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Economics micro > Defenitions > Flashcards

Defenitions Flashcards

1
Q

Define Scarcity

A

the basic economic problem and it is caused by unlimited wants and limited resources

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2
Q

Define Needs

A

needs are goods and services without which we cannot survive - I.e. food, drink, shelter…

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3
Q

Define Wants

A

wants are goods and services that we desire but are not necessary for survival - I.e. mobile phones, motor cars, holidays…

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4
Q

Define Economic Goods

A

Economic goods are scarce, limited in supply. Resources gave to be used to produce them - I.e. motor cars, health care…

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5
Q

Define Free Goods

A

Free goods are not scarce, unlimited in supply. No resources are used to produce them - I.e. Fresh air, sunshine…

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6
Q

Define Sustainability

A

sustainability is ‘development that meets the needs of the present without compromising the ability of future generations to meet their own needs’

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7
Q

Define Opportunity Cost

A

the cost of any economic choice in terms of the next best alternative foregone as a result of making that choice

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8
Q

Define Factors of Production

A

the economic resources used to produce goods and services: Land, Labour, Enterprise and Capital - (free goods use no factors of production)

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9
Q

Define Production

A

Any economic activity that leads to a flow of goods and services for which people are willing and able to pay

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10
Q

Define Primary Production

A

the ‘extracts’ of raw materials from nature - I.e Mining, agriculture, fishing…

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11
Q

Define Secondary Production

A

process or manufactures raw materials into semi-finished and finished products - E.g. Manufacturing, energy, water supply, construction

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12
Q

Define Tertiary Production

A

services that provide support to all stages of the production process, as well as being directly consumed - E.g. distribution and hospitality, transport and communications, financial and business services…

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13
Q

Define Consumer Goods

A

are bought by households and they satisfy wants directly - E.g. Clothing, food

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14
Q

Define Capital Goods

A

are bought by firms ad they satisfy wants indirectly - E.g. machine tools and factories

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15
Q

Define The Division of Labour

A

where production of goods or services is broken down into a series of specialised tasks. Each worker only carries out a small part of the overall production process - E.g. motor cars on a production line

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16
Q

Define Specialisation

A

where individuals, businesses and whole economies are not self-sufficient but concentrate on producing certain goods and services and trading the surplus with others

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17
Q

Define The Production Possibility Frontier

A

shows the combination of goods and services that an economy could produce if all its resources - capital and labour - were fully employed and assuming a constant state of technology (PPF)

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18
Q

Define Pareto-efficiency

A

occurs where it is impossible to make one person better off without making another person worse off - I.e. the economy is on the PPF

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19
Q

Define Economic Growth

A

an increase in the actual and potential output of goods and services produced by an economy. It can be shown by a rightwards shift in the PPF

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20
Q

Define Diminishing Returns

A

if you have a fixed stock of capital and employ it with increasing numbers of workers, then output will increase, but at a diminishing rate. (as each worker has less capital to work with)

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21
Q

Define a Free Market Economy

A

exists where nearly all economic decisions are taken by households and firms. They are coordinated by the price mechanism, limited government intervention - E.g. Hong Kong or West Germany

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22
Q

Define a Planned Economy

A

where government take all economic decisions by means of state planning - E.g. East Germany

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23
Q

Define a Mixed Economy

A

economies where the balance between allocation by the market mechanism and allocation by planning process is equal - E.g. England

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24
Q

Define a Market

A

any arrangement by which, buyers and sellers negotiate exchange of goods and services, usually using money

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25
Q

Define The Price Mechanism

A

The price mechanism provides the information necessary to coordinate the workings of a market economy, and insure that economic decisions can be taken at a decentralised level by millions of households and firms, operating in thousands of markets - E.g. traffic lights in London (millions of cars coordinated round thousands of roads, however no person is controlling it, just regulations)

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26
Q

Define Demand

A

the quantity of a good or service that would be bought by consumers at each price over a given period of time

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27
Q

Define Consumer Surplus

A

the difference between the price an individual would be willing to pay for a good or service and the price they actually pay for the good or service - I.e. value of the satisfaction over and above what they paid for

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28
Q

Define Elasticity

A

measures the responsiveness of the quantity demanded or supplied for a product to a small change in its price or in other variables, such as consumer incomes

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29
Q

Define Revenue

A

the income that a business gains from the sale of a good or a service - calculated as Revenue = Price X Quantity demanded

30
Q

Define Price Elasticity of Demand

A

measures the responsiveness of the quantity demanded for a good or service to a small change in its price, assuming that the conditions of demand remain constant

31
Q

what is economic development

A

increase in real output of goods and services and also taking into account standard of living

32
Q

Define income Elasticity of Demand

A

measures the responsiveness of the quantity demanded for a good to a small change in consumers’ income, assuming price remains constant

33
Q

Define cross Elasticity of Demand

A

cross elasticity of demand measures the responsiveness of the quantity demanded for a good to a small change in the price of a related good - a substitute or complement - assuming that the price of original good remains constant
(substitutes, increase in price of related goods increases the demand of this good) (Complements, increase in price of related good decreases demand for this good)

34
Q

Define Short-run period of supply

A

where at least one factor of production is fixed, therefore output can be increased but only by a small amount. // fixed state of technology

35
Q

Define Supply

A

quantity of a good or service that would be sold by producers at each price over a given period of time.

36
Q

Define Long-run period of supply

A

where all factors of production can be varied, although the state of technology is fixed. Output can increase by large amounts

37
Q

Define Producer Surplus

A

the difference between the price that a firm would be willing to sell a good at and the price that they actually sell the good for.

38
Q

Define Elasticity

A

measures the responsiveness of the demand or supply for a product to a small change in its price or in other variables such as consumer incomes

39
Q

Define Price elasticity of suppy

A

measures the responsiveness of the supply of a good to a small change in its price, assuming that the condition of supply remain constant.

40
Q

Define Equilibrium

A

Equilibrium determined where consumers can buy all that they want at that price and producers can sell all that they want at that price. demand = supply // no shortage or surplus

41
Q

Define a Market Surplus

A

where supply exceeds demand at the market price, where price is higher than equilibrium

42
Q

Define a Market Shortage

A

where demand exceeds supply at the market price, where price is below equilibrium

43
Q

Define a increase in Demand

A

where more of a good is demanded at each and every price. demand curve shifts to the right

44
Q

Define a increase in Supply

A

where more of a good is supplied at each and every price. supply curve shifts to the right

45
Q

Define Productive Efficiency

A

where the firm is producing at the lowest point on the lowest average cost curve. // Therefor, output is maximised from given inputs.

46
Q

Define Allocative Efficiency

A

where the market is producing the right quantity of the good and is selling it at the right price // (price = marginal cost) Therefor, the sum total of consumer and producer surplus is maximised

47
Q

Define Pareto-efficiency

A

where it is impossible to make one person better off with ought making another person worse off // i.e. the economy is on the PPF and both productive and allocatively efficient

48
Q

Define Market failure

A

where the free market fails to allocate resources efficiently // where there are externalities

49
Q

Define Externalities

A

where the economic activities of one agent (household or firm) leads to a benefit or cost that affects the welfare of third-party agents in ways not reflected in market price

50
Q

Define Social Benefits

A

Private benefits + external benefits

51
Q

Define Consumer externalities // external benefits

A

where a household’s consumption of a good or service leads to a benefit to a third-party // not reflected in the market price

52
Q

Define Positive consumption externalities

A

where social benefits are higher than private benefits // under-consumed as market price is too low

53
Q

Define Negative consumption externalities

A

where social benefits are higher than private benefits // market price to high, overconsumption

54
Q

Define Social costs

A

private costs + external costs

55
Q

Define Production externalities // external costs

A

where a firm’s production of a good or service leads to a cost to a third-party //not reflected in market price

56
Q

Define Positive production externalities

A

where social costs are lower than private costs // market price is too high and as a result under produced

57
Q

Define Negative production externalities

A

where social costs are higher than private costs // market price is too low as over produced

58
Q

Define information failure

A

where individuals do not posses perfect information about prices and quality and therefore are likely to make wrong choices // firms have incentive to hide information to increase demand

59
Q

Define Merit Goods

A

goods which generate private benefits which are higher than individuals realise and so they do not take them into account when deciding how much to buy // due to lack of perfect information

60
Q

Define Demerit goods

A

goods which generate private benefits which are lower than individuals realise and so they do not take into account // buy to much as a result of lacking perfect information

61
Q

Define Private goods

A

goods which posses the characteristics of being rival (one person’s benefit reduces another person’s benefit) and excludable (a person cannot benefit from them with-ought paying) // market can provide them

62
Q

Define Public goods

A

goods which posses the characteristics of being non-rival (one person benefiting from them doesn’t reduce other peoples benefits from it) and non-excludable (person can benefit with-ought paying) // market cannot provide them, is a free rider problem

63
Q

Define Quasi public good

A

goods which possess some but not all of the characteristics of public goods // e.g. might be rival but non-excludable or non-rival but excludable, Market can provide these

64
Q

Define Unstable Prices

A

where the price may fluctuate and lead to unexpected changes in income, often in agriculture and unexpected harvests

65
Q

Define Poverty and Inequality

A

occurs because endowments of resources are unequally distributed and therefore generate an unequal distribution of income // some individuals posses few resources

66
Q

Define Taxation

A

is a compulsory levy charged on incomes, profits and expenditure on goods and services

67
Q

Define subsidies

A

payments made by the government either to consumers or producers that will reduce price of a good or service

68
Q

Define Regulations

A

measures used by government to control a market // made in law

69
Q

Define Price controls

A

minimum and maximum prices set by government

70
Q

Define Government failure

A

when intervention to correct market failure leads to a net loss in economic welfare. // therefore makes situation worse than before

Economics micro (1 decks)

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