Microeconomics Key Words Year 1 Flashcards
(143 cards)
1
Q
Allocative Efficiency.
A
Occurs when the available economic resources are used to produce the combination of goods and services that best match peoples tastes and preferences.
2
Q
Allocative Function of Prices.
A
Changing relative prices allocate scarce resources away from markets exhibiting excess supply and into markets.
3
Q
Artificial Barrier to Entry.
A
A barrier to market entry which is man-made.
4
Q
Average Cost.
A
Total cost divided by the number of units of the commodity produced.
5
Q
Average Revenue.
A
Total revenue divided by output. Average revenue equals price of product in a single product firm.
6
Q
Capital Good.
A
A good which is used in the production of other goods or services. Also known as a producer good.
7
Q
Capital Productivity.
A
Output per unit of capital.
8
Q
Choice.
A
Choosing between alternatives when making a decision on how to use scarce resources.
9
Q
Collusion.
A
Co-operation between firms, for example, to fix prices. Some forms of collusion may be in the public interest, for example, joint research and labour training schemes.
10
Q
Competing Supply.
A
When raw materials are used to produce one good they cannot be used to produce another good.
11
Q
Competitive Market.
A
A market in which the large number of buyers and sellers possess good market information and can easily enter or leave the market. A competitive market is one in which firms strive to outdo their rivals, but it does not necessarily meet all the conditions of perfect competition.
12
Q
Complementary Good.
A
A good in joint demand, or a good which is demanded at the same time as another good.
13
Q
Composite Demand.
A
Demand for a good which has more than one use.
14
Q
Concentrated Market.
A
A market containing very few firms, in the extreme only one firm.
15
Q
Concentration Ratio.
A
A ratio which indicates the total market share of a number of leading firms in a market, or the output of these firms as a percentage of total market output.
16
Q
Condition of Demand.
A
A determinant of demand, other than the good’s own price, that fixes the position of the demand curve.
17
Q
Condition of Supply.
A
A determinant of supply, other than the good’s price, that fixes the position of the supply curve.
18
Q
Consumer Good.
A
A good which is consumed by individuals or households to satisfy their needs or wants.
19
Q
Consumer Sovereignty.
A
Through exercising their spending power, consumers collectively determine what is produced in a market. Consumer sovereignty is strongest in a perfectly competitive market.
20
Q
Consumption Externality.
A
An externality (can be positive or negative) generated in the course of consuming a good or service
21
Q
Cross-Elasticity of Demand.
A
Measures the extent to which the demand for the good changes in response to a change in the price of another good; it is calculated by dividing the percentage change in the price of another good.
22
Q
Decrease in Demand.
A
A leftward shift of the demand curve.
23
Q
Decrease in Supply.
A
A leftward shift of the supply curve.
24
Q
Demand.
A
The quantity of a good or service that consumers are willing to buy at given prices in a given period of time.
25
Demerit Good.
A good, such as tobacco, for which the social costs of consumption exceed the private costs. Value judgements are involved in deciding that a good is a demerit good.
26
Derived Good.
Demand for a good which is an input into the production of another good.
27
Diseconomy of Scale.
As output increases, the long-run average cost rises.
28
Disequilibrium.
A situation in a market when there is excess supply or excess demand.
29
Distribution of Income and Wealth.
The way in which income and wealth are divided among the population.
30
Division of Labour.
Different workers perform different tasks in the course of producing a good or service.
31
Economic Growth.
The increase in the potential level of real output the economy can produce over a period of time.
32
Economic Welfare.
The economic well-being of an individual, group within society, or an economy.
33
Economy of Scale.
As output increases, long-run average cost falls.
34
Effective Demand.
The desire for a good or service backed by an ability to pay.
35
Elasticity.
The proportionate responsiveness of a second variable to an initial proportionate change in the first variable.
36
Entry Barrier.
Makes it difficult or impossible for new firms to enter a market
37
Equilibrium.
A state of rest or balance between opposing forces.
38
Equilibrium Price.
The price at which planned demand for a good or service exactly equals planned supply.
39
Equity.
Fairness or justness.
40
Excess Demand.
When consumers wish to buy more than firms wish to sell, with the price below the equilibrium price.
41
Excess Supply.
When firms wish to sell more than the consumers wish to buy, with the price above the equilibrium price.
42
Exchange.
To give something in return for something else received. Money is a medium of exchange.
43
Exit Barrier.
Makes it difficult or impossible for firms to leave a market.
44
External Economy of Scale.
Cost saving resulting from the growth of the industry or market of which the firm is a part.
45
Externality.
A public good, in the case of external benefit, or a public bad, in the case of external cost, that is put on third parties outside the market.
46
Factors of Production.
Inputs into the production process, such as land, labour, capital and enterprise.
47
Finite Resource.
A resource, such as oil, which is scarce and runs out as it is used.
48
Fixed Cost.
Cost of production which, in the short run, does not change with output.
49
Full Employment.
When all who are able and willing to work are employed.
50
Fundamental Economic Problem.
How best to make decisions about the allocation of scarce resources among competing uses so as to improve and maximise human happiness and welfare.
51
Geographical Immobility of Labour.
Occurs when workers find it difficult or impossible to move to jobs in other parts of the country or in other countries for reasons such as higher housing costs in locations where the jobs exist.
52
Government Failure.
Occurs when government intervention reduces economic welfare, leading to an allocation of resources that is worse than the free-market outcome.
53
Immobility of Labour.
The inability of labour to move from one job to another, either for occupational reasons or for geographical reasons.
54
Imperfect Competition.
Any market structure lying between the extremes of perfect competition and pure monopoly.
55
Incentive Function of Prices.
Prices create incentives for people to alter their economic behaviour; for example, a higher price creates an incentive for firms to supply more of a good or service.
56
Income Elasticity of Demand.
Measures the extent to which the demand for a good changes in response to a change in income. Calculated by dividing the % change in Q demanded by the % change in income.
57
Increase in Demand.
A rightward shift of the demand curve.
58
Increase in Supply.
A rightward shift of the supply curve.
59
Inequity.
Unfairness or Unjustness.
60
Inferior Good.
A good for which demand decreases as income rises and demand increases as income falls.
61
Information Problem.
Occurs when people make wrong decisions because they don't possess or they ignore relevant information. Very often they are myopic (short-sighted) about the future.
62
Informative Advertising.
Provides consumers and producers with useful information about goods or services.
63
Innovation.
Converts the results of invention into marketable products or services.
64
Internal Economy of Scale.
Cost saving resulting from the growth of the firm itself.
65
Invention.
Creates new ideas for products or processes.
66
Joint Supply.
When one good is produced, another good is also produced from the same raw materials.
67
Labour Productivity.
Output per worker.
68
Limit Pricing.
Reducing the price of a good to just above average cost to deter the entry of new firms into the market.
69
Long Run.
The time period in which no factors of production are fixed and in which all the factors of production can be varied.
70
Long-Run Average Cost.
Long-run total cost divided by output.
71
Long-Run Production.
Occurs when a firm changes the scale of all the factors of production.
72
Market Demand.
The quantity of a good or service that all the consumers in a market are willing and able to buy at different market prices.
73
Market Disequilibrium.
Exists at any price other than the disequilibrium price. When the market is in disequilibrium either excess demand or excess supply exists in the market.
74
Market Equilibrium.
When planned demand equals planned supply in the market.
75
Market Failure.
When the market mechanism leads to a misallocation of resources in the economy, either completely failing to provide a good or service or providing the wrong quantity.
76
Market Share Maximisation.
Occurs when a firm maximises its percentage share of the market in which it sells its product.
77
Market Structure.
The organisation of a market in terms of the number of firms in the market and the ways in which they behave.
78
Market Supply.
The quantity of a good or service that all firms plan to sell at given prices in a given period of time.
79
Merit Good.
A good, such as healthcare, which when consumed leads to benefits which other people enjoy, or a good for which the long-term benefit of consumption exceeds the short-term benefit enjoyed by the person consuming the merit good. Value judgements are involved in deciding that a merit good is a merit good.
80
Missing Market.
A situation in which there is no market because the functions of prices have broken down.
81
Monopoly Power.
The power of a firm to act as a price maker rather than as a price taker.
82
Natural Barrier to Entry.
A barrier to market entry which is not man-made.
83
Natural Monopoly.
When a country or firm has complete control of a natural resource. Or when there is only room in a market for one firm to benefit from economies of scale to the full.
84
Need.
Something that is necessary for human survival, such as food, clothing, warmth or shelter.
85
Negative Externality.
Same as external cost. Occurs when the consumption or production of a good causes costs to a third party, where the social cost is greater than the private cost.
86
Normal Good.
A good for which demand increases as income rises and demand decreases as income falls.
87
Normative Statement.
A statement that includes a value judgement and cannot be refuted just by looking at the evidence. (OPINION)
88
Occupational Immobility of Labour.
Occurs when workers find it difficult or impossible to move between jobs because they lack or cannot develop the skills required for the new jobs.
89
Oligopoly.
A market dominated by a few firms.
90
Opportunity Cost.
The cost of giving up the next best alternative.
91
Patent.
A strategic or man-made barrier to market entry caused by government legislation protecting the right of a firm to be the sole producer of a patented good, unless the firm grants royalties for other firms to produce the good.
92
Perfect Competition.
A market which displays the six conditions of; perfect market information; the ability to buy or sell as much as is desired at the ruling market price; the inability of an individual buyer or seller to influence the market price; a uniform or homogeneous product; and no barriers to entry or exit in the long run.
93
Persuasive Advertising.
Attempts to persuade potential customers that a good or service possesses desirable characteristics that make it worth buying.
94
Positive Externality
Same as external benefit. Occurs when the consumption or production of a good causes benefit to a third party, where the social benefit is greater than the private benefit.
95
Positive Statement.
A statement of fact that can be scientifically tested to see if it is correct or incorrect.
96
Predatory Pricing.
Temporarily reducing the price of a good to below average cost to drive smaller firms or new market entrants out of the market.
97
Price Ceiling.
A price above which it is illegal to trade. Price ceilings, or maximum legal prices, can distort markets by creating excess demand.
98
Price Competition.
Reducing the price of a good or service to gain sales by making it more attractive for consumers.
99
Price Elasticity of Demand.
Measures the extent to which the demand for a good changes in response to a change in the price of that good.
100
Price Elasticity of Supply.
Measures the extent to which the supply of a good changes in response to a change in the price of that good.
101
Price Floor.
A price below which it is illegal to trade. Price floors, or minimum legal prices, can distort markets by creating excess supply.
102
Price Maker.
A firm possessing the power to set the price within the market.
103
Price Taker.
A firm which accepts the ruling market price set by market conditions outside its control.
104
Private Good.
A good, such as an orange, that is excludable and rival.
105
Producer Sovereignty.
Producers or firms in a market determine what is produced and what prices are charged.
106
Product Differentiation.
Making a product different from other products through product design, the method of producing the product, or through its functionality.
107
Production.
A process, or set of processes, that converts inputs into output of goods.
108
Production Externality.
An externality (+ve or -ve) generated in the course of producing a good or service.
109
Production Possibility Frontier.
A curve depicting the various combinations of two products that can be produced when all the available resources are fully and efficiently employed.
110
Productive Efficiency.
For the economy as a whole occurs when it is impossible to produce more of one good without producing less of another. For a firm, this occurs when the average total cost of production is minimised.
111
Productivity Gap.
The difference between labour productivity in the UK and in other developed economies.
112
Productivity.
Output per unit of input.
113
Profit.
The difference between total sales revenue and total costs of production.
114
Profit Maximisation.
Occurs when a firm's total sales revenue is furthest above total cost of production.
115
Public Good.
A good, such as a street light, that is non-excludable and non-rival.
116
Pure Monopoly.
When there is only one firm in the market.
117
Quantity Setter.
A firm chooses the quantity of a good to sell, rather than its price. In a monopoly the market demand curve the dictates the maximum price that can be charged if the firm is to successfully sell its chosen quantity.
118
Quasi-Public Good.
A good which is not fully non-rival and/or where it is possible to exclude people from consuming the product.
119
Rationing Function of Prices.
Rising prices ration demand for a product.
120
Regulation.
Involves the imposition of rules, controls and constraints, which restrict freedom of economic action in the market place.
121
Renewable Resource.
A resource, such as timber, that with careful management can be renewed as it is used.
122
Resource Allocation.
The process through which the available factors of production are assigned to produce different goods and services, e.g. how many of the society's economic resources are devoted to supplying different products such as food, cars, healthcare and defence.
123
Resource Misallocation.
When resources are allocated in a way which does not maximise economic welfare.
124
Sales Maximisation.
Occurs when sales revenue is maximised.
125
Saturation Advertising.
Through flooding the market with information and persuasion about a firm's product, this functions as a man-made barrier to market entry by making it difficult for smaller firms to compete.
126
Scarcity.
Results from the fact that people have unlimited wants but resources to meet these wants are limited. In essence, people would like to consume more goods and services than the economy is able to produce with its limited resources.
127
Short Run.
The time period in which at least one factor of production is fixed and cannot be varied.
128
Short-run Production.
Occurs when a firm adds variable factors of production to fixed factors of production.
129
Signalling Function of Prices.
Prices provide information to buyers and sellers.
130
Social Benefit.
The total benefit of an activity, including the external benefit as well as the private benefit. Expressed as an equation: social benefit = private benefit + external benefit.
131
Social Cost.
The total cost of an activity, including the external cost as well as the private cost. Expressed as an equation: social cost = private cost + external cost.
132
Specialisation.
A worker only performing one task or a narrow range of tasks. Also, different firms specialising in producing different goods or services.
133
Subsidy.
A payment made by government or another authority usually to producers, for each unit of the subsidised good that they produce. Consumers can also be subsidised: for example, bus passes given to children to enable them to travel on buses free or at a reduced price.
134
Substitute Good.
A good in competing demand, namely a good which can be used in place of the other good.
135
Supply.
The quantity of a good or service that firms are willing and able to sell at given prices, and in a given period of time.
136
Tax.
A compulsory levy imposed by the government to pay for its activities. Taxes can also be used to achieve other objectives, such as reduced consumption of demerit goods.
137
Technical Economy of Scale.
A cost saving generated through changes to the 'productive process' as the scale of production and the level of output increase.
138
Total Cost.
The whole cost (fixed cost plus variable cost) of producing a particular level of output.
139
Total Revenue.
The money a firm received from selling its output, calculated by multiplying the price by the quantity sold.
140
Trade.
The buying and selling of goods and services.
141
Unemployment.
When not all of those who are able and willing to work are employed.
142
Variable Cost.
Cost of production which changes with the amount that is produced, even in the short run.
143
Want.
Something that is desirable such as fashionable clothing, but is not necessary for human survival.
