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Economics Definitions > Micro definitions > Flashcards

Micro definitions Flashcards

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1
Q

economic resources/ factors of production

A

the resource inputs that are available in an economy for the production of goods and service. These are: capital, enterprise, land and labour

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2
Q

economic problem

A

how to allocate resources among alternative uses because wants are infinite but resources are scarce, choices must be made as to how to allocate scarce resources among alternative uses

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3
Q

scarcity

A

we have limited resources which are insufficient to meet infinite wants

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4
Q

opportunity cost

A

the value of the next best alternative foregone when a choice is made

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5
Q

production possibility curve

A

represents the maximum output combinations of 2 goods that can be produced given the current level of resources

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6
Q

economic growth

A

increase in the productive potential of an economy- can be shown by an outwards shift in the PPC

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7
Q

productive potential

A

the maximum output that an economy is capable of producing

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8
Q

pareto efficiency

A

where one person cannot be made better off without someone else being made worse off- all points on the PPC are pareto efficient

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9
Q

productive efficiency

A

where production takes place using the least amount of scarce resources

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10
Q

division of labour

A

where the production process is broken down into separate tasks and individual workers will specialise in one task

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11
Q

specialisation

A

the concentration of a worker, group of workers, firm, region or whole economy on the production of a narrow range of goods or services

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12
Q

exchange

A

the process by which goods and services are traded

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13
Q

want

A

anything a consumer would like irrespective of whether they have the means to purchase it

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14
Q

need

A

the things we actually need to survive. basic needs are food, water, shelter and warmth. everything else we may wish to purchase is a want

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15
Q

economic system

A

the way in which production is organised by a country or group of countries: could be a planned economy, free market or a mixed economy

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16
Q

positive statement

A

a statement based on fact

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17
Q

normative statement

A

a statement based upon opinion

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18
Q

economic good

A

a good which has a positive opportunity cost since it requires the use of economic resources to be able to consume it

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19
Q

free good

A

a good with zero opportunity cost since it requires no use of economic resources in order to be able to consume it eg air

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20
Q

trade-off

A

the calculation involved in deciding whether to give up one good for another good

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21
Q

gross investment

A

total value of capital goods created in an economy in give time period

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22
Q

capital consumption

A

reduction in value of capital goods due to depreciation/wear and tear/becoming obsolete in given time period

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23
Q

net investment

A

gross investment - capital consumption in given time period

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24
Q

effective demand

A

the quantity of a product that consumers are willing and able to purchase at different market prices over a period of time

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25
consumer surplus
the difference between the value a consumer is prepared to pay for a good or service and the market price
26
first law of demand
there is an inverse relationship between price and quantity demanded. the lower the price the greater the quantity demanded and vice versa
27
ceteris paribus
all other things being equal
28
movement along the demand curve
the response to a change in price- increase= extension of quantity demanded, decrease= contraction of quantity demanded
29
conditions/ determinants of demand
``` non-price factors that affect the level of demand for a good or service: Population Advertising Substitute Income Fashions Interest rates Complement ```
30
shift in the demand curve
when a change in a non price factor leads to an increase or decrease in demand
31
PED
the responsiveness of QD of a good to a change in its price
32
price elastic demand
when quantity demanded is very responsive to a change in price
33
price inelastic demand
when quantity demanded is not very responsive to a change in price
34
YED
the responsiveness of quantity demanded to a change in income
35
normal good
goods for which an increase in income leads to an increase in demand
36
income elastic demand
when QD is very responsive to a change in income
37
income inelastic demand
when QD is not very responsive to a change in income
38
inferior good
goods for which an increase in income leads to a fall in demand
39
XED
the responsiveness of QD of one good to a change in price of another good % change QD good x/ % change in price of good y
40
complementary good
goods for which there is joint demand
41
substitute good
competing goods
42
total revenue
price x quantity sold
43
effective supply
the quantity of a product that producers are willing and able to supply at different market prices over a period of time
44
producer surplus
the difference between the market price or a producers good or service and the price they are willing to accept
45
movement along the supply curve
the response to a change in price- increase= extension of quantity supplied, decrease=contraction of quantity supplied
46
conditions of supply
``` non-price factors that affect the level of supply for a good or service: Productivity Indirect tax Number of firms Technology Subsidies Weather Costs of production ```
47
indirect tax
a tax levied on the consumption of goods and services eg VAT, APD
48
incidence of taxation
the way in which the burden of taxation is divided between buyers and sellers
49
subsidy
a payment usually from government to encourage production by lowering the costs of production per unit
50
PES
the responsiveness of quantity supplied of a good/service to a change in its price % change quantity supplied/ % change in price
51
determinants of PES
factors that affect the extent to which QS is responsive to price: availability of stocks off the product, availability of factors of production, time period
52
market
any situation which brings together buyers and sellers for the purpose of trading goods and/or services
53
price system
a method of allocating resources by the free movement of prices
54
equilibrium quantity
the quantity that is demanded and supplied at the equilibrium price
55
equilibrium price= market clearing price
the price where quantity supplied and demanded are equal
56
market equilibrium
the price and quantity at which demand is equal to supply
57
disequilibrium
any situation position in a market where demand and supply are not equal
58
shortage
an excess of demand over supply
59
surplus
an excess of supply over demand
60
market failure
where the free market mechanism fails to achieve economic efficiency
61
allocative efficiency
where the market is in equilibrium and where consumer satisfaction is maximised where qs=qd This occurs when there is an optimal distribution of goods and services, taking into account consumer’s preferences.
62
economic efficiency
where allocative and productive efficiency are achieved
63
allocative inefficiency
where resources are over or under-allocated to the production of a particular good or service
64
externality
when an action taken by one economic agent has an effect on a third party not directly involved in the activity
65
negative externality
when the social costs of an activity are greater than the private costs
66
positive externality
when social benefits of an economic activity are greater than private benefits
67
third party
person/group of people not directly involved in making a decision
68
private cost
the costs directly incurred by those undertaking a particular economic activity
69
private benefit
the benefits directly accruing to those undertaking a particular economic activity
70
social cost
private cost + external cost of an economic activity
71
social benefit
private benefit + external benefit of an economic activity
72
socially optimum output
the output quantity where full social cost is equal to full social benefit
73
information failure
a lack of information resulting in consumers and producers making decisions that do not maximise welfare
74
assymetric information
when information is not equally shared between two parties
75
merit good
a good whose consumption is better for consumers than they actually realise. Hence consumers underestimate the private benefits of consumption and will under-consume this good in a free market
76
demerit good
a good whose consumption is more harmful than consumers actually realise
77
public good
a good which is non-excludable and non-rivalrous in consumption and will therefore not be provided by the free market due to the free rider problem
78
non-excludable
situation where it is technically impossible or financially unviable for individual consumers to be excluded from consuming a good or service
79
private good
a good which is rivalrous and excludable in consumption
80
non-rivalrous
situation where consumption by one person does not reduce its availability for consumption by others
81
quasi public good
goods that have some, but not all, of the characteristic of a public good
82
free rider problem
when someone directly benefits from the consumption of a public good without contributing towards its provision
83
direct provision
the government steps in to supply a good/service
84
internalising an externality
an attempt to deal with an externality by bringing it within the price system
85
green tax/ carbon tax
a tax on emissions of greenhouse gases
86
tradable pollution permits
a permit which allows the owner to emit a certain amount of pollution and which cane be sold to another polluter if it is not required
87
provision of information
when the government aims to inform consumers in order to correct market failure e.g. providing info on the benefits of merit goods/ problems with consuming demerit goods perhaps via advertising campaigns. They government may also try to correct assymetric information in this way so that consumers have more power to make effective choices
88
regulation
this refers to the imposition of laws, standards and controls intended to influence the behaviour of producers and consumers to correct market failure. Possible legal restrictions include a complete ban, requirement for a permit/ licence, compulsory consumptionj
89
property rights system
a system which grants ownership to third parties so that they have the right to sue those creating negative externalities for compensation in order to internalise the externality
90
minimum price
a price below which goods/ service cannot be sold by law
91
government failure
a market failure that is the result of state intervention

Economics Definitions (2 decks)

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