer is willing and able to buy at a different price points

Question 3

law of demand

Answer 3

negative relationship between the price of a good and its quantity demanded over a time period, ceteris paribus

Question 4

market demand

Answer 4

sum of all individual demands for a good

Question 5

normal good

Answer 5

demand for good varies directly with income

Question 6

inferior good

Answer 6

demand for good varies inversely with income

Question 7

substitute goods

Answer 7

goods that can satisfy a similar need

Question 8

complementary goods

Answer 8

the goods tend to be used together
eg. remote and batteries

Question 9

supply

Answer 9

quantity of goods/ services a firm is willing and able to produce and supply to the market for sale at a different price points

Question 10

law of supply

Answer 10

positive relationship between the quantity of supplied and its price over a particular time period, ceteris paribus

Question 11

competitive supply

Answer 11

when goods are alternative products a firm can produce with limited resources

Question 12

joint supply

Answer 12

goods produced together from the same origin
eg. leather and milk

Question 13

market supply

Answer 13

sum of all individual firms’ supplies for a good

Question 14

total cost

Answer 14

all cost of production incurred by a firm

Question 15

subsidy

Answer 15

financial support to producers that reduces costs of production

Question 16

surplus

Answer 16

quantity supply exceeds the quantity demanded

Question 17

shortage

Answer 17

quantity demanded exceeds the quantity supplied

Question 18

market equilibrium

Answer 18

quantity demanded is equal to quantity supplied with no tendency to change

Question 19

price mechanism

Answer 19

rationing method that uses price to control the demand and supply of a good/service in order to reallocate resources

Question 20

signals

Answer 20

prices communicate information to decision makers

Question 21

incentives

Answer 21

prices motivates decision makers to respond to the information

Question 22

allocative efficiency

Answer 22

producing the combination of goods mostly wanted by the society in a free market
answers: what to produce

Question 23

marginal benefit

Answer 23

extra benefit you get from each additional unit of something

Question 24

consumer surplus

Answer 24

highest price consumers are willing to pay for a good - price actually paid

Question 25

producer surplus

Answer 25

price received by firms for selling their good - lowest price they are willing to accept to produce the good

Question 26

social surplus

Answer 26

sum of consumer and producer surplus

Question 27

social welfare

Answer 27

amount of consumer and producer surplus - when social surplus is maximum, social welfare is maximum

Question 28

welfare loss (deadweight loss)

Answer 28

social surplus that are lost to society because resources are not allocated efficiently

Question 29

ped

Answer 29

measure of the responsiveness of the quantity of a good demanded to changes in its price

Question 30

necessities

Answer 30

goods/services considered to be essential

Question 31

luxuries

Answer 31

not necessary/essential

Question 32

total revenue

Answer 32

amount of money received by firms with they sell a good

Question 33

yed

Answer 33

responsiveness of demand to changes in income

Question 34

pes

Answer 34

measure of the responsiveness of the quantity supplied to changes in its price of a good

Question 35

command and control

Answer 35

government laws and regulations that must be followed

Question 36

price controls

Answer 36

setting of minimum or maximum prices by the government so that prices are unable to adjust to their equilibrium level determined by demand and supply

Question 37

price ceiling

Answer 37

maximum price set below the equilibrium by the government

Question 38

price floor

Answer 38

minimum price set above the equilibrium

Question 39

indirect taxes

Answer 39

a regressive tax imposed on spending to buy goods and services so the tax burden can be shifted to the consumers

Question 40

income

Answer 40

sum of money that a business or individual receives in exchange of sale of goods or services, or capital investment

Question 41

individual demand

Answer 41

demand schedule for any individuals

Question 42

income effect

Answer 42

when price declines, amount of the product which can be purchased using the same money rises

Question 43

nominal income

Answer 43

face value of income

Question 44

substitution effect

Answer 44

the decrease in demand for a product that can be attributed to consumers switching to cheaper alternatives when its price rises

Question 45

market disequilibrium

Answer 45

at any other price other than the equilibrium price

Question 46

price mechanism + invisible hand

Answer 46

guided by self interest

Question 47

rationing

Answer 47

controlled distribution of resources

Question 48

marginal benefit

Answer 48

consumers buy goods/services because it provides them with extra satisfaction

Question 49

productive efficiency

Answer 49

involving production with the fewest possible resources answers: how to produce

Question 50

direct tax

Answer 50

tax imposed on income, profits and wealth

Question 51

excise tax

Answer 51

indirect tax on a specific good or service

Question 52

specific tax

Answer 52

fixed amount of tax imposed on good/service sold per unit

Question 53

ad valorem tax

Answer 53

tax calculated as fixed percentage of the price of the good/service

Question 54

goods and services tax + value added tax

Answer 54

imposed on all goods and services

Question 55

tradable permits

Answer 55

permits that the government gives firms to allow them to produce up to a set amount of carbon each year

Question 56

natural monopoly

Answer 56

- a single firm can produce at a lower average costs than 2 or more firms because of large economies of scale - normally firms with huge fixed costs

Question 57

economies of scale

Answer 57

decreases in the average cost of production over the long run as a firm increases all its inputs

Question 58

diseconomies of scale

Answer 58

increases in the average cost of production over the long run as a firm increases all its inputs