Micro Definitions Flashcards
1
Q
free market economy
A
private ownership of FOP; market forces allocate resource
2
Q
planned economy
A
state ownership of FOP; gov allocates resource
3
Q
factors of production
A
resources used to produce g/s → land, labour, capital, enterprise
4
Q
land
A
natural resource
5
Q
primary sector
A
derived from land eg. agricultural products, metals, minerals
6
Q
labor
A
human resource (physical+mental)；return is wage
7
Q
human capital
A
the education/skills;
of labor
8
Q
physical capital
A
man-made machinery, tools, infrastructure…
9
Q
infrastructure
A
physical capital financed by gov that is essential for economic activities
10
Q
entrepreneurship
A
the ability of individuals to organize the other FOP (land, labour, capital) + willingness to take risks → return is profit
11
Q
market
A
a place for buyers and sellers to interact and carry out economic transaction
12
Q
resource allocation
A
apportioning available FOP for particular production purposes
13
Q
scarcity
A
limited economic resources relative to society’s unlimited needs and wants
14
Q
utility
A
satisfaction derived from consuming a g/s
15
Q
wealth
A
the total value of assets owned by a person, firm, or country minus what is owed to banks or other financial institutions
16
Q
firm
A
productive units that use FOP to produce and sell g/s and earn profits
17
Q
PPC
A
a model showing the MAX COMBINATION OF TWO g/s that can be produced by an economy in a given time period when all FOP are used EFFICIENTLY and tech is fixed
18
Q
productive capacity
A
max possible output of an economy
19
Q
opportunity cost
A
the next best alternative foregone when an economic choice is made
20
Q
rational consumer choice
A
- perfect information
- weigh up all pros/cons
- utility maximization
- consistent taste
21
Q
rules of thumb
A
mental shortcuts to make a quick, satisfactory, but not perfect decisions
22
Q
anchoring
A
consumer make decisions based on anchor values that are pre-set in their minds
23
Q
framing / choice architecture
A
choices are presented in a way designed to affect decision-making
24
Q
consumer nudges
A
positive reinforcement and indirect suggestions; to influence consumer behavior
25
demand
the quantity of a g/s that consumers are WILLING＋ABLE to buy at DIFFERENT PRICES over a time period
26
quantity demanded
the quantity of a g/s that consumers are WILLING+ABLE to buy at a SPECIFIC PRICE over a time period
27
law of demand
QD increases as P falls; over a certain period of time; ceteris paribus
28
marginal utility
the additional satisfaction gained from consuming one more unit of a g/s
29
complements
goods that are jointly consumed eg. bread and butter
30
substitutes
goods that can be used **IN PLACE OF EACH OTHER** as they **SATISFY THE SAME NEED** eg. Coke and Pepsi
31
supply
the quantity of a g/s that producers are WILLING＋ABLE to sell at DIFFERENT PRICES over a time period
32
joint supply
goods that are produced together eg. designer bag and leather accessories
33
competitive supply
goods that **use the same resources** to produce → compete with each other for the use of the resources
34
market equilibrium
QS=QD, no shortage or surplus
35
price mechanism
the forces of D and S determine the prices of g/s
36
consumer/producer surplus
the DIFFERENCE between the price that consumers/producers are WILLING+ABLE to pay/sell and the MARKET PRICE→ the BENEFIT they receive from buying/selling at Pe
37
social surplus
PS+CS; maximized when MSB=MSC and AE is achieved
38
allocative efficiency
the **SOCIALLY OPTIMUM OUTPUT** where **MSB = MSC**；
p/c of the right amount such that the scarce resource is allocated in the best way for society
39
productive efficiency
**COMPETITION** forces firms to produce at **MIN AC**; Inefficient firms are forced out of the market cuz they can’t sell their output at Pe
40
efficiency
making the best use of scarce resources
41
welfare loss
loss of social surplus when there is market failure (where MSB≠MSC)
42
PED
responsiveness of **QD** to a change in P PED = %△ in QD / %△ in P
43
(price) elastic demand
PED>1； ∆P leads to more than proportionate ∆QD
44
primary commodities
raw materials produced in the primary sector
45
manufactured products
goods produced by workers with capital
46
YED
responsiveness of **D** to a change in INCOME
47
normal good
essentials; D increases as income increase
48
luxury good
price elastic (PED>1) ＋income elastic (YED>1)
49
inferior good
low quality goods; YED＜0; D decrease as income increase
50
PES
responsiveness of QS to a change in PRICE
51
direct tax
tax on income/profit/wealth; paid directly to gov
52
indirect tax
tax on expenditure; levied on producers and passed to consumers in the form of higher price of products
53
subsidy
money per unit of output paid by gov to firms; to encourage production and lower price to consumers.
54
price ceiling
price set by gov BELOW market equilibrium price;to make a g/s more affordable to low-income
55
price floor
price set by gov ABOVE market equilibrium price;to protect producer from low-price competition and increase production + income for producer
56
market failure
when markets **fail to achieve allocative efficiency** → MSB≠MSC → DWL
57
externalities
external costs/benefits to 3rd parties as a result of the p/c of a g/s
58
MSB
MSC
the **additional** benefit/cost to society of producing/consuming an **additional unit** of a g/s; (private+external)
59
merit good
**benefit both consumer + society**, create **PE→ UNDER-p/c in a free market** relative to social optimum as producers/consumers only consider PB and ignore EB
60
demerit good
harm both consumer + society, create NE→ OVER-p/c in a free market relative to social optimum as producers/consumers only consider PC and ignore EC
61
public good
non excludable - available for all to use, can't charge market price
non-rivalrous - one’s use doesn’t reduce its availability for others
62
free good
doesn't use scarce resource → no oppo cost
63
common pool resource
**non-excludable** - available for anyone to use, can't charge market price
**rivalrous** - one's use depletes availability for others
64
tragedy of commons
**CAR are rapidly depleted/degraded by private individuals** for their self-interest to enjoy short-term PB and ignore EC
65
sustainability
preserving the environment so that it can meet the needs of present generation without sacrificing the the needs of future generations
66
pigouvian taxes
indirect tax to eliminate external cost of production/consumption
67
carbon tax
tax per unit of carbon emission/content
68
tradable permits
a **cap on the max amount to pollute** issued by gov; can be traded in a market
69
collective self-governance
CAR users solve the problem of overuse by devising rules + monitor + penalty
70
asymmetric information
**market failure** where buyers and sellers have **unequal access to information** (one party in an economic transaction has more or better info than the other)
71
revenue
price x quantity sold
72
marginal revenue
revenue gained from selling one additional unit of output
73
average revenue
revenue per unit sold (AR = TR/Q = P)
74
loss
TC > TR
75
normal profit
minimum return for a firm to stay in business (when P=AR=AC)
76
profit maximization
MR = MC
77
short run
the period of time when at least one FOP is FIXED
78
long run
the period of time when all FOP are VARIABLE
79
EOS (economies of scale)
average cost falls as output increases
80
perfect competition
**no entry barrier** → large number of small firms producing **homogeneous** products → no market power, price taker+ perfect information!
81
competitive market
many firms; no firm has the ability to control the price
82
homogeneous product
goods that are considered **identical across firms** in the eyes of consumers
eg. agricultural products like corn and wheat
83
price taker
a firm that is unable to influence the price → forced to **accept market price**
84
Average ProductMarginal Product
AP: output produced by **each unit** of FOP = TP/Q(FOP)MP: output produced by **each ADDITIONAL unit** of FOP = **∆**TP/**∆**Q(FOP)
85
monopoly
**high entry barrier** → dominating firm producing **unique** product (no substitute) → significant market power, price maker
86
barriers to entry
anything that deters new firms entering a market
eg. patent, high start-up capital cost, EOS...
87
market power
the ability of firms to **raise and fix the price above market price** (P>MC)
88
abnormal profit
P ＞AC
89
abuse of market power
when a firm acts to **eliminate competitors** or **prevent new entry** of firms into the market
90
natural monopoly
extremely **high fixed cost** → **more efficient for one firm to cover the D of the entire market** while still experiencing EOS
91
monopolistic competition
**low entry barrier** → **many firms** producing **slightly differentiated** products → some market power, price maker
92
oligopoly
high entry barrier → a few large firms dominate the market → significant market power, price maker
93
collusive oligopoly
dominating firms agree to fix price above Pm and/or engage in other anti-competitive behavior
94
concentration ratio
the proportion of market sales accounted for by the largest firms → indicates market power
95
cartel
formal agreement among dominating firms agree to fix price
96
Actual Growth (PPC)
increase in **efficiency**; point shift from inside to on PPC curve
97
Potential Growth (PPC)
increase in **potential output** due to **increase in quantity/quality of FOP**; PPC curve shift outwards
