Microeconomics: Key terms and definitions to memorise Flashcards
(116 cards)
1
Q
Arithmetic mean
A
the sum of the items divided by the number of items
2
Q
Weighted average
A
an average that takes into account the relative importance of the different items.
3
Q
Time series
A
information shown at successive points or intervals of time
4
Q
Index number
A
a number showing the variation in, for example, wages or prices, as compared with chosen base period or date.
5
Q
Economics
A
the study of how to allocate scarce resources in the most effective way
6
Q
Household
A
group of people whose spending decisions are connected
7
Q
Economic problem
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how to allocate scarce resources among alternative uses
8
Q
Microeconomics
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The study of how households and firms make decisions in markets
9
Q
Macroeconomics
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the study of issues that affect economics as a whole
10
Q
Model
A
a simplified view of reality that is used by economists as a means of explaining economic relationships
11
Q
Factor of Production
A
The resource inputs that are available in an economy for the production of goods and services
12
Q
Goods
A
tangible products, i.e. products that can be seen and touched, such as cars, food, washing machines
13
Q
Services
A
intangible products, i.e. products that cannot be seen or touched, such as beauty therapy and insurance
14
Q
Land
A
natural resources in an economy
15
Q
labour
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the quantity and quality of human resources
16
Q
Capital
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man-made aids to production
17
Q
Entrepreneurship
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the willingness of an entrepreneur to take risks and organise production
18
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Entrepreneur
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someone who bears the risks of the business and who organises production
19
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Factor endowment
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the stock of factors of production
20
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production
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the output of goods and services
21
Q
Want
A
anything you would like, irrespective of whether you have the resources to purchase it
22
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Scarcity
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a situation where there are insufficient resources to meet all wants
23
Q
Choice
A
The selection of appropriate alternatives
24
Q
Opportunity cost
A
the cost of the (next) best alternative, which is forgone when a choice is made
25
Factor endowment
the stock of factors of production
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Production
the output of goods and services
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Specialisation
The concentration by a worker or workers, firm, region or whole economy on a narrow range of goods and services
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Exchange
The process by which goods and services are traded
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Subsidy
a payment by a governing body to encourage the production or consumption of a product
30
Division of labour
the specialisation of labour where the production process is broken down into separate tasks
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Productivity
output or production of a good or service, per worker
32
Production possibility curve
this shows the maximum quantities of different combinations of output of two products, given current resources and the state of technology
33
Developed economy
an economy with a high level of income per head
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Developing economy
an economy with a relatively low level of income per head
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Trade-off
'the calculation involved in deciding on whether to give up one good for another
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Economic growth
change in the productive potential of an economy
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productive potential
the maximum output than an economy is capable of producing
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Economic system
the way in which production is organised in a country or group of countries
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Market economy
an economic system whereby resources are allocated through the market forces of demand and supply
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price system
a method of allocating resources by the free movement of prices
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Supply
the quantity of a product that producers are willing and able to provide at different market prices over a period of time
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Demand
the quantity of a product that consumers are able and willing to purchase at various prices over a period of time
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Command economy
an economic system in which most resources are state owned and also allocated centrally
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Mixed economy
'an economic system in which resources are allocated through a mixture of the market and direct public sector involvement
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Market
where or when buyers and sellers meet to trade or exchange products
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sub-market
a recognised or distinguishable part of a market. Also known as a market segment.
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demand
the quantity of a product that consumers are able and willing to purchase at various prices over a period of time.
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notional demand
the desire for a product
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Effective demand
the willingness and ability to buy a product
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Ceteris Paribus
assuming other variables remain unchanged
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demand curve
this shows the relationship between the quantity demanded and the price of a product
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demand schedule
the data that is used to draw the demand curve for a product
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Movement along the demand curve
this is in response to a change in the price of a product
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consumer surplus
the extra amount that a consumer is willing to pay for a product above the price that is actually paid
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Disposable income
Income after taxes on income have been deducted and state benefits have been added
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real disposable income
income after taxes on income have been deducted and state benefits have been added and the result has been adjusted to take into account changes in the price level
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Normal goods
goods for which an increase in income leads to an increase in demand
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inferior goods
goods for which an increase in income leads to a fall in demand
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substitute
competing goods
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complements
goods for which there is joint demand
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change in demand
this is where a change in a non-price factor leads to an increase or decrease in demand for a product
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supply
the quantity of a product that producers are willing and able to provide at different market prices over a period of time
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proft
the difference between the total revenue of a producer and the total cost
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supply curve
this shows the relationship between the quantity supplied and the price of a product
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supply schedule
the data used to draw up the supply curve of a product
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producer surplus
the difference between the price a producer is willing to accept and what it is actually paid
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Change in supply
occurs when a change in a non-price influence leads to an increase or decrease in the willingness of a producer to supply a product
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price
the amount of money that is paid for a given amount of a particular good or service
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equilibrium price
the price where demand and supply are equal
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clearing price
same as equilibrium price
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equilibrium quantity
the quantity that is demanded and supplied at the equilibrium price
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disequlibrium
any position in the market where demand and supply are not equal
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surplus
an excess of supply over demand
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shortage
an excess of demand over supply
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elasticity
the extent to which buyers and sellers respond to a change in market conditions
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price elasticity of demand
the responsiveness of the quantity demanded to a change in the price of the product
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price elastic
where the percentage change in the quantity demanded is sensitive to a change in price
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price inelastic
where the percentage change in the quantity demanded is insensitive to a change in price
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income elasticity of demand
the responsiveness of demand to a change in income
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normal goods (in terms of elasticity)
goods with positive income elasticity of demand
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income inelastic
goods for which a change in income produces a less than proportionate change in demand
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income elastic
goods for which a change in income produces a greater proportionate change in demand
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inferior goods
goods for which an increase in income leads to a fall in demand
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cross elasticity of demand
the responsiveness of demand for one product in relation to a change in the price of another product
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price elasticity of supply
the responsiveness of the quantity supplied to a change in the price of the product
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efficiency
where the best use of resources is made for the benefit of consumers
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alocative efficiency
where consumer satisfaction is maximised
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market faliure
where the free market mechanism fails to achieve economic efficiency
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Productive efficiency
where production takes place using the least amount of scarce resources
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economic efficiency
where both allocative and productive efficiency are achieved
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inefficiency
any situation where economic efficiency is not achieved
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free market mechanism
the system by which the market forces of demand and supply determine prices and the decisions made by consumers and firms
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information faliure
a lack of information resulting in consumers and producers making decisions that do not maximise welfare
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asymmetric information
information not equally shared between two parties
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externality
an effect whereby those not directly involved in taking a decision are affected by the actions of others
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third party
those not directly involved in making a decision
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private costs
the costs incurred by those taking a particular action
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private benefits
the benefits directly accruing to those taking a particular action
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external costs
the costs that are the consequence of externalities to third parties
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external benefits
the benefits that accrue as a consequence of externalitites to third parties
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social costs
the total costs of a particular action
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social benefits
the total benefits of a particular action
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negative externality
this exists where the social cost of an activity is greater than the private cost
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postitive externality
this exists where the social benefit of an activity exceeds the private benefit
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merit goods
these have more private benefits than their consumers actually realise
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demerit goods
their consumption is more harmful than is actually realised
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public goods
goods that are collectively cosumed and have the characteristics of non-excludability and non-rivalry
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non-excludabilitiy
situation existing where individual consumers cannot be excluded from consumption
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free rider
someone who directly benefits from the consumption of a public good but who does not contribute towards its provisision
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non-rivalry
situation existing where consumption by one person does not affect the consumption of all others
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quasi public goods
goods having some but not all of the characteristics of a public good
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direct tax
one that taxes the income of people and firms and that cannot be avoided
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indirect tax
a tax levied on goods and services
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polluter pays principle
any measure such as a green tax whereby the polluter pays explicitly for the pollution caused
115
subsidy
a payment, usually from the government, to encourage production or consumption
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tradable permit
a permit that allows the owner to emit a certain amount of pollution and that, if unused or only partially used, can be sold to another polluter
