microeconomics definitions Flashcards
(258 cards)
1
Q
Allocative efficiency
A
: When economic resources are utilised to produce the combination of
goods and services that maximise economic welfare
2
Q
Allocative price function
A
Prices allocate resources away from markets with excess supply
to markets with excess demand
3
Q
Capital
A
Producer goods
4
Q
Capital/producer goods
A
: Goods used in the production of other goods
5
Q
Ceteris paribus
A
All other things being held constant
6
Q
Choice
A
Selecting one of multiple alternatives when deciding how to allocate scarce
resources
7
Q
Consumer good
A
Goods consumed by households & individuals, used to satisfy needs and
wants
8
Q
Economic welfare
A
The economic satisfaction/wellbeing of individuals/households/groups in
an economy
9
Q
Enterprise
A
The ability to utilise factors of production effectively
10
Q
Factors of production
A
: Inputs of the production process, such as land, labour, capital and
enterprise
11
Q
Finite resource
A
Non-renewable resource that becomes increasingly scarce.
12
Q
Fundamental economic problem
A
: Deciding how to best allocate scarce resources to
maximise overall economic welfare
13
Q
Imperfect information
A
When individuals lack the information to make the best decision
14
Q
Incentive price function
A
Prices create incentives for people to adjust their economic transactions
15
Q
Infrastructure
A
Facilities required for an economy to function
16
Q
Labour
A
Workers with human capital
17
Q
Land
A
Natural physical materials, as well as space for fixed capital
18
Q
Need
A
Something necessary for human survival, e.g. food, shelter
19
Q
Normative statement
A
Statements including value judgements, that cannot be easily
proved/disproved
20
Q
Opportunity cost
A
Loss of other alternatives due to selecting one of a set of options.
21
Q
Pareto efficiency
A
: State of resource allocation, where in order to make an economic agent
better off, another agent is made worse off
22
Q
Positive statement
A
Statements including facts, that can easily be proved/disproved.
23
Q
Production possibility frontier
A
A curve displaying the various possible combinations of two
products that can be produced with finite resources
24
Q
Rationing price function
A
Prices rise to ration demand for goods
25
Renewable resource
Restorable resource that can be replenished
26
Scarcity
Resulting from the concept of infinite wants and needs, yet limited resources.
27
Signalling price function
Prices provide information to sellers and buyers, influencing
economic decisions
28
Trade
Buying and selling of goods and services
29
Value judgements
Statements that are subjective and based on opinion rather than factual
evidence
30
Want
Something desirable, yet not necessary for human survival
31
Bilateral monopoly
Market in which there is a single seller and a single buyer
32
Human capital
The economic value of an individual's skills, experience, training, etc.
33
Labour exploitation
Employers benefiting from treating employees unfairly
34
Marginal physical product (MPP):
Additional output each unit of labour can produce.
35
Marginal productivity theory
Theory stating demand for labour is derived from MRP
36
Marginal revenue productivity (MRP):
Additional revenue derived per extra unit of labour.
37
Monopsony power
The ability to set prices based on bargaining power.
38
National minimum wage (NMW)
The legal minimum hourly wage set by the government.
This is age dependent.
39
Negative discrimination:
When employers undervalue the marginal revenue productivity of
a worker.
40
Positive discrimination
When employers overvalue the marginal revenue productivity of a
worker
41
Trade union
Organisation within or outside a firm campaigning for the rights of the workers.
42
Trade union wage gap
The difference in wages between those in a trade union and those
not in a trade union; an indicator of trade union power.
43
Wage differentials
: Differences in wages of different groups of workers, or workers in the
same occupation
44
Wage discrimination
Paying an employee lower wages because of their race, gender,
religion, disability, sexual orientation or some other ‘protected characteristic'
45
Anti-competitive behaviour
Business strategies employed to deliberately limit
contestability within markets
46
Artificial barrier to entry
Barriers to market entry that are man-made, i.e., non-natural.
47
Break even
The same as normal profit
48
Cartel
Formed by groups of producers when they illegally decide to collude and not
compete
49
Collective bargaining
When the members of a union act as a unit to increase bargaining
power when negotiating with employers
50
Collusion
Illegal cooperation between multiple firms, forming a cartel..
51
Concentrated market
: A market with very few (in its most extreme cases, 1) firms.
52
Concentration ratio
The total market share of the leading firms in an industry; these firms'
output as a percentage of total output.
53
Consumer surplus
Difference between the prices consumers are willing to pay and the
prices they actually pay
54
Contestability
Ease with which competitors can enter a market
55
Deadweight loss
Loss of social welfare derived from economic activity
56
Demerger
When a firm sells parts of its business to create separate smaller firms
57
Divorce of ownership and control
The process in which owners become increasingly
separated from those managing the business
58
Duopoly
Any market that is dominated by two organisations
59
Duopsony
Two major buyers of a good or service in a market
60
Dynamic efficiency
Improvements to efficiency in the long run, brought about by
investment into research and development
61
Entry barrier
Make it impossible/more difficult for firms to enter a market
62
Exit barrier:
Make it impossible/more difficult for firms to exit a market
63
Game theory
Where there are two or more interacting decision makers and different
(groups of) decisions lead to differing outcomes
64
Hit and run
Firms enter a market, make supernormal profits, then leave; possible due to
low barriers to entry and exit
65
Imperfect competition
Any market structure between the extremes of perfect competition
and a pure monopoly
66
Innovation
Improving upon an existing product or process
67
Interdependence
Where the actions of one firm influence the actions of other firms in the
market
68
Invention
Creation of a new product or process
69
Kinked demand curve
Assumes a business may face a dual demand curve for its product
based on the oligopoly market structure
70
Limit pricing
Lowering the price of a good or service to around average cost, creating an
artificial barrier to entry
71
Market share maximisation
When a firm maximises their percentage share of the market
in which it sells its product.
72
Market structure
The characteristics of a market.
73
Merger
Multiple firms uniting to form one larger firm
74
Monopoly
Market with only one supplier/ one dominant supplier
75
Monopoly power
The ability of a firm to be a price maker rather than a price taker; the
ability to set prices
76
Monopsony
Market with only one consumer/ one dominant consumer
77
Natural barrier to entry
Barriers to market entry that are not man-made.
78
Natural monopoly
When the ideal number of firms in an industry is 1
79
Oligopoly
Market dominated by a few firms.
80
Patent
Government legislation protecting a firm's right to be the sole producer of a good
81
Predatory pricing
Temporarily lowering a good's price below average cost, creating an
artificial barrier to entry
82
Price competition
Reducing the price of a product, thus stripping demand from
competitors
83
Price discrimination
When a firm charges different prices to different groups of consumers
for the same good
84
Price leadership
The dominant firm in the market sets the price and less dominant firms
alter their prices accordingly
85
Price maker
A firm with monopoly power; the ability to set prices.
86
Price taker
A firm that passively accepts the market price, set by forces beyond the firm's
control
87
Price war
Where multiple firms cut prices, each firm trying to undercut its competitors and
gain market demand
88
Principal-agent problem
Where those in control of a firm (agents), act in their own best
interest, rather than that of the owners (principals)
89
Producer surplus
Difference between the prices producers are willing to accept and the
prices they actually accept
90
Product differentiation
Differences between multiple similar goods and services
91
Profit maximisation
Occurs where the positive difference between total revenue and total
costs is at its highest
92
Pure monopoly
Only one firm in a market
93
Sales maximisation
When sales revenue is at its highest
94
Satisficing
Due to conflicts of interests, managers often run films to make the minimum
level of acceptable profit (as specified by owners)
95
Shareholder
Economic agents concerned on the growth of the firm for monetary reasons
96
Stakeholder
Economic agents concerned on the growth of the firm for not necessarily
monetary reasons
97
Static efficiency
Efficiency in the short run
98
Takeover
When a firm buys another firm, with the latter becoming a part of the former
99
Ad valorem taxes
Taxes that are a percentage of price
100
Asymmetric information
When one party knows more or has better information than the
other party in a transaction e.g a patient and doctor
101
Competition and Markets Authority (CMA)
Government department in the UK that aims
to reduce anti-competitive strategies
102
Competition policy
Government intervention that reduces monopoly power and introduces
competition to reduce consumer exploitation
103
Complete market failure
Occurs when there is a missing market
104
Consumption externality
An externality (which may be positive or negative) generated
through consumption of a good or service
105
Demerit good
: Goods where the social costs in consumption exceed the private costs in
consumption
106
Department for Business, Innovation and Skills (BIS)
An organisation that aims to
enhance UK industry performance
107
Deregulate
To reduce the amount an industry is regulated
108
Economic welfare
: Quality of life of a population
109
EU directories
Set of checks that EU members must pass, ensuring all members have
similar or the same legislation
110
EU regulations
Set of laws all EU members must comply with
111
Externality
External effects imposed on society derived from the production or consumption
of a good or service
112
Free rider problem
Once a public good is produced, there is no way to control who
benefits from it
113
Geographical immobility of labour
Occurs where workers find it difficult to relocate to
places where jobs exist e.g housing costs
114
Government failure
Where government intervention leads to a lessening of economic
welfare and a misallocation of resources
115
Government intervention
When a government actively intervenes and affects market
operation
116
Immobility of factors of production
: When it is hard for factors of production to move
across different areas within the economy
117
Immobility of labour
The inability of labour to move from one occupation to another. There
are two main types, geographical and occupational
118
Imperfect information
When an economic agent does not hold all the necessary
information to make an informed decision about a product
119
Incentive
Something that motivates an agent in the economy
120
Income Inequality
Differences in size of earnings between households/individuals
121
Market distortions
Where interference in a market affects behaviour and prices/output
122
Market economy
Where output and prices are determined by the workings of supply and
demand
123
Market failure
Occurs when the market mechanism leads to a misallocation of resources.
124
Merit good
Goods where the social costs in consumption deceed the private costs in
consumption
125
Misallocation of resources
Resources are not distributed optimally
126
Nationalise
To convert from private ownership to public (government) ownership
127
Negative externality
Negative external effects imposed on society derived from the
production or consumption of a good or service
128
Non-excludable
A good or service where you are unable to prevent non-paying consumers
from benefiting or using the good
129
Non-rival
Where one person’s consumption of a good or service does not decrease the
amount available for consumption by another consumer
130
Occupational immobility of labour
Occurs where workers find it difficult to transfer
between different occupations due to a lack of transferable skills
131
Outsourcing
When a private sector firm bids to offer a public service
132
Partial market failure
Occurs when the market is producing a good or service, but at the
wrong quantity or price
133
Penalties
Fines or other forms of punishment that make producing output less profitable
134
Positive externality
Positive external effects imposed on society derived from the
production or consumption of a good or service
135
Price ceiling
A price above which trade is illegal
136
Price controls
Government controls on prices e.g maximum or minimum prices
137
Price floor
A price below which trade is illegal
138
Price mechanism
The way in which prices are determined through forces of supply and
demand
139
Private benefit
Benefits incurred to the individual through consumption or production
140
Private cost
Costs incurred to the individual through consumption or production
141
Private good
An excludable, rival good
142
Privatise
To convert from public (government) ownership to private ownership
143
Production externality
An externality (which may be positive or negative) generated
through production of a good or service
144
Productivity gap
Difference between productivity of UK labour and other countries' labour
145
Productivity gap
Difference between productivity of UK labour and other countries' labour
146
Property right
Legal ownership of a resource.
147
Public good
A non-excludable, non-rival good
148
Public sector
The part of the government financed by and controlled by the government
149
Quasi-public good
A good that is not fully non-rival and/or not fully non-excludable
150
Rationing
Limiting the amount or quantity of a good
151
Regulation
Imposing policies, rules, laws, constraints, etc.
152
Regulatory capture
Regulatory bodies become dominated by the industries in which they
were regulating, leading to a decrease in economic welfare
153
Resource misallocation
When resources are allocated in a way that doesn’t maximise
economic welfare
154
Signalling
Where a change in the price of goods or services that show that supply or
demand should be adjusted
155
Social benefits
The sum of private benefits and external benefits
156
Social cost
The sum of private costs and external costs
157
Specific taxes
Taxes that are a set price per unit
158
State provision
Where the government provides a good or service
159
Subsidy
Payment made by the government (or other authority) to incentivise production of
a good
160
Tax
Compulsory levy imposed by the government to de-incentivise production of a good
161
Unintended consequences
When the actions of people or a government have
consequences that were not anticipated
162
Vouchers
Allowances to utilise goods or services at a discount rate
163
Absolute poverty
When a person doesn't have enough income to fulfil basic needs
164
Distribution of income and wealth
The way in which total income and wealth are divided
among the population of the economy
165
Earnings trap
Situations where the more an individual earns, the less they are entitled to,
making it hard to escape poverty
166
Equity
Fairness, justness. Involves value judgements
167
Fiscal drag
As wages rise, a higher proportion of income is paid in tax
168
Gini coefficient
Measures income or wealth inequality; maximum inequality is 1.
169
Horizontal equity
People in identical circumstances are treated equally
170
Hysteresis
Effects that persist even after the initial causes giving rise to the effects are
removed
171
Inequity
Unfairness, unjustness. Involves value judgements
172
Kuznets hypothesis
Theory that as an economy grows, inequality is initially increased,
then decreased
173
Lorenz curve
Can be used to illustrate and measure distributive inequalities
174
Means tested benefits
Entitlement to certain benefits depends on whether the income or
wealth of an individual is below a certain level
175
Poverty trap
Where a rise in income leads to a decrease in eligibility in benefits, forcing
individuals deeper into poverty.
176
Vertical equity
People in different circumstances are treated unequally yet fairly
177
Automation
Automatic control; the process by which machines control other machines
178
Average cost
Total production cost divided by total output (cost per unit of output)
179
Average revenue
Total revenue divided by total output (revenue per unit of output)
180
Capital productivity
Output per unit of capital
181
Constant returns to scale
When output increases by an equal proportion the increase in
inputs
182
Decreasing returns to scale
When output increases by a smaller proportion than the
increase in inputs
183
Diseconomies of scale
When long-run average costs rise as output rises
184
Division of labour
Different workers performing different tasks in a good's/services'
production, specialising to an extent
185
Economies of scope
When it is cheaper to make a range of products
186
Economy of scale
When long-run average costs fall as output rises
187
External economy of scale
Firms saving resulting from growth of the industry a firm is part
of
188
Fixed cost
Costs of production that do not vary with output, only in the short run
189
Increasing returns to scale
When output increases by a larger proportion than the
increase in inputs
190
Internal economy of scale
Firms saving resulting from growth of the firm itself
191
Labour productivity
Output per worker
192
Law of diminishing returns
sloped demand curve
193
Long run
Time period in which none of the factors of production are fixed, and all can be
varied
194
Long-run average cost
Long-run total cost per unit of output
195
Long-run production
When a firm changes the scale of all factors of production
196
Mechanisation
When a firm transfers from becoming more labour intensive to becoming
more capital intensive
197
Minimum efficient scale (MES)
The lowest level of output at which average costs are
minimised. Dependent on the market structure as well as barriers to entry
198
Normal profit
Total revenue equals total costs; the minimum profit required to keep a firm
operating in an industry
199
Operating costs
Same as variable costs
200
Overheads
Same as fixed costs
201
Production
A set of processes that converts inputs into outputs
202
Productive efficiency
Minimised average total cost
203
Productivity
Output per unit of input
204
Profit
Total revenue subtract total costs
205
Rate of return
Income received from an investment
206
Returns to scale
The scale by which a firm's output changes as the scale of all inputs are
altered
207
Short run
Time period in which at least one of the factors of production are fixed and cannot
be varied
208
Specialisation
A worker only performing a specific task or a small range of tasks
209
Sunk cost
Non-recoverable costs of entering a market
210
Supernormal (abnormal) profit
Any level of profit over and above normal profit
211
Technical economy of scale
Cost saving through changing the production process
212
Total cost
Total fixed cost added to total variable cost
213
Total revenue
Price of each good, multiplied by quantity sold
214
Variable cost
Costs incurred when paying for the variable factors of production
215
X-inefficiency
When a firm lacks the incentive to control costs. This causes the average
cost of production to be higher than necessary
216
Competing supply
When resources can be used to produce one good OR another good,
not both
217
Competitive markets
A market with large numbers of buyers and sellers, with low barriers
to entry and exit
218
Complementary goods
Goods in joint demand; these goods are often bought together, e.g.
printers and ink cartridges
219
Composite demand
Demand for a multi-purpose good
220
Condition of demand
A determinant of demand other than the good's price, that sets the
position of the good's demand curve
221
Condition of supply
A determinant of supply other than the good's price, that sets the
position of the good's supply curve
222
Customer sovereignty
Consumers can collectively govern production in a market via
exercising spending power. Strongest in perfectly competitive markets
223
Cross elasticity of demand (XED)
Measures the responsiveness of a good's demand to a
change in the price of a different good
224
Demand
The quantity of a good or service that a consumer is willing and able to buy at a
given price, at a given time
225
Derived demand
Demand for a good that is the input of another good
226
Disequilibrium
Excess supply or demand in a market
227
Effective demand
Desire for a good or service that is backed by the ability to pay for said
good or service
228
Elasticity
The proportionate responsiveness of a second variable to a change in a first
variable
229
Equilibrium
No excess supply or demand in a market; a state of balance between opposing forces.
230
Equilibrium price
The price where planned demand matches planned supply
231
Excess demand
When consumers want to buy more than producers are willing to sell;
occurs below equilibrium price
232
Excess supply
When producers want to sell more than consumers are willing to buy;
occurs above equilibrium price
233
Exchange
Trading objects of value, utilising media of exchange e.g. money.
234
Income elasticity of demand (YED)
Measures the responsiveness of a good's demand to
a change in the incomes of consumers
235
Inferior good
A good for which demand rises as incomes fall
236
Joint supply
When one good is produced, another good is also produced from the same
raw materials
237
Normal good
A good for which demand rises as incomes rise
238
Normal good
A good for which demand rises as incomes rise
239
Price elasticity of supply
Measures the responsiveness of a good's supply to a change in
price
240
Producer sovereignty
Producers determine what is produced and the prices charged.
241
Substitute good
A good in competing demand; a good that can be used in place of another
similar good
242
Supply
The quantity of a good or service that a producer is willing and able to sell at a given
price, at a given time
243
Altruism
The selfless and disinterested concern towards the wellbeing of others
244
Anchoring bias
Individuals tend to rely on the first piece of information they are given
245
Asymmetric information
When one party (buyers or sellers) has more information than the
other in an economic transaction
246
Availability bias
Individuals base the likeliness of future events occurring on past events
247
Behavioural economics
Branch of economics that incorporates psychological insights to
understand human economic decision making
248
Bounded rationality
Individuals' inability to make rational economic decision making due to
imperfect information, time constraints and limited mental processing ability
249
Bounded self control
Individuals' inability to make rational economic decision making due
to inability to control themselves
250
Choice architecture
A framework illustrating the effects of presenting choices in different
ways
251
Economic man (Homo economicus)
A hypothetical person who behaves in exact
accordance with their rational self-interest
252
Heuristics
Rules of thumb
253
Hyperbolic discounting
Individuals tend to base the value of rewards on the amount of
time taken to acquire the reward (longer waits, less valuable)
254
Perfect information
When both buyers and sellers have full knowledge of goods and
services in a market
255
Risk aversion
Individuals tend to value losses more than commensurate gains
256
Symmetric information
: Where consumers and producers have sufficient information to
make rational decisions
257
Utility
Benefit, wellbeing, welfare or satisfaction gained from consumption of a good or
service.
258
Utility maximisation
When consumers aim to make their personal welfare as high as
possible.
