Microeconomic key terms Flashcards
(246 cards)
1
Q
Ability to pay
A
Where taxes should be set according to how well a person can afford to pay
2
Q
Ad valorem tax
A
An indirect tax based on a percentage of the sales price of a good or service
3
Q
Adam Smith
A
One of the founding fathers of modern economics. Most famous for the Wealth of Nations - a study of the progress of nations where people act according to their own self-interest which improves the public good. Smith’s discussion of the advantages of division of labour remains a potent idea in economics
4
Q
Adverse selection
A
Where the expected value of a transaction is known more accurately by the buyer or the seller due to an asymmetry of information
5
Q
Alcohol duties
A
Excise duties on alcohol are a form of indirect tax and are chargeable according to their volume and/or alcohol content
6
Q
Alienation
A
A sociological term to describe the estrangement many workers feel from their work, which may reduce their motivation and productivity
7
Q
Allocative efficiency
A
Allocative efficiency occurs when the value that consumers place on a good or service (reflected in the price they are willing and able to pay) equals the cost of the resources used up in production
8
Q
Asking price
A
The price at which a security, commodity or currency is offered for sale on the market - generally the lowest price the seller will accept
9
Q
Asymmetric information
A
When somebody knows more than somebody else in the market
10
Q
Automation
A
Production technique that uses capital machinery/technology to replace or enhance human labour and bring about a rise in productivity
11
Q
Average cost
A
Total cost divided by the number of units of the commodity produced
12
Q
Average fixed cost
A
Average fixed costs are total fixed costs divided by the number of units of output, that is, fixed cost per unit of output
13
Q
Barriers to entry
A
Factors making it expensive for new firms to enter a market. Examples include the effect of patents; brand loyalty among consumers; the high costs of buying capital equipment and the need to win licences to operate in certain markets
14
Q
Barter
A
The practice of exchanging one good or service for another, without using money
15
Q
Basic economic problem
A
There are infinite wants but finite resources with which to satisfy the wants
16
Q
Behavioural economics
A
Branch of economics that studies the impact of psychological and social factors on economic decision making
17
Q
Black market
A
An illegal market in which the market price is higher than a legally imposed price ceiling. Black markets can develop where there is excess demand for a commodity
18
Q
Bottlenecks
A
Any factor that causes production to be delayed or stopped - this may reduce the price elasticity of supply of a product
19
Q
Brand
A
A distinctive product created by the use of a logo, symbol, name, design or packaging
20
Q
Buffer stock
A
Buffer stock schemes seek to stabilize the market price of agricultural products by buying up supplies of the product when harvests are plentiful and selling of stocks of the product onto the market when supplies are low
21
Q
Bulk-buying
A
The purchase by one organisation of large quantities of a product or raw material, which often results in a lower price because of their market power and because it is cheaper to deal with one customer and the deliveries can be on a larger scale
22
Q
Buyer’s market
A
A market that favours buyers because supply is plentiful relative to demand and therefore prices are relatively low. The opposite of a seller’s market
23
Q
By-product
A
Something produced as a consequence of producing another good or service
24
Q
Capacity utilisation
A
The extent to which a business is making full use of existing factor resources
25
Capacity-building
Efforts to develop human skills or infrastructures within a community or organisation
26
Capital goods
Capital goods such as plant, machinery and equipment are useful not in themselves but for the goods and services they can help produce in the future.
27
Capital-intensive
A production technique which uses a high proportion of capital to labour
28
Capitalist economy
An economic system organised along capitalist lines uses market-determined prices to guide our choices about the production and distribution of goods. One key role for the state is to maintain the rule of law and protect private property
29
Carbon credits
An allowance to a business to generate a specific level of emissions - may be traded in a carbon market
30
Cartel
A cartel is a formal agreement among firms. Cartel members may agree on prices, total industry output, market shares, and allocation of customers, allocation of territories, bid-rigging, establishment of common sales agencies, and the division of profits or combination of these, Cartels are illegal under the UK and European competition laws
31
Ceteris paribus
To simplify analysis, economists isolate the relationship between two variables by assuming ceteris paribus - all other influencing factors are held constant
32
Cigarette duties
UK taxes on cigarettes = 16.% retail prices + £154.95 per thousand cigarettes
33
Collusion
Any explicit or implicit agreement between suppliers in a market to avoid competition. The main of this is to reduce market uncertainty and achieve a level of joint profits similar to that which might be achieved by a pure monopolist
34
Command and control
Laws and regulation backed up by inspection and penalties for non-compliance
35
Command economy
An economic system where resources are allocated by the government
36
Common resources
Goods or services that have characteristics of rivalry in consumption and non-excludability - grazing land or fish stocks are examples. The over-exploitation of common resources can lead to the "tragedy of the commons"
37
Competition policy
Government policy directed at encouraging competition in the private sector: e.g. the investigation of takeovers or restrictive practices
38
Competitive market
A market where no single firm has a dominant position and where the consumer has plenty of choices. There are few barriers of entry of new firms
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Competitive supply
Alternative products a firm could make with its resources
40
Complements
Goods which are usually bought and used together. Two complements are said to be in joint demand
41
Composite demand
Where goods or services have more than one use so that an increase in the demand for one product leads to a fall in the supply of the other.
42
Congestion charging
A direct charge for use of roads in a defined zone
43
Conspicuous consumption
Is consumption designed to impress others rather than something that is wanted for its own sake
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Constraints
Limits to what we can afford to consume - we have to operate within budgets and make choices from those sets that are feasible/affordable
45
Consumer durable
A good such as a washing machine or a digital camera that lasts a period of time, during which the consumer can continue getting utility from it
46
Consumer sovereignty
Exists when the economic system allows scarce resources to be allocated to producing goods and services that reflect the wishes of consumers. Sovereignty can be distorted by the effects of persuasive advertising
47
Consumer surplus
Is the difference between the total amount that consumers are willing and able to pay for a good or service (indicated by the demand curve) and the total amount that they actually pay (the market price)
48
Consumption
The act of buying and using goods and services to satisfy wants
49
Contestable market
Market with no entry barriers - firms can enter or leave without significant cost
50
Cost-Benefit Analysis
CBA is a decision-making tool which compares the social costs and social benefits of a project, over time, to establish a net present value
51
Costs
Costs faced by a business when producing a good or service for a market
52
Cross price elasticity of demand
Responsiveness of demand for good X following a change in the price of good Y (a related good). With cross-price elasticity, a distinction is made between substitute products and complementary goods and services
53
Cyclical demand
Demand that changes in a regular way over time depending on the part of the economic/trade/business cycle that a country is in or the time of year
54
Deadweight loss
The loss in producer and consumer surplus due to an inefficient level of production perhaps resulting from market failure or government failure
55
Demand
Quantity of a good or service that consumers are willing and able to buy at a given price in a given time period
56
Demand curve
A demand curve shows the relationship between the price of an item and the quantity demanded over a period of time
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De-merit goods
The consumption of de-merit goods can lead to negative externalities which causes a fall in social welfare. The government normally seeks to reduce consumption of de-merit goods. Consumers may be unaware of the negative externalities that these goods create - they have imperfect information
58
Deregulation
The removal of legally enforced rules that restrict or ban specified activities
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Derived demand
Occurs when the demand for a particular product depends on the demand for another product or activity
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Diminishing returns
As more of a variable factor is added to a fixed factor a firm will reach a point where it has a disproportionate quantity of the variable factor to the fixed factor and so the marginal product of the variable factor will fall, thus raising marginal costs
61
Diseconomies of scale
Disadvantages to the firm, in the form of higher unit costs, from increasing their size of operation
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Disequilibrium
A situation where there is a state of imbalance and so a tendency for change
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Diversification
The reduction of risk achieved by replacing a single risk with a larger number of smaller, unrelated risks
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Division of labour
The specialisation of labour in specific tasks, intended to increase productivity
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Dominant monopoly
A firm with 40% or higher market share
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Economic agents
Decision makers
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Economic efficiency
Is about making the best or optimum use of scarce resources among competing ends so that economic and social welfare is maximised over time
68
Economic growth
An increase in the productive potential of the country - shown by an outward shift of the production possibility frontier
69
Economy of scale
Benefits, in the form of lower unit costs, from increasing the size of operation
70
Economy of scope
Economies of scope occur where it is cheaper to produce a range of products
71
Effective demand
Demand in economics must be effective. Only when a consumers' desire to buy a product is backed up by an ability to pay for it do we speak of demand
72
Elastic demand
Demand for which price elasticity is greater than 1
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Elastic supply
Where the price elasticity of supply is greater than +1
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Elasticity of supply
Price elasticity of supply measures the relationship between change in quantity supplied and a change in price
75
Emission tax
A charge made to firms that pollute the environment based on the quantity of pollution they emit
76
Entrepreneur
An individual who seeks to supply products to a market for a rate of return. They will usually invest their own financial capital in a business and take on the risks associated with a business investment
77
Equilibrium
Means 'at rest' or 'a state of balance' - i.e a situation where there is no tendency for change
78
Equity
Fairness; a view on the 'rightness' of an issue based on opinion rather than fact - requires a value judgement
79
Excess demand
The difference between the quantity supplied and the higher quantity demanded when price is set below the equilirium price. This will result in queuing and an upward pressure on price
80
Excess supply
When supply is greater than demand and there are unsold goods in the market. Surpluses put downward pressure on the market price
81
Excise duties
Are indirect taxes levied on our spending on goods and services such as cigarettes, fuel and alcohol. There are also duties on air travel, car insurance
82
Excludability
The property of a good whereby a person can be prevented from using it
83
External cost
Are those costs faced by a third party for which no appropriate compensation is forthcoming
84
External growth
When a company increases its sales and profits by buying other companies, rather than from its own operations
85
Externalities
Are third party effects arising from production and consumption of goods and services for which no appropriate compensation is paid
86
Extreme poverty
A severe and persistent deprivation of basic human needs
87
Factor incomes
Are the rewards to factors of production. Labour receives wages and salaries, land earns rent, capital earns interest and enterprise earns profit
88
Finite resources
There are only a finite number of workers, machines, acres of land and reserves of oil and other natural resources on the earth. By producing more for an ever-increasing population, we may destroy the natural resources of the planet
89
Firm
An organisation that hires and organises resources to make products
90
First mover advantage
The first company to introduce a new product to market, has the opportunity to extract the greatest long term benefit from the production introduction
91
Fixed costs
Costs that do not vary directly with the level of output. Examples include: rent and business rates, the depreciation in the value of capital equipment due to age, and marketing and advertising costs
92
Flexible pricing
A firm varies price by the customer to maximise revenue
93
Flexible working
A workforce that is multi-skilled and able to work variable hours in response to changing demand
94
Free market
In a free market, the forces of supply and demand alone determine price and output without any government intervention. Free markets are totally unregulated
95
Freemium
A business model, especially on the internet, whereby basic services are provided free of charge while more advanced (premium) features must be paid for
96
Geographical immobility
People may also experience geographical immobility - meaning that there are barriers to them moving from one area to another to find work
97
Gini Coefficient
Measures the extent to which the distribution of income (or consumption expenditures) among individuals or households within an economy deviates from a perfectly equal distribution. The coefficient ranges from 0 - meaning perfect equality - to 1 - meaning complete inequality
98
Globalisation
A process by which economies and cultures have been drawn together through a global network of trade, investment, capital flows, and rapid spread of technology
99
Goods
Tangible, physical products
100
Government failure
Policies that cause a deeper market failure. Government failure may range from the trivial, when intervention is merely ineffective, to cases where intervention produces new and more serious problems that did not exist before
101
Government spending
Government spending is by central and local government on goods and services
102
Health rationing
Health rationing occurs when the demand for health care services outstrips the available resources leading to waiting lists and delays for health treatment
103
Hedging
The process of protecting oneself against risk
104
Horizontal equity
Horizontal equity requires equals to be treated equally e.g. people in the same income group should be taxed at the same percentage rate
105
Horizontal integration
Where two firms join at the same stage of production in one industry
106
Incentives
For competitive markets to work efficiently, economic agents must respond to price signals in the market
107
Incidence of a tax
How the final burden of a tax is shared out. If demand for a good is elastic and a tax is imposed then the tax will fall mainly on the producer as they will be unable to put prices up without losing a lot of demand
108
Income
Income represents a flow of earnings from using factors of production to generate an output of goods and services
109
Income elasticity of demand
Measures the relationship between a change in quantity demanded and a change in real income. The formula for income elasticity is: percentage change in quantity demanded divided by the percentage change in income
110
Income gap
A measure of the gap between the incomes of various groups shown by plotting the average incomes of the between the lowest and highest decile (10% grouping)
111
Incumbent firm
A business already operating in and established in a market
112
Independent goods
Two products that have no price-quantity demanded relationship: XED=0
113
Indirect tax
Is imposed on producers by the government. Examples include excise duties on cigarettes, alcohol and fuel and also VAT
114
Inefficiency
When the best use of resources is not being made
115
Inelastic demand
When the price elasticity of demand is less than 1
116
Inelastic supply
When the price elasticity of supply is less than 1
117
Inferior good
When demand for a product falls as real income increases
118
Information failure
Occurs when people have inaccurate, incomplete, uncertain or misunderstood data and so make potentially 'wrong' choices
119
Infrastructure
The stock of captal used to support the economic system
120
Innovation
The commercial development of exploiting new or improved goods and services
121
Inputs
Labour, capital and other resources used in the production of goods and services
122
Intellectual (IP)
Is the legal property rights over creations of the mind, both artistic and commercial, and the corresponding fields of law. Common types include copyrights, trademarks, patents, and trade secrets
123
Internalised
Internalising is where any spills over effects from economic activity are absorbed by the consumer or the firm themselves. This may arise, for example, where a pollution tax has been charged on the good that makes them pay the external costs themselves
124
Inventories
Unsold products, finished and unfinished, and the raw materials used to make them
125
Invisible hand
Adam Smith - one of the founding fathers of modern economics, described how the invisible hand or hidden hand of the market operated in a competitive market through the pursuit of self-interest to allocate resources in society's best interest
126
Joint supply
Describes a situation where an increase or decrease in the supply of one good leads to an increase or decrease in the supply of another by-product
127
Just in time
Production that produces goods to order and where businesses hold few stocks
128
Land
Quantity and quality of natural resources available in an economy
129
Latent demand
Exists when there is a willingness to purchase a good or service, but where the consumer lacks the purchasing power to be able to afford the product
130
Law of demand
There is an inverse relationship between the price of a good and demand
131
Living Wage
An hourly rate of pay set annually by reference to the basic cost of living in the UK and London. Unlike the National Minimum Wage, employers may choose to pay the living wage on a voluntary basis
132
Local monopoly
A monopoly limited to a specific geographical area
133
Long run
The time period when firms can adjust all factors of production
134
Manufacturing
Is the use of machines, tools and labour to make things for use or sale
135
Marginal benefit
Additional benefits received by those consuming or producing one extra product
136
Marginal costs
The change in total costs resulting from increasing output by one unit. Marginal costs relate to variable costs only
137
Marginal revenue
The increase in revenue resulting from an additional unit of output
138
Market equilibrium
Equilibrium means a state of equality between demand and supply. Without a shift in demand and/or supply there will be no change in market price. Prices, where demand and supply are out of balance, are termed points of disequilibrium
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Market failure
Exists when the competitive outcome of markets is not efficient from the point of view of the economy as a whole. This is usually because the benefits that the market confers on individuals or firms carrying out a particular activity diverge from the benefits to society as a whole
140
Market incentives
Market signals that motivate economic actors to change their behaviour (perhaps in the direction of greater economic efficiency)
141
Market power
Refers to the ability of a firm to influence or control the terms or conditions on which goods and bought and sold. Monopolies can influence price by varying their output because consumers have limited choice of rival products
142
Market shortage
Where demand exceeds supply at a given price
143
Market supply
Is the total amount of an item producers are willing and able to sell at different prices, over a given period of time e.g. one month
144
Maximum price
A legally imposed maximum price in a market that suppliers cannot exceed. To be effective, a maximum price has to be set below the free market price
145
Merit good
Is a product that society values and judges that everyone should have regardless of whether an individual wants them. In this sense, the government (or state) is acting paternally in providing merit goods and services
146
Minimum price
A legally imposed price floor that the normal market price cannot fall below. To be effective the minimum price has to be set above the normal equilibrium price. A good example of this is minimum wage legislation currently in force in the UK
147
Mixed economy
Where resources are partly allocated by the market and partly by the government
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Mixed goods
Products that have characteristics of both private and public goods
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Monopoly
A single seller of a product in a given market or industry
150
Moral hazard
When people take actions that increase social costs because they are insured against private loss: sometimes called hidden action due to the agent's actions being hidden from the principal
151
Nationalisation
The transfer of ownership of a firm from the private to the public sector
152
Needs
A need is essential for survival
153
Negatively externality
Occur when production/consumption impose external costs on third parties outside the price mechanism for which no compensation is paid. This causes social costs to exceed private costs
154
Niche market
A specialist section of a larger market e.g. handmade chocolates
155
Non-price competition
Competing not on the basis of price but by other means, such as quality, packaging, customer service
156
Non-renewable resources
Are resources that are finite and cannot be replaced. Minerals, fossil fuels are examples
157
Non-rival consumption
Non-rivalry means that the consumption of a good by one person does not reduce the amount available to others
158
Normal goods
Have a positive income elasticity of demand. Necessities have an income elasticity of demand between 0 and +1. Luxuries have an income elasticity of > +1 so demand rises more than proportionate to a change in income
159
Normative statements
Express an opinion about what ought to be. They are subjective statements - i.e. they carry value judgements
160
Objectives
A specific target an organisation sets itself to achieve through its activity
161
Office of Fair Trading
A government agency responsible for UK competition policy i.e. making markets work well for consumers
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Off-peak pricing
Charging lower prices outside periods of intensive use
163
Oligopoly
A market dominated by a few large suppliers. Market concentration is high with typically the leading five firms taking over sixty per cent of total market sales
164
Opportunity cost
The cost of any choice in terms of the next best alternative forgone
165
Optimum output
An efficient level of output which delivers both productive and allocative efficiency
166
Ostentatious consumption
Some goods are luxurious items where satisfaction comes from knowing both the price of the good and being able to flaunt consumption of it to other people
167
Out-sourcing
Subcontracting a process, such as design or manufacturing, to another company
168
Overhead costs
Business costs - such as rent and utilities - that don't directly relate to the production or sale of goods and services
169
Pareto efficiency
When resources cannot be reallocated without making someone else worse off. A situation is Pareto efficient if the only way to make one person better off is to make another person worse off. In neoclassical economics, an action done in an economy that harms no one and helps at least one person.
170
Paywall
Where access is restricted to users who have paid to subscribe to a website
171
Peak pricing
When a business raises prices at a time when demand is strongest
172
Penetration pricing
Where a firm chooses to set a low price to gain market share/brand recognition
173
Persuasive advertising
Designed to manipulate consumer preferences and cuase a change in demand
174
Perverse demand curve
A perverse demand curve is one that slopes upwards from left to right. Therefore, an increase in price leads to an increase in demand. This may happen where goods are strongly affected by price expectations or in the case of Giffen goods
175
Planned economy
In a planned economy, decisions about what to produce, how much to produce and for whom are decided by central planners rather than using the price mechanism
176
Polluter pays principle
The government may choose to intervene in a market to ensure that the firms and consumers who create negative externalities include them when making decisions
177
Positional goods
Goods which are at least in part demanded because their possession or consumption implies social or another status of those acquiring them
178
Positive externalities
Positive externalities exist when third parties benefit from the spill-over effects of production/consumption e.g. the social returns from investment in education & training or the positive benefits from healthcare and medical research
179
Positive statement
Objective statements that can be tested or rejected by referring to the available evidence. Positive economics deals with objective explanation
180
Poverty trap
The poverty trap affects people on low incomes. It creates a disincentive to look for work or work longer hours because of the tax and benefits system
181
Preferences
Our tastes, likes, rankings reflected in the choices that people make in markets
182
Price elasticity of demand
Responsiveness of demand for a product following a change in its own price. Alos call own price elasticity of demand
183
Price elasticity of supply
Relationship between change in quantity supplied and a change in the price of the product
184
Price mechanism
The means by which decisions of consumers and businesses interact to determine the allocation of resources between different goods and services
185
Price rigidity
Situation where the price of a product rarely changes
186
Price signals
Changes in price act as a signal about how resources should be allocated. A rise in price encourages producers to switch into making that good but encourages consumers to use an alternative substitute product (therefore rationing the product)
187
Private benefits
The rewards to individuals, firms or consumers from consuming or producing goods and services. Also known as internal benefits
188
Private cost
Costs of economic activity to individuals and firms. Also known as internal costs
189
Private goods
Products which are both rival and excludable
190
Privatisation
Where state-owned firms are sold to the private sector
191
Producer surplus
The difference between what producers are willing and able to supply a good for and the price they actually receive
192
Production function
Relationship between a firm's output and the quantities of factor inputs it employs
193
Production possibility frontier
A boundary that shows the combinations of two or more goods and services that can be produced using all available factor resources efficiently
194
Productive efficiency
When a business reaches the lowest point of its average cost curve implying an efficient use of scarce resources and a high level of factor productivity
195
Productivity
A measure of efficiency = output per unit of input or output per person employed
196
Profit
Profits are made when total revenue exceeds total costs.
Total profit = total revenue - total cost.
Profit per unit supplied = price = average total cost
197
Property rights
Property rights confer legal control or ownership of a good. For markets to operate efficiently, property rights must be defined and protected
198
Public bads
Public bads include environmental damage and global warming which affects everyone - no one is excluded from the ds-benefits
199
Public goods
Pure public goods are non-rival (consumption of the good by one person does not reduce the amount available for consumption by another person) and non-excludable (where it is not possible to provide a good or service to one person without it thereby being available for others to enjoy)
200
Public ownership
Refers to state-owned companies e.g. nationalised industries
201
Public sector
Government organisations that provide goods and services in the economy - for example, through state education and the national health service
202
Purchasing economies
Purchasing economies of scale occur when firms gain discounts from bulk-buying
203
Quota
A limit on the quantity of a product that can be supplied onto the market
204
Rational choice
Involves the weighing up of costs and benefits and trying to maximise the surplus of benefits over costs
205
Redistribution
Measures taken by the government to transfer income from some individuals to others
206
Regressive tax
A tax is said to be regressive when low-income earners pay a higher proportion of their income in tax than high-income earners
207
Regulations
Are legally enforced rules that restrict or ban specified activities
208
Regulator
A government agency that monitors the performance of firms in an industry such as Office of Communications (OFCOM) or the Office of Rail Regulation (ORR)
209
Relative property
Measures the extent to which a household's financial resources falls below an average income threshold for the economy
210
Road pricing
A direct charge to road users for their use of a particular road e.g. a motorway toll
211
Scarcity
Scare means limited. There is only a limited amount of resources available to produce the unlimited amount of goods and services we desire
212
Self-sufficiency
Where people meet their own wants and needs without producing a surplus to trade
213
Seller's market
A market where demand exceeds supply, allowing sellers of a product to have greater control over prices, terms, etc. The opposite of a buyers market
214
Shortage
A situation in which quantity demanded is greater than quantity supplied
215
Signalling
Prices have a signalling function because the price in a market sends important information to producers and consumers
216
Social benefit
The benefit of production or consumption of a product for society as a whole.
Social benefit = private benefit + external benefit
217
Social cost
The cost of production or consumption of a product for society as a whole.
Social cost = private cost + external cost
218
Social efficiency
Where Marginal Social Cost (MSC) = Marginal Social Benefit (MSB)
219
Social exclusion
When low-income groups are denied access to goods and services normally available to members of society e.g. healthcare
220
Spare capacity
Where a firm or economy can produce more with existing resources. When there is plenty of spare capacity, elasticity of supply tends to be high
221
Specialisation
A method of production where a business or area focuses on the production of a limited scope of products or services to gain greater productive efficiency
222
Speculation
Is the activity of buying a good or service in anticipation of a change in the price/market value e.g. currency or stock-market speculation
223
Spill-over effects
External effects of economic activity, which have an impact on outsiders who are not producing or consuming a product - these can be negative (creating external costs) or positive (creating external benefits)
224
Stakeholder conflict
When different stakeholders have incompatible objectives
225
Stakeholders
Groups who have an interest in the activity of a business e.g. shareholders, managers, employees, suppliers, customers, government and local communities.
Different stakeholders have different objectives e.g. owners want maximum profits, customers want low prices, and workers want high wages plus rising living standards
226
State provision
Government-provided good or services - funded through tax revenue, in order to provide goods which have positive externalities or are public goods
227
Static efficiency
Efficiency occurring in a single time period e.g. efficiency now
228
Subsidy
Payments by the government to suppliers that reduce their costs. The effect of a subsidy is to increase supply is o increase supply and therefore reduce the market equilibrium price
229
Substitutes
Goods in competitive demand and act as replacements for another product
230
Substitutes in production
Is a product that could have been produced using the same resources. Take the example of barley, an increase in the price of wheat makes wheat-growing more attractive
231
Substitutes effect
When a price fall encourages consumers to buy more of a relatively lower-priced product and less of a higher-priced substitute
232
Supply
Quantity of a good or service that a producer is willing and able to supply onto the market at a given price in a given time period
233
Supply chain
Different stages of making, distributing and selling a good or service from the production of parts, through to the distribution and sale of the product
234
Supply shock
An event that directly alters a firms' costs and prices, shifting the supply curve either to the right (lower costs) or to the left (higher costs). Examples include unexpected changes in the global prices of commodities such as oil, gas and metals
235
Technology
The application of knowledge to production
236
Time lags
Occur in production, particularly in agriculture, when decisions about the quantity to be produced are made well ahead of the actual sale. Demand and the price may change in the interval, creating a problem for the producer
237
Total costs
```
Total Costs (TC) refer to the number of expenses incurred in a production operation and is made up of fixed costs (FC) and variable costs (VC).
TC = FC + VC
```
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Total revenue
```
Total Revenue (TR) is found by multiplying price (P) by the number of units sold (Q).
TR = PxQ
```
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Tradeable permits
Government-issued licenses allowing firms to emit a specified amount of pollutant e.g. CO2. Firms can buy and sell permits in a market
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Trade-off
The process of making a choice between alternatives e.g. deciding if it is worth sacrificing a new car for a holiday
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Tragedy of the Commons
When no one owns a resource, it gets over-used, for example, fish stocks and deforestation - people use and benefit from it without regard to the effect on others
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Value Judgement
A view of the rightness or wrongness of something, based on a personal view
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Variable cost
Variable costs vary directly with output. I.e. as production rises, a firm will face higher total variable costs because it needs to purchase extra resources to achieve an expansion of supply Common examples include the cost of raw materials, labour costs and consumables
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Welfare loss
The excess social cost over social benefit for a given output
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Willingness to pay
The maximum price a consumer is prepared to pay to obtain a product
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Zero Hours Contracts
Under zero-hours contracts, employees are available for work as and when required
