Microeconomics Definitions

Question 1

The basic economic problem

Answer 1

allocation of a nation’s scarce resources between competing uses that represent infinite wants

Question 2

Opportunity cost

Answer 2

the next best alternative forgone

Question 3

Production Possibility Curve (PPC)

Answer 3

line that shows the different combinations of two goods an economy can produce if all resources are being used up

Question 4

Capital goods

Answer 4

those purchased by firms and used to produce other goods

Question 5

Consumer goods

Answer 5

those purchased by households

Question 6

Economic growth

Answer 6

increase in the level of output by a nation

Question 7

Demand

Answer 7

the quantity of a good or service that consumers are willing and able to purchase over a range of prices in a given time period

Question 8

Supply

Answer 8

the quantity of a good or service that producers are willing and able to supply over a range of prices in a given time period

Question 9

PED

Answer 9

a measure of the responsiveness of quantity demanded to changes in price

Question 10

PES

Answer 10

a measure of the responsiveness of quantity supplied to changes in price

Question 11

YED

Answer 11

a measure of the responsiveness of quantity demanded to changes in average income

Question 12

Private sector

Answer 12

provision of goods and services by businesses that are owned by individuals or groups of individuals

Question 13

Public sector

Answer 13

government organisations that provide goods and services in the economy

Question 14

Mixed economy

Answer 14

economy where goods and services are provided by both the private and public sectors

Question 15

Market failure

Answer 15

when markets lead to inefficiency

Question 16

Merit goods

Answer 16

goods that are under-provided by the private sector

Question 17

Public goods

Answer 17

goods that are not likely to be provided by the private sector

Question 18

Free rider

Answer 18

individual who enjoys the benefit of a good but allows others to pay for it

Question 19

Privatisation

Answer 19

the transfer of public sector resources to the private sector.

Question 20

External costs

Answer 20

negative spillover effects of consumption or production on third parties

Question 21

External benefits

Answer 21

positive spillover effects of consumption or production on third parties

Question 22

Fines

Answer 22

financial burden on the offender to disincentivise them from committing the wrongdoing again

Question 23

Production

Answer 23

process that involves converting resources into goods and services

Question 24

Factors of production

Answer 24

resources used to produce goods and services

Question 25

Land

Answer 25

natural resources used for production

Question 26

Labour

Answer 26

the human effort used in production

Question 27

Capital

Answer 27

man-made resources used in production

Question 28

Enterprise

Answer 28

the entrepreneurship involved in organising the factors of production

Question 29

Productivity

Answer 29

rate at which goods are produced for a given set of resources

Question 30

Division of labour

Answer 30

act of dividing up the production process into different stages where each worker specialises in one task and repeats it

Question 31

Fixed costs

Answer 31

costs to the firm that do not vary with output

Question 32

Variable costs

Answer 32

costs to the firm that vary with output

Question 33

Total costs equation

Answer 33

Total costs = fixed costs + variable costs

Question 34

Economies of scale

Answer 34

when average costs fall as the firm grows

Question 35

Internal economies of scale

Answer 35

cost benefits that an individual firm can enjoy when it expands

Question 36

External economies of scale

Answer 36

cost benefits that all firms in an industry can enjoy when the whole industry expands

Question 37

Diseconomies of scale

Answer 37

when average costs rise as the firm grows too large

Question 38

Business competition

Answer 38

rivalry that exists between firms when trying to sell goods in a particular market

Question 39

Barriers to entry

Answer 39

obstacles that might discourage a firm from entering a market

Question 40

Monopoly

Answer 40

market structure in which one firm dominates the market

Question 41

Oligopoly

Answer 41

market structure where a few large firms dominate the market

Question 42

Derived demand

Answer 42

when the demand for a product or resource is driven by the demand for the output which it produces

Question 43

Government intervention

Answer 43

where the government becomes involved in a situation to help deal with a problem

Question 44

Anti-competitive practices

Answer 44

attempts by firms to prevent or restrict competition

Question 45

Minimum wage

Answer 45

minimum amount of money per hour which most workers are legally entitled to be paid