Micro key terms Flashcards
1
Q
Accounting profit
A
Level of profit that is reported in business accounts. It does not take into account the opportunity cost of investment (normal profit).
2
Q
Asymmetric information
A
When one party (consumers or producers) has more or better information about a product than the other party.
3
Q
Barter system
A
System of exchanging one product for another without the use of money as a medium of exchange.
4
Q
Buffer stock system
A
System of holding and releasing stock to maintain a market price despite supply fluctuations.
5
Q
Ceteris paribus
A
Other things being equal - the assumption that everything else stays the same when looking at microeconomic models.
6
Q
Collusion
A
Scenario in which firms work together in secret to gain an unfair market advantage.
7
Q
Competition policy
A
Legislation and regulation that aims to make a market more competitive.
8
Q
Competitive demand
A
When consumers demand one or the other product. The products are substitutes.
9
Q
Competitive supply
A
When producers choose to supply one or the other product with given factors of production.
10
Q
Complement
A
A good with a negative XED. As the price of Product B increases, the quantity demanded of Product A decreases (and vice versa).
11
Q
Composite demand
A
When a product is demanded for multiple possible uses.
12
Q
Concentration ratio
A
Way of measuring the market dominance of the top few firms in the market by adding up each firm’s individual market share and looking at this is a percentage of the total market.
13
Q
Consumer surplus
A
Difference between the price consumers are willing and able to pay and the market price.
14
Q
Contestable market
A
Market structure in which no firm can dominate enough to make supernormal profits.
15
Q
Contraction of demand
A
A decrease in the quantity demanded.
16
Q
Contraction of supply
A
A decrease in the quantity supplied.
17
Q
Corporate social responsibility (CSR)
A
When a business aims to make a profit, do good for society and improve the environment.
18
Q
Cross elasticity of demand (XED)
A
Measures the responsiveness of demand for one product to a change in the price of another product.
19
Q
Decrease in demand
A
A shift inward of the demand curve so that there is a decrease in quantity demanded at every price.
20
Q
Decrease in supply
A
A shift inward of the supply curve so that there is a decrease in quantity supplied at every price.
21
Q
Demand
A
A consumer’s desire and willingness to purchase goods and services at a specific price.
22
Q
Demand curve
A
Relationship between the price of a product and the quantity demanded by the market.
23
Q
Demand for labour
A
Willingness and ability of a firm to hire labour at different wage rates.
24
Q
Demerit good
A
Good that is likely to be over consumed in a free market because the consumer does not anticipate the lack of benefits.
25
Derived demand
Where demand is based on what that thing can produce, not the thing itself, e.g the demand for labour.
26
Direct taxation (tax)
Amount levied on a business or an individual that must be paid to the government.
27
Diseconomies of scale
Increases in average costs that can occur from the growth of a business.
28
Division of labour
Splitting up a task into smaller activities to be able to produce more efficiently
29
Dynamic efficiency
Incentive to innovate products and processes to become productively efficient in the long term.
30
Economic agents
Key groups involved in the economic problem, including governments, firms and households.
31
Economic goods
Goods that are scarce, i.e there is not an unlimited supply of these goods.
32
Economic rent
Any amount above the minimum needed to keep a factor of production in its current use.
33
Economics
The study of how scarce/limited resources are used in the world.
34
Elasticity
Responsiveness of a change in one thing to a change in something else.
35
Excess demand
Scenario in which the market price is too low, meaning there are unsatisfied consumers in the market.
36
Excess supply
Scenario in which the market price is too high, meaning there are unsold products in the market.
37
Extension of demand
An increase in the quantity demanded.
38
Extension of supply
An increase in the quantity supplied.
39
External economics of scale
Reductions in average costs that can occur from the growth of an industry.
40
Externality
A cost or benefit to a third party that has not been accounted for in the market transaction.
41
Factors of production
Land, labour, capital and enterprise, the building blocks needed for a business to operate.
42
Fixed costs
Costs that do not change as output changes.
43
Free goods
Resources that are usually not seen as limited, such as sunlight or air.
44
Free rider problem
Occurs when a person benefits from consuming a shared resource or good without paying for that good.
45
Government failure
When government intervention does not reduce market failure and may even increase it or introduce a new failure in the market.
46
Growth maximisation
When a business aims to increase its size as much as possible.
47
Incentive
Something that motivates an action. In economics, this usually relates to profit, prices and social welfare (the objectives of economic agents).
48
Income
Flow of money over a period of time.
49
Income elasticity of demand (YED)
Measures the responsiveness of demand after a change in income.
50
Increase in demand
A shift outward of the demand curve so that there is an increase in quantity demanded at every price.
51
Increase in supply
A shift outward of the supply curve so that there is an increase in quantity supplied at every price.
52
Indirect taxation (tax)
Amount levied on a producer to increase the cost of a product.
53
Individual demand
One consumer's willingness and ability to purchase a product or service at a given price.
54
Individual supply
One business's willingness and ability to sell a product at a given price.
55
Inferior good
When income changes, the quantity demanded of this good will change by a smaller proportion in the opposite direction.
56
Information failure
When consumers and/or producers do not have all the information when making decisions, leading to market failure.
57
Information provision
Act of informing the public about the true nature of a product or market.
58
Interdependence
Scenario in which firms base their decision- making on the decision of other firms in the market.
59
Internal economies of scale
Reductions in average costs that can occur from the growth of a business.
60
Joint demand
When products are demanded together. The products are complements.
61
Joint supply
When products are supplied together, often as a byproduct.
62
Kinked demand curve
Illustrates an elastic response to an increase in price and an inelastic response to a decrease in price.
63
Law of diminishing returns
Theory that in the short run, when at least one factor of production is fixed, the average return from a factor of production decreases.
64
Legislation
In relation to the economy, laws that a government puts in place in govern the production of and and consumption of products.
65
Long run perfect competition
Market structure that has allocative and productive efficiency.
66
Loss
If a business has higher costs than revenue, it will make a loss.
67
Luxury good
A good for which when income changes, the quantity demanded will change by a larger proportion in the same direction.
68
Macroeconomics
The study of the behaviour and performance of am economy as a whole.
69
Marginal costs
Costs of producing one more product.
70
Marginal utility
Benefit gained from consuming one more unit of a product.
71
Market demand
The sum of all consumers' willingness and ability to purchase a product or service at a given set of prices.
72
Market disequilibrium
Any situation where supply does not equal demand. This could be a scenario where there is excess supply or excess demand.
73
Market economy
Allocation of resources is decided by the interaction of supply and demand (market forces).
74
Market equilibrium
Point at which the quantity supplied is equal to the quantity demanded of a particular product.
75
Market failure
Failure of the market system to allocate resources efficiently.
76
Market supply
Sum of all businesses' willingness and ability to sell a product at a given set of prices.
77
Merit good
Good that is likely to be under consumed in a free market because the consumer does not anticipate all the benefits.
78
Microeconomics
The study of the behaviour of individuals, firms and governments in relation to the allocation of products and/or resources.
79
Minimum efficient scale
Lowest point on the average cost curve.
80
Mixed economy
Combination of market forces and and government policies that control the allocation of resources.
81
Mobility of labour
Ability of workers to move geographically in order to respond to changes in wages and conditions of work.
82
Monopolistic competition
Competitive market structure with a downward sloping demand curve and the ability for a firm to make supernormal profit in the short run.
83
Monopoly
Situation in which there is a single seller in the market with no competitors.
84
Monopsony
A single or dominant buyer of a product.
85
Moral hazard
When one party (consumers or producers) changes their behaviour due to asymmetric information, which causes extra costs to the other party.
86
Movement along the demand curve
Change in quantity demanded that results from a change in the price of a product.
87
Movement along the supply curve
Change in quantity supplied that occurs from a change in the price of a product.
88
Natural monopoly
Type of monopoly in which there are large economies of scale to be gained to the point where only one firm is viable.
89
Negative externality (external cost)
Cost to a third party that has not been accounted for in the market transaction.
90
Negative externality of consumption
Cost to a third party that arises from consumption of a product. This cost has not been accounted for in the market transaction.
91
Negative externality of production
Cost to a third party that arises from production of a product. This could has not been accounted for in the market transaction.
92
Non-excludability
When potential consumers cannot be prevented from consuming a good without paying for it.
93
Non-price competition
Scenario in which firms compete on aspects other than price, such as the product, location and branding.
94
Non-rejectability
When consumption cannot be prevented by a consumer.
95
Non-rivalry
When consumption of a good does not prevent consumption by another person. Also known as non-diminishability.
96
Normal good
When income changes, the quantity demanded of this good will change by a smaller proportion in the same direction.
97
Normal profit
Minimum amount of profit required to convince an owner to stay in the market.
98
Normative statement
Opinion-based statements that one might agree or disagree with.
99
Oligopoly
Market structure with a few dominant firms.
100
Opportunity cost
Cost of the next best alternative forgone when a decision is made.
101
Overt collusion
Scenario in which firms work together with a formal agreement.
102
Perfect competition
Market structure with many buyers and sellers that can achieve allocative and productive efficiency in the long run.
103
Planned economy
The government controls the factors of production and decides on the allocation of resources.
104
Positive externality
Benefit to a third party that has not been accounted for in the market transaction.
105
Positive externality
Benefit of the third party that arises from consumption of a product. This benefit has not been accounted for in the market transaction.
106
Positive externality of production
Benefit to a third party that arises from production of a product. This benefit has not been accounted for in the market transaction.
107
Price control
A minimum or maximum price for which a product must be sold.
108
Price discrimination
The ability of a firm to charge different prices to different customers.
109
Price elastic (demand)
When price changes, the quantity demanded changes by a larger proportion.
110
Price elasticity of demand (PED)
Measures the responsiveness of demand after a change in price.
111
Price elasticity of supply (PES)
Measures the responsiveness of supply to a change in price.
112
Price elastic (supply)
When price changes, the quantity supplied will change by a larger proportion.
113
Price inelastic (demand)
When price changes, the quantity demanded changes by a smaller proportion.
114
Price inelastic (supply)
When price changes, the quantity supplied will change by a smaller proportion.
115
Price maker
A firm that has the ability to choose at what price it sells its products.
116
Price taker
An individual or firm that must accept the ruling market price as it lacks the power to influence the market price.
117
Principal-agent problem
The potential disagreement over the objectives of the managers (principals) and those of the owners (agents).
118
Producer surplus
Difference between the price at which producers are willing and able to supply a product(s) and the market price.
119
Product differentiation
Features or elements that make one product different from its competitors. Often used when sticky prices exist in a market.
120
Productivity
Amount produced in relation to 1 unit. For example, labour productivity is the amount produced by 1 unit of labour.
121
Profit
Amount of money a business gains from its sales after it has accounted for all of its costs.
122
Profit maximisation
When a business aims to have the most difference between total costs and total revenue, leading to the highest profit.
123
Profit satisficing
When a business sets a level of profit that it believes will be enough to keep the owners satisfied.
124
Public goods
Goods that have the characteristics of being non-excludable, non-rivalrous, non-rejectable and with zero marginal cost.
125
Public/private partnership
Joint initiative between government and a producer(s) in order to increase supply to a market.
126
Rationality
Assumption that each economic agent acts in their own best interests.
127
Regulation
Rules that are specific to an industry or market and that govern the production or consumption of a product within that industry/market.
128
Reward for the factors of production
What needs to be returned by a business for using each of the factors of production.
129
Sales revenue maximisation
When a business aims to sell at a price that allows it to make the most profit through sales.
130
Sales volume maximisation
When a business aims to sell as many units as possible.
131
Scarcity
When there is a limited amount of something.
132
Short run perfect competition
Market structure that has allocative efficiency but not productive efficiency.
133
Social welfare
When a business aims to make society better through its actions.
134
Specialisation
Focusing on one activity (or part of an activity) to be able to produce more efficiently.
135
Sticky prices
Scenario in which the price of a good is slow to change despite changes in the market that suggest a different price is optimal.
136
Subsidy
Amount paid to a business to produce products.
137
Substitute
A good with a positive XED. As the price of product A increases, the quantity demanded of product B also increases (and vice versa)
138
Supernormal profit
Profit made above normal profit.
139
Supply
Ability and willingness of a firm to sell products at a given price.
140
Supply curve
Relationship between the price of a product and the quantity supplied by businesses.
141
Supply of labour
Ability and willingness of households to work at different wage levels.
142
Tacit collusion
Scenario in which firms work together without a formal agreement, often by observing other firms in the market.
143
The economic problem
The problem of how to make the best use of limited or scarce resources.
144
Total costs
All costs incurred by a business.
145
Total revenue
The money a business receives from all of its sales.
146
Total utility
Total benefit gained from consuming a product.
147
Tradeable pollution permits
System that forces producers to include the costs of pollution in their production decisions.
148
Trade-off
A sacrifice that is made in order to gain something.
149
Trade union
Collection of workers usually in the same or similar industry that collectively bargains for the workforce on issues like fairness of pay, working conditions and benefits.
150
Transfer earnings
Minimum amount needed to keep a factor of production in its current use.
151
Unit labour costs
Average cost of labour per unit of output.
152
Utility
Benefit gained from consuming a product.
153
Utility maximisation
When the managers of a business aim to increase their own happiness as much as possible.
154
Variable costs
Costs that change as output changes.
155
Wage differentials
Differences in wages between workers with different skills in the same industry or those with comparable skills in different industries.
156
Wage elasticity of demand for labour
Responsiveness of the quantity demanded for labour to changes in wages.
157
Wage elasticity of supply of labour
The responsiveness of the quantity supplied of labour to changes in wages.
158
X-inefficiency
Lack of incentive to reduce costs.
159
Zero marginal cost
When production of an additional unit does not add extra costs to the business.
