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Econ - MICRO > Theme 1 Key Terms > Flashcards

Theme 1 Key Terms Flashcards

1
Q

Ad valorem tax

A

An indirect tax imposed on a good where the value of the tax is dependent on the value of the good

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2
Q

Asymmetric Information

A

Where one party has more information than the other, leading to market failure

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3
Q

buffer stock schemes

A

where both maximum and minimum prices are implemented at the same time

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4
Q

Capital

A
  • one of the four factors of production
  • goods which can be used in the production process (machinery, factories etc)
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5
Q

Capital goods

A

Goods produced in order to aid production of consumer goods in the future

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6
Q

Ceteris parabus

A

‘with all other things equal’
- used when the focus is on changes in one variable while holding others constant

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7
Q

command economy

A

all factors of production are allocated by the state, so they decide what, how and for who to produce goods

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8
Q

community surplus

A

consumer surplus + producer surplus

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9
Q

Complementary goods

A
  • Negative XED
  • if good B becomes more expensive, demand for good A falls
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10
Q

Consumer goods

A

Goods bought and demanded by households and individuals

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11
Q

Consumer surplus

A

The difference between the price the consumer is willing to pay and the price they actually pay

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12
Q

Cross Elasticity of Demand (XED)

A
  • the responsiveness of demand for good A to a change in price of good B
    +ve = substitute (coke and Pepsi)
    -ve = complement (gin and tonic)
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13
Q

XED formula

A

(%△ in QD of A) / (%△in P of B)

dinner on plate

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14
Q

Demand

A

the quantity of a good/service the consumers are willing and able to buy at a given price at any moment in time

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15
Q

Diminishing marginal utility

A
  • the extra benefit gained from consumption of a good generally declines as extra units are consumed
  • explains why the demand curve is downsloping
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16
Q

marginal utility

A

the happiness in consumption gained from the next unit consumed

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17
Q

Division of labour

A

when labour becomes specialised during the production process so workers do a specific task in cooperation with other workers

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18
Q

Economic problem

A
  • The problem of scarcity
  • wants are unlimited but resources are finite so choices have to be made
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19
Q

Efficiency

A

when resources are allocated optimally, so every consumer benefits and waste is minimised

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20
Q

Enterprise

A
  • one of 4 factors of production
  • the willingness and ability to take risks and combine the three other factors of production
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21
Q

Equilibrium price/quantity

A

where demand = supply so there are no more market forces bringing about change to price or quantity demanded

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22
Q

Excess demand

A

when price is set too low so demand is greater than supply

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23
Q

excess supply

A

when price is set too high so supply is greater than demand

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24
Q

externalities

A

the cost or benefit a third party receives from an economic transaction outside of the market mechanism

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25
Q

external cost/benefit

A
  • the cost/benefit to a third party not involved in the economic activity
  • the difference between social cost/benefit and private cost/benefit
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26
Q

free market

A

an economy where the market mechanism allocates resources so consumers and producers make decisions about what is produced, how to produce and for whom.

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27
Q

free rider principle

A

people who do not pay for public goods still receive benefits from it so the private sector will under- provide the good as they cant make a profit

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28
Q

government failure

A

when government intervention leads to a net welfare loss in society, worsening allocation of resources
- costs of intervention outweigh benefits

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29
Q

habitual behaviour

A
  • a cause of irrational behavior
  • when consumers are in the habit of making certain decisions
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30
Q

incentive function

A

acts as an incentive to work hard. with ↑ money, buyers can buy more. if suppliers produce ↑ , they will earn more.
low prices incentive for consumers to buy more, high prices incentive for consumers to sell more.

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31
Q

incidence of tax

A

the tax burden on the taxpayer

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32
Q

Income elasticity of demand

A

the responsiveness of demand to a change in income

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33
Q

YED formula

A

(%△ in QD) / (%△ in Y)

dogs on yachts

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34
Q

indirect tax

A

taxes on goods and services instead of income or profits

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35
Q

inferior goods

A

YED < 0
- goods which see a fall in demand as income increases

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36
Q

information gap

A

when an economic agent lacks the information needed to make a rational, informed decision

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37
Q

information provision

A

when the government intervenes to provide information to correct market failure

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38
Q

labour

A
  • one of the four factors of production
  • human
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39
Q

land

A
  • one of the 4 factors of production
  • natural resources such as oil, coal, wheat, physical space
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40
Q

luxury goods

A

YED > 1
- an increase in incomes causes an even bigger increase in demand

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41
Q

market failure

A

when the market fails to allocate resources efficiently, so there is an inefficient allocation of scarce resources leading to loss in social welfare

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42
Q

Market forces

A

forces in free market which act to reduce prices when there is excess supply and increase them when there is excess demand

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43
Q

market clearing price

A

where all goods supplied to market are bought, but no buyers are unable to buy the good

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44
Q

maximum price

A

a ceiling price which a firm cannot charge above

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45
Q

minimum price

A

a floor price which a firm cannot charge below

46
Q

mixed economy

A

both the free market mechanism and the government allocate resources

47
Q

model

A
  • a hypothesis which can be proven or tested by evidence
  • it tends to be mathematical whilst a theory is in words
48
Q

-ve externalities of production

A

where the social costs of producing a good are greater than the private costs of producing the good

49
Q

non-excludable

A
  • a characteristic of public goods
  • someone cannot be prevented from using the good
50
Q

Non-renewable resources

A
  • resources that cannot be readily replenished or replaced at a level equal to consumption
  • the stock level decreases over time as they are consumed
51
Q

non-rivalry

A
  • a characteristic of public goods
  • one persons use of the good does not prevent someone else from using it
52
Q

Normal goods

A

YED > 0
- demand increases as income increases

53
Q

normative statement

A
  • subjective statements based on value judgments and opinions
  • cannot be proven or disproven
54
Q

opportunity cost

A

the value of the next best alternative forgone

55
Q

perfectly price elastic good

A

PED/PES = infinity
- quantity demanded/supplied falls to 0 when price changes

56
Q

perfectly price inelastic good

A

PED/PES = 0
- quantity demanded/supplied does not change when price changes

57
Q

positive externalities of consumption

A

where the social benefits of consuming a good are larger than the private benefits of consuming that good

58
Q

positive statement

A

objective statements which can be tested with factual evidence to be proven or disproven

59
Q

Possibility Production Frontier (PPF)

A

depicts the maximum productive potential of an economy, using a combination of two goods or services, when resources are fully and efficiently employed

60
Q

Price elasticity of demand

A

the responsiveness of demand to a change in price

61
Q

PED formula

A

(%△ in QD) / (%△ in P)

have to queue before you pee

62
Q

Price elasticity of supply

A

the responsiveness of supply to a change in price

63
Q

PES formula

A

(%△ in QS) / (%△ in price)

sugar on pancakes

64
Q

Price mechanism

A

the system of resource allocation based on the free market movement of prices, determined by the demand and supply curves

65
Q

private cost/benefit

A

the cost/benefit to the individual participating in the economic activity

66
Q

Private goods

A

goods that are rivalrous and excludable

67
Q

producer surplus

A

the difference between the price the producer is willing to charge and the price they actually charge

68
Q

public goods

A

goods that are non-excludable and non-rivalrous

69
Q

rationality

A

decision making that leads to economic agents maximising their utility

70
Q

rationing function

A

when price ↑, some ppl cant afford, and some have no desire to buy anymore.
means limited resources can be allocated to those who can afford and still want

71
Q

regulation

A

laws to address market failure and promote competition between firms

72
Q

regulatory capture

A

when govt try regulate monopoly power.
occurs when interests of society are overlooked for interests of CEOs and managers etc.
when CEOs/managers influence regulator, due to close contact/used to work in industry before so knows CEOs in industry.
means Ceos can influence regulator to reduce extent of the regulation
working in interest of firm not of society.

73
Q

relatively price elastic good

A
  • when PED/PES > 1
  • demand/supply is relatively responsive to a change in price so a small change in price leads to a large change in quantity demanded/supplied
74
Q

relatively price inelastic good

A
  • when PED/PES < 1
  • demand/supply is relatively unresponsive to a change in price so a small change in price leads to a small change in quantity demanded/supplied
75
Q

renewable resources

A

resources which can be replenished, so the stock of resources can be maintained over a period of time

76
Q

scarcity

A

the shortage of resources in relation to the quantity of human wants

77
Q

signalling function

A

signals to producers where their resources should be used. if P↑, resources should go there. the price change shows the market has changed, so they should change the quantity bought/sold to reach equilibrium

78
Q

social cost/benefit

A

the cost/benefit to society as a whole due to the economic activity

79
Q

social optimum position

A
  • where social costs equal social benefits
  • the amount which should be produced/consumed in order to maximise social welfare
80
Q

social science

A

the study of societies and human behaviour

81
Q

specialisation

A

the production of a limited range of goods by a company/country/individual so they arent self sufficient and have to trade with others

82
Q

specific tax

A

a tax imposed on a good where the value of the tax is dependent on the quantity that is bought

83
Q

state provision of goods

A

through taxation, the govt provides public goods or merit goods which are underprovided in the free market

84
Q

subsidy

A

govt. payments to a producer to lower their costs of production and encourage them to produce more

85
Q

substitutes

A
  • positive XED
  • if good B becomes more expensive, demand for good A rises
86
Q

supply

A

the ability and willingness to provide a particular good/service at a given price at a given moment in time

87
Q

symmetric information

A

where buyers and sellers both have access to the same info

88
Q

trade pollution permits

A

licenses which allow businesses to pollute up a certain amount.
the govt controls the number of licenses and so can control the amount of pollution.
Businesses are allowed to sell and buy the permits which means there may be incentive to reduce the amount they pollute

89
Q

Unitary price elastic good

A

when PED/PES = 1
- a change in price leads to a change in output by the same proportion

90
Q

Utility

A

the satisfaction derived from consuming a good

91
Q

Weakness at computation

A

a cause of irrational behavior
- when consumers are bad at making calculations, estimating problems, and working out future benefits/costs

92
Q

value judgments

A

evaluative statement on how GOOD or BAD you think an idea or action is

93
Q

functions of money

A
  • medium of exchange
  • measureof value
  • method of deferred payment
  • store of wealth
94
Q

factors shifting demand

A

P - population
A - advertising
S - substitutes price
I - income
F - fashion/taste
I - interest rates
C - complements price

95
Q

income effect

A
  • when the price falls people’s ‘real income’ increases so they can afford to buy more
96
Q

substitutes effect

A
  • when the price of a product falls the product will be relatively more attractive to people than other products whose prices have remained unchanged
97
Q

Pareto optimality

A

when a market is at equilibrium with no external influences its said to be at ‘Pareto optimality’

98
Q

PED values

A

infinite - perfectly elastic
> 1 - elastic
1 - unitary proportional
< 1 - inelastic
0 - perfectly inelastic

99
Q

merit goods

A

goods that would be under provided in a pure free market economy

100
Q

demerit goods

A

over provided and thus overconsumed by the free market mechanism

101
Q

reasons to shift PPF

A

1) Productive potential increase
2) Increase in resources
3) Improvement in quality of resources
4) New + Improved tech

102
Q

How to increase productive potential

A

1) Quality
2) Quantity
3) Efficiency

103
Q

free good

A

any good you can get without incurring an opportunity cost - i.e. goods that aren’t scarce

104
Q

economic growth

A

an increase in the productive capacity of the economy indicating an increase in real output

105
Q

normal good

A

as income rises the demand for the good rises

106
Q

inferior good

A

as income rises demand for the product will fall

107
Q

joint supply

A

where an increase or decrease in the supply of one good leads to an increase or decrease in supply of a by-product

108
Q

frederich hayek believed in…?

A

free market economy

109
Q

adam smith believed in…?

A

free market economy

110
Q

karl marx believed in…?

A

command economy

Econ - MICRO (3 decks)

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