A2 MICRO Flashcards
Policy indicator
Provides information on whether a particular policy is on course to achieved a desired objective.
Performance indicator
Provides information on what is happening in the economy.
Lead indicator
Provides information on the future state of the economy.
Lag indicator
Provides information about past events that have already taken place in the economy.
Production
the process of converting inputs into outputs.
Short run
A time period in which at least one factor of production is fixed.
Long run
the time scale in which all factors of production can be changed.
Profit
Total revenue minus total costs.
Welfare
Basically means human happiness.
Industrial policy
the government’s micro economic policy.
Firm
A business that sells output commercially on the market.
Company
an incorporated business enterprise.
Private company
Issues shares that aren’t for sale on the market.
Public company
Issues shares that the general public can buy on a market or stock exchange.
Multinational company.
A business with a headquarters in one country and operates subsidiaries abroad.
Law of diminishing marginal returns.
A short run law which states that as a variable factor is added to fixed factors eventually the marginal return from that variable factor will fall.
Fixed costs
Costs of employing fixed factors of production in the short run.
Variable costs
the costs of employing variable factors of production in the short run.
Returns to scale
Describes how output changes in the long run when all factors of production are variable. They are about the change in scale of a factor/s of production and the proportionate increase in output.
Economies of scale
Falling long run average costs as the size and scale of the firm increases.
Diseconomies of scale
Rising long run average costs as the size or scale of a firm increases.
Minimum efficient scale
The smallest scale plant that can benefit from the minimum long-run average costs.
Market structure
The framework within which a firm sells its output.
Pure monopoly
Exists when there is only one firm in the market.
Perfect competition
Exists in a market that meets the 4 conditions of perfect competition.
Oligopoly
An imperfectly competitive containing only a few dominant firms.
Revenue
The money a firm receives from selling output. PxQ
Average revenue
Total revenue over size of output.
Marginal revenue
The change in total revenue divided by the change in the size in output.
Profit maximising position
MR=MC
Normal profit
The minimum profit a firm must make to stay in business, whilst being insufficient to attract new firms into the market.
Supernormal profit
Profit over and above normal profit.
Natural monopoly
When there is only room for one firm in the market due to economies of scale e.g. utility industries.
Monopoly profit
The supernoral profit a monopoly or an uncompetitive firm makes in the long run as well as in the short run.
Economic efficiency
In general terms, minimises costs incurred with minimum undesired side effects.
Technical efficiency
Maximies the output from the available inputs.
Productive efficiency
Minimising the average costs of production both in the short run and the long run.
Productive efficiency (whole economy)
Operating on the country’s PPF
Allocative efficiency
when the maximum economic welfare is received.
Static efficiency
Measures technical, X, productive and allocative efficiency at any one point in time.
Dynamic efficiency
The extent to which various forms of static efficiency improve over time.
Consumer surplus
The measure of economic welfare enjoyed by consumers who receive surplus utility from a good as a result of paying less than they would for a good
Producer surplus
The economic welfare enjoyed by producers as result from getting more than they would be prepared to accept from selling a good.
Imperfect competition
Describes the market structures between PC and monopoly.
Oligopoly
A market with a small number of dominant firms.
Duopoly
Describes a market with two dominant firms.
Concentration ratio
Measures the market share of the biggest firms in the market.
Price discrimination
A means of charging different prices to different consumers for the same product based on different abilities to pay.
Cartel
A collusive agreement by firms in a market, usually to fix prices, sometimes output.
Managerial theory
Assumes firms wish to maximise managers objectives rather than profit
Organisational theory
Assumes that a firm is a combination of different groups eg managers and workers.
Principal/agent problem
Recognises that principals have a different objective from mangers.
Satisficing
The means of achieving a statuary objective acceptable to all in a firm.
Entrepreneur
A risk taker and decision maker in a firm.
Internal growth
Occurs when a firm invests from scratch in new capacity e.g. offices
External growth
Growth via acquisition or merger.
Vertical growth
Occurs when a firm grows by expanding back up its supply chain or forward along its distribution chain.
Horizontal growth
When a firm undertakes more of the activities it is already involved in, which can lead to economies of scale.
Lateral growth
When a firm diversifies into new types of production.
Internal economies of scale
Long run lower costs of production resulting from an increase in the size/scale of a firm.
External econmies of scale
Long-run lower costs resulting form growth of the industry the firm is apart of.
Competition policy
Aims to make goods markets more competitive> compromises of policy on mergers, monopoly and restrictive trading practices.
Competition commission.
Along with the office of fair trading which implements UK competition policy.
Restrictive trading practice
A firm that colludes which other firms in actions that restricts competition.
Market failure
When a market functions badly, unsatisfactorily or not at all.
Allocative inefficiency
When it is impossible to improve overall welfare by reallocating resources between industries or markets.
Inequitable
Unfair or unjust.
Public good
A good which is both non-excludable and non-rivalrous.
Free rider
Someone who benefits from a good without paying for it.
Non-pure public good
A good which it may be possible to exclude free riders but for which there is not a case for doing so.
Public bad
A bad for which which producers free ride dumping on third parties.
Externality
The external cost dumped on third parties outside if the market.
Private benefit maximisation
MPB=MPC
Social benefit maximisation
MSB=MSC
Traded pollution permits
licenses to pollute given by governments to companies which they can buy and trade on the market.
Demerit goods
when the social costs of consumption exceed the private costs.
Information problem
Where people make poor decision because they don’t possess or ignore the relevant information.
Merit good
A good such as healthcare where the social benefits of consumption exceed the private benefits.
Moral Hazard
The tendency of individuals and firsm once insured against one contingency to behave to make that more likely.
Adverse selection
Describes a situation where the person buying insurance has a greater knowledge of the risks than the seller. Thus are more likely to buy insurance.
Government failure
When government intervention in the economy is ineffective or wasteful.
Cost-benefit analysis
A technique for assessing all the likely costs and benefits which will result from an economic decision. including the social costs and benefits.
Marginal cost of labour
The addition to a firm’s total cost of production resulting from employing one more worker.
Average cost of labour
Total wage costs divided by the number of workers employed.
Market supply curve of labour
The planned supply of all the workers in a market.
Individual worker’s supply curve of labour
The planned supply by one worker.
Marginal revenue product
The additional monetary value of the firms output from employing one extra worker.
Marginal physical product
The addition to a firm’s output brought about by employing one more worker.
Monopsony
Means there is only one buyer in a market.
Occupational mobility of labour
Describes the difficulty of moving from one occupation to another.
Geographical immobility of labour
Describes the difficulty of moving from one place to another.
Wage discrimination
Means paying different workers different wages for doing the same job.
Trade union
A collective voice of workers whose aim is to increase the welfare of the workers through better conditions and pay.
National Minimum wage
The minimum wage rate that must be paid by law to employees.
Absolute poverty
Occurs when income is below a certain level.
Relative poverty
Occurs when income is below a specified proportion of average income.
Progressive taxation
A tax system where you pay a greater proportion of our income as income increases.
Transfer
A income paid to benefits recipients financed through taxation.
Fiscal drag
A failure to raise personal tax thresholds in line with inflation that brings as result the low paid into paying tax.
Poverty/earnings trap
The situation when the low paid are trapped in relative poverty by having to pay income tax at the same time as losing welfare benefits.
Unemployment trap
Means the unemployed are trapped in unemployment as they get more on benefits than they would be in a low paid job.
Horizontal equity
Households in similar situations paying similar taxes and receiving similar benefits.
Vertical equity
Redistributes income from the rich to the poor.
