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Economics definitions > A2 MICRO > Flashcards

A2 MICRO Flashcards

1
Q

Policy indicator

A

Provides information on whether a particular policy is on course to achieved a desired objective.

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2
Q

Performance indicator

A

Provides information on what is happening in the economy.

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3
Q

Lead indicator

A

Provides information on the future state of the economy.

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4
Q

Lag indicator

A

Provides information about past events that have already taken place in the economy.

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5
Q

Production

A

the process of converting inputs into outputs.

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6
Q

Short run

A

A time period in which at least one factor of production is fixed.

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7
Q

Long run

A

the time scale in which all factors of production can be changed.

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8
Q

Profit

A

Total revenue minus total costs.

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9
Q

Welfare

A

Basically means human happiness.

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10
Q

Industrial policy

A

the government’s micro economic policy.

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11
Q

Firm

A

A business that sells output commercially on the market.

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12
Q

Company

A

an incorporated business enterprise.

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13
Q

Private company

A

Issues shares that aren’t for sale on the market.

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14
Q

Public company

A

Issues shares that the general public can buy on a market or stock exchange.

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15
Q

Multinational company.

A

A business with a headquarters in one country and operates subsidiaries abroad.

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16
Q

Law of diminishing marginal returns.

A

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.

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17
Q

Fixed costs

A

Costs of employing fixed factors of production in the short run.

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18
Q

Variable costs

A

the costs of employing variable factors of production in the short run.

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19
Q

Returns to scale

A

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.

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20
Q

Economies of scale

A

Falling long run average costs as the size and scale of the firm increases.

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21
Q

Diseconomies of scale

A

Rising long run average costs as the size or scale of a firm increases.

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22
Q

Minimum efficient scale

A

The smallest scale plant that can benefit from the minimum long-run average costs.

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23
Q

Market structure

A

The framework within which a firm sells its output.

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24
Q

Pure monopoly

A

Exists when there is only one firm in the market.

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25
Q

Perfect competition

A

Exists in a market that meets the 4 conditions of perfect competition.

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26
Q

Oligopoly

A

An imperfectly competitive containing only a few dominant firms.

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27
Q

Revenue

A

The money a firm receives from selling output. PxQ

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28
Q

Average revenue

A

Total revenue over size of output.

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29
Q

Marginal revenue

A

The change in total revenue divided by the change in the size in output.

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30
Q

Profit maximising position

A

MR=MC

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31
Q

Normal profit

A

The minimum profit a firm must make to stay in business, whilst being insufficient to attract new firms into the market.

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32
Q

Supernormal profit

A

Profit over and above normal profit.

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33
Q

Natural monopoly

A

When there is only room for one firm in the market due to economies of scale e.g. utility industries.

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34
Q

Monopoly profit

A

The supernoral profit a monopoly or an uncompetitive firm makes in the long run as well as in the short run.

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35
Q

Economic efficiency

A

In general terms, minimises costs incurred with minimum undesired side effects.

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36
Q

Technical efficiency

A

Maximies the output from the available inputs.

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37
Q

Productive efficiency

A

Minimising the average costs of production both in the short run and the long run.

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38
Q

Productive efficiency (whole economy)

A

Operating on the country’s PPF

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39
Q

Allocative efficiency

A

when the maximum economic welfare is received.

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40
Q

Static efficiency

A

Measures technical, X, productive and allocative efficiency at any one point in time.

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41
Q

Dynamic efficiency

A

The extent to which various forms of static efficiency improve over time.

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42
Q

Consumer surplus

A

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

43
Q

Producer surplus

A

The economic welfare enjoyed by producers as result from getting more than they would be prepared to accept from selling a good.

44
Q

Imperfect competition

A

Describes the market structures between PC and monopoly.

45
Q

Oligopoly

A

A market with a small number of dominant firms.

46
Q

Duopoly

A

Describes a market with two dominant firms.

47
Q

Concentration ratio

A

Measures the market share of the biggest firms in the market.

48
Q

Price discrimination

A

A means of charging different prices to different consumers for the same product based on different abilities to pay.

49
Q

Cartel

A

A collusive agreement by firms in a market, usually to fix prices, sometimes output.

50
Q

Managerial theory

A

Assumes firms wish to maximise managers objectives rather than profit

51
Q

Organisational theory

A

Assumes that a firm is a combination of different groups eg managers and workers.

52
Q

Principal/agent problem

A

Recognises that principals have a different objective from mangers.

53
Q

Satisficing

A

The means of achieving a statuary objective acceptable to all in a firm.

54
Q

Entrepreneur

A

A risk taker and decision maker in a firm.

55
Q

Internal growth

A

Occurs when a firm invests from scratch in new capacity e.g. offices

56
Q

External growth

A

Growth via acquisition or merger.

57
Q

Vertical growth

A

Occurs when a firm grows by expanding back up its supply chain or forward along its distribution chain.

58
Q

Horizontal growth

A

When a firm undertakes more of the activities it is already involved in, which can lead to economies of scale.

59
Q

Lateral growth

A

When a firm diversifies into new types of production.

60
Q

Internal economies of scale

A

Long run lower costs of production resulting from an increase in the size/scale of a firm.

61
Q

External econmies of scale

A

Long-run lower costs resulting form growth of the industry the firm is apart of.

62
Q

Competition policy

A

Aims to make goods markets more competitive> compromises of policy on mergers, monopoly and restrictive trading practices.

63
Q

Competition commission.

A

Along with the office of fair trading which implements UK competition policy.

64
Q

Restrictive trading practice

A

A firm that colludes which other firms in actions that restricts competition.

65
Q

Market failure

A

When a market functions badly, unsatisfactorily or not at all.

66
Q

Allocative inefficiency

A

When it is impossible to improve overall welfare by reallocating resources between industries or markets.

67
Q

Inequitable

A

Unfair or unjust.

68
Q

Public good

A

A good which is both non-excludable and non-rivalrous.

69
Q

Free rider

A

Someone who benefits from a good without paying for it.

70
Q

Non-pure public good

A

A good which it may be possible to exclude free riders but for which there is not a case for doing so.

71
Q

Public bad

A

A bad for which which producers free ride dumping on third parties.

72
Q

Externality

A

The external cost dumped on third parties outside if the market.

73
Q

Private benefit maximisation

A

MPB=MPC

74
Q

Social benefit maximisation

A

MSB=MSC

75
Q

Traded pollution permits

A

licenses to pollute given by governments to companies which they can buy and trade on the market.

76
Q

Demerit goods

A

when the social costs of consumption exceed the private costs.

77
Q

Information problem

A

Where people make poor decision because they don’t possess or ignore the relevant information.

78
Q

Merit good

A

A good such as healthcare where the social benefits of consumption exceed the private benefits.

79
Q

Moral Hazard

A

The tendency of individuals and firsm once insured against one contingency to behave to make that more likely.

80
Q

Adverse selection

A

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.

81
Q

Government failure

A

When government intervention in the economy is ineffective or wasteful.

82
Q

Cost-benefit analysis

A

A technique for assessing all the likely costs and benefits which will result from an economic decision. including the social costs and benefits.

83
Q

Marginal cost of labour

A

The addition to a firm’s total cost of production resulting from employing one more worker.

84
Q

Average cost of labour

A

Total wage costs divided by the number of workers employed.

85
Q

Market supply curve of labour

A

The planned supply of all the workers in a market.

86
Q

Individual worker’s supply curve of labour

A

The planned supply by one worker.

87
Q

Marginal revenue product

A

The additional monetary value of the firms output from employing one extra worker.

88
Q

Marginal physical product

A

The addition to a firm’s output brought about by employing one more worker.

89
Q

Monopsony

A

Means there is only one buyer in a market.

90
Q

Occupational mobility of labour

A

Describes the difficulty of moving from one occupation to another.

91
Q

Geographical immobility of labour

A

Describes the difficulty of moving from one place to another.

92
Q

Wage discrimination

A

Means paying different workers different wages for doing the same job.

93
Q

Trade union

A

A collective voice of workers whose aim is to increase the welfare of the workers through better conditions and pay.

94
Q

National Minimum wage

A

The minimum wage rate that must be paid by law to employees.

95
Q

Absolute poverty

A

Occurs when income is below a certain level.

96
Q

Relative poverty

A

Occurs when income is below a specified proportion of average income.

97
Q

Progressive taxation

A

A tax system where you pay a greater proportion of our income as income increases.

98
Q

Transfer

A

A income paid to benefits recipients financed through taxation.

99
Q

Fiscal drag

A

A failure to raise personal tax thresholds in line with inflation that brings as result the low paid into paying tax.

100
Q

Poverty/earnings trap

A

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.

101
Q

Unemployment trap

A

Means the unemployed are trapped in unemployment as they get more on benefits than they would be in a low paid job.

102
Q

Horizontal equity

A

Households in similar situations paying similar taxes and receiving similar benefits.

103
Q

Vertical equity

A

Redistributes income from the rich to the poor.

Economics definitions (4 decks)

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