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AS Economics > Micro: Markets and market failure > Flashcards

Micro: Markets and market failure Flashcards

(68 cards)

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0
Q

Define a market

A

Where buyers and sellers exchange goods and services

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1
Q

Define Equilibrium

A

Where supply and demand are equal or meet

Market clearing

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2
Q

What is derived demand

A

When the demand of one good is the result of the demand for another good
E.g. Cars and steel

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3
Q

Define Cross price elasticity of demand and give the equation

A

Measures the responsiveness of change in quantity demanded of one good to price change in another good

%change quantity demanded good A divided by %change price of good B

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4
Q

Define Productive efficiency

A

When a firm produces at lowest total average cost

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5
Q

Define Rationing function (price)

A

Where price acts as a signal to consumers to contract their demand as a result of scarce resources

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6
Q

Define Production possibility frontier

A

Shows the max possible combinations of two or more goods that can be produced whilst using all the factor resources efficiently

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7
Q

Define Opportunity cost

A

Benefits lost from not choosing the next best alternative

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8
Q

Income elasticity of demand

A

%change quantity demanded divided by the %change in real consumer income

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9
Q

Define Public good

A

A good that possesses the characteristics of non-excludability and non-rivalry in consumption

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10
Q

Define Private good

A

A good that is both excludable and rival in consumption

Private goods can also be rejected

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11
Q

What is the free-rider problem

A

Where some consumers benefit from other consumers purchasing a good, particularly in the case of public goods

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12
Q

Define merit good

A

Social benefits exceed private benefits
A good that would be under-consumed in a free market as individuals do not fully perceive the benefits obtained from consumption
Positive externalities
Desirable

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13
Q

Define demerit good

A

Social costs exceed private costs
A good that would be over-consumed in a free market as it brings less overall benefit to consumers than they realise
Negative externalities
Undesirable

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14
Q

Define Sunset industries

A

Industries in decline

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15
Q

Define Sunrise industries

A

Industries that are growing

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16
Q

2 methods used to estimate the value of externalities

A

Ex-ante: estimates the amount of money consumers are prepared to pay to avoid an externality e.g. Price of an insurance
Ex-post: estimating the cost of putting the externality right e.g. Clean up costs

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17
Q

Define Externality

A

Difference between social costs and benefits, and private costs and benefits of an economic decision
Also referred to as the spill over effect

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18
Q

What is Private cost and benefit

A

Cost or benefit of an activity to an individual economic unit such as a consumer of firm

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19
Q

What is Social cost and benefit

A

Cost or benefit of an activity to society as a whole

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20
Q

Define Negative externality

A

Exists when the net social cost is greater than the net private costs

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21
Q

Define Positive externality

A

Exists when the net social benefit is greater than the net private benefit

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22
Q

Define Marginal social cost

A

Marginal private cost and external cost

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23
Q

What is Marginal social benefit

A

Marginal private benefit and external benefit

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24
Define Market failure
Where resources are allocated inefficiently due to imperfections in the working of the market mechanism
25
Define a Monopoly
When there is only one supplier in an industry | Market is dominated by a single seller of a good as Firm has 25% or more market share
26
Define Producer surplus
No. of producers that are willing to supply a good/service lower than the equilibrium price
27
Define Consumer surplus
No. Of people willing and able to pay a price higher than the equilibrium price
28
Define Specialisation
Production of a limited range of goods by an individual, firm or country in cooperation with other so that together a complete range of goods is published
29
Define Division of labour
Breaking the production process down into a sequence of tasks, with workers assigned to particular tasks Specialisation by individuals is called division of labour
30
Define Costs of production
Expenses faced by a firm when producing a good/service for a market
31
Define Fixed costs
Costs that do not directly vary with the level of output
32
Define Variable costs
Costs of production that vary directly with output
33
What is Total costs
Fixed costs + variable costs
34
How to find Total average costs
Total costs/output
35
How to find marginal cost
Change in total cost/ change in output
36
Define Economies of scale
Cost advantages that a business can exploit by expanding the scale of production
37
Define Diseconomies of scale
Where an increase in the scale of production leads to increased in average total costs for firms
38
Define Minimum efficient scale
Lowest cost per unit when firm is most productive
39
Name all 5 internal economies of scale
``` Purchasing (bulk-buying) Managerial Financial Marketing Technical ```
40
What is the Container principle
Law of increased dimensions | Increase in size leads to s more than proportionate increase in volume
41
Why do diseconomies of scale occur
Lack of control, communication, coordination
42
Define Production
Outputs of goods and services produced by businesses within a market Creates the supply that allows our needs and wants to be satisfied
43
Name all Factors of production
Capital Enterprise Land Labour
44
Define Marginal product
Change in total output from adding one extra unit of labour
45
How to find average product
Total output/ total units of labour employed
46
How to avoid diseconomies of scale
Developments in HR managements Performance related pay schemes Our sourcing manufacturing and distribution operations
47
What is composite demand
When a good is demanded for two or more distinct used E.g. Milk to produce cheese and yoghurt
48
What are substitute goods
A good that can be replaced by an alternative good/service In competitive demand e.g. Bus and rail
49
What are complementary goods
Purchased along side each other in joint demand E.g. DVD players and discs
50
What is joint supply
Where an increase in supply of one good increased the supply of an another good E.g. beef and leather quantity
51
What is the basic economic problem?
The finite resources available are insufficient to satisfy all human wants and needs Choices must be made regarding factors of production - this has opportunity costs
52
What problems/questions does an economic system attempt to solve?
What goods should be produced? How should goods be produced? Who should get the goods the economy has produced?
53
What 3 important functions does the price mechanism play in a market?
Signalling Transmission of preferences Rationing
54
What are the 3 types of economy?
Mixed: allow free market but government can intervene Command: govt decides and owns all resources Free: all resources are privately owned by private firms, there is no govt intervention
55
Explain the difference between value /normative and positive statements
Value/ normative: based in opinion, cannot be proven | Positive: based on fact, can be tested and proved correct
56
What is the difference between a capital good and consumer good
Capital: Used in production of good/service Consumer: End product or final good service purchased by consumers
57
What is the difference between an economic good and free good?
Economic: scarce goods that have an opportunity cost Free: good that have no opportunity cost e.g. Air
58
Define allocative efficiency
When it is not possible to make anyone better off without making someone worse off Cannot produce more of one good without making less of another
59
# Define demand What is the law of demand?
No. Of people willing and able to purchase a good/service at given prices Law: Diminishing national utility Inverse relationship between price and quantity
60
What is a normal good?
Goods that will see an increase in demand when incomes rise They have a positive income elasticity of demand
61
What is an inferior good?
Goods that will see demand fall when income rises They have a negative income elasticity of demand
62
# Define supply What is the law of supply?
No. Of producers willing and able to produce a good at any given price Law: direct relationship between price and quantity
63
Dynamic efficiency
Occurs when resources are allocated efficiently over time
64
Static efficiency
When resources are allocated efficiently at a point in time
65
Technical efficiency
Achieved when a given quantity of output is produced with the minimum no. Of inputs
66
Community surplus
Consumer surplus + producer surplus Welfare is maximised
67
Define External economies of scale and give 3 examples
Occur outside of a firm but within an industry Investment in better transportation network Research and development Agglomeration economies - clustering similar business in a distinct place

AS Economics (2 decks)

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