Exam Review Terms Flashcards
Scarcity
the study of the allocation of scarce goods among competing ends. To be scarce means that the quantity available isn’t large enough to satisfy all the productive uses
opportunity cost
the value of the benefits of the foregone alternative (the next best alternative that could have been chosen but was not
macro economics
examines the quantity as a whole with a view to understanding the interaction between economic aggregates such as national income employment and inflation
examines the aggregate behaviour of the economy - how the actions of all the individuals and firms in the economy interact to producea particular level of economic performance as a whole
micro economics
examines the economic behvaiour of indicidual units such as businesses and households in the face of srarcity and government interactions as well as the conomic consequences of these dicisions on other actors
efficiency
to get the most possible from scarce resources
efficiency in production - producing the desired mix of goods at the lowest cost
efficiency in distribution - godds are consumed by those who need them most
pareto effciency - a situation where it is not possible to make one person better off without it necessitating other people being worse off.
law of increasing relative costs
as the output of the good increases, the opportunity cost of producing an additional unit of this good increases
law of increasing returns to scale
when all factors of production are increased, output increases at a higher rate
law of increasing costs
diminishing returns
equal sized increases of a resource (factor), added to the fixed factors of another resource will result in smaller increases in output eventually
economies of scale
the increse in efficiency of production as goods being produced increases
diseconomics of scale
declining efficiencies of production as output increases, average total cost per unit of production increases
constant returns to scale
the cost for successive units remains constant
absolute advantage
when by using the same quantities of inputs, the individual can produce more of a good than another person
comparative advantage
when an individual can perform an activity at a lower opportunity cost than another
law of demand
as long as other things do not change, the quantity demanded varies inversely with the price. (As price increases, demand decreases and vice versa)
law of supply
the quantity supplied will increase if the price increases and fall if price falls as long as other things to not change
marginal revenue
additional revenue gained from selling one more unit of a good
marginal cost
cost of producing one more unit of a good
perfect competition
- large number of small firms
- products are homogenous
- freedum of entry and exit into the industry
- firms are price takers
- each producer supplies a very small proportion of total industry output
- consumer and producers have perfect knowledge about the market
monopolistic competition
- large number of small firms
- may have some control over price as they are able to differentiate their product
- relatively easy exit and entry in the market
- consumers and producers do not have perfect knowledge of the market.
oligopoly
- dominated by a few large firms
- relatively stable price
- potential for collusion
- interdependence of firms
- goods could be homogenous or highly differentiated
- branding and brand loyalty may be potent source of competitive advantage
- game theory is relevent
- high barriers to entry
monopoly
- one major producer
- is able to control prices
- can influence quantity of output
- can place barriers to entry
- pricing strategies present, might try to eliminate competition
- sometimes seen as a case of a market failure
