GOOD microeconomic definintions

Question 1

Define the economic problem?

Answer 1

How to allocate scarce resources among unlimited and competing wants

Question 2

Define opportunity cost?

Answer 2

The value of the next best alternative forgone when a choice is made.

Question 3

Define specialisation?

Answer 3

The concentration of a worker, firm , region or country on a narrow range of tasks or goods and services.

Question 4

Define the Production Possibility curve?

Answer 4

The production possibility curve shows the maximum output combination of two goods and services that an economy can produce with all resources fully employed.

Question 5

Define a market?

Answer 5

A market is any interaction between buyers and sellers for the exchange of goods and services

Question 6

Define Demand?

Answer 6

Demand is the quantity of a good or service that consumers are willing and able to purchase at a given market price over a specified period of time.

Question 7

What is consumer surplus?

Answer 7

The extra amount that a consumer is willing to pay for a product above the price that is actually paid

Question 8

What is producer surplus?

Answer 8

The difference between the price a producer receives and the minimum price they are willing to accept

Question 9

Define Price Elasticity of demand?

Answer 9

PED measures the responsiveness of quantity demanded to a change in the price of the good or service.

Question 10

Define Cross elasticity of demand?

Answer 10

XED measures the responsiveness of demand for one product in relation to a change in the price of another product

Question 11

Define Income Elasticity of demand?

Answer 11

The responsiveness of demand of a good or service when income changes

Question 12

Define Supply?

Answer 12

Supply is the quantity of a good or service that a producer is both willing and able to sell at a given market price during a given period of time

Question 13

Define producer surplus?

Answer 13

Producer surplus is the difference between the price a producer is willing to accept and the market price actually received

Question 14

Define Price elasticity of supply?

Answer 14

Price elasticity of supply is the responsiveness of the quantity supplied to a change in the price of the product

Question 15

Define productive efficiency?

Answer 15

Where production takes place using the least amount of scarce resources

Question 16

Define Allocative efficiency?

Answer 16

Allocative efficiency exists where consumer satisfaction is maximised. Where the quantity supplied equals the quantity demanded and resources are being used most effectively to satisfy consumers wants

Question 17

What is economic efficiency?

Answer 17

Where both productive and Allocative efficiency are satisfied

Question 18

Define market failure?

Answer 18

Where the free market mechanism fails to achieve economic efficiency

Question 19

Define an externality?

Answer 19

Externalities are spill over effects on third parties arising from production and consumption

Question 20

Define a negative externality?

Answer 20

An unfavourable spill over effect on third parties arising from production and consumption

Question 21

Define a positive externality?

Answer 21

A favourable spill over effect on third parties arising from production and consumption

Question 22

What are private costs?

Answer 22

The costs involved in an action borne directly by the decision makers

Question 23

What are social costs?

Answer 23

They are the full costs to society of the production or consumption of any good.

Question 24

What are external costs?

Answer 24

The costs borne by a third party or to society as a whole

Question 25

What are private benefits?

Answer 25

They are benefits that accrue directly to the decision makers

Question 26

What are external benefits?

Answer 26

They are the benefits accrued to a third party or to society as a whole

Question 27

What is the social benefit?

Answer 27

The full benefits to the society of production or consumption of any good

Question 28

Define information failure?

Answer 28

Information failure occurs when a lack of information results in consumers and/or producers making decisions that do not maximise their welfare

Question 29

Define asymmetric information failure?

Answer 29

Where information is not shared equally between consumers and producers

Question 30

Define merit good?

Answer 30

A merit good is a product that is better for a person than that person realises. The benefits to the consumer are greater than he realises

Question 31

Define De-merit good?

Answer 31

A good that is worse for a person than that person realises. Individual consumers overvalue the benefits from consuming such a good

Question 32

Define a public good?

Answer 32

A public good is a good or service that is both non-excludable and non-rival

Question 33

Define non-excludable?

Answer 33

Non-excludable means that an individual cannot be prevented from consuming the good or service

Question 34

Define non-rival?

Answer 34

Non-rival means that consumption by one person doesn’t reduce the amount available for consumption by others

Question 35

Define a quasi-public good?

Answer 35

A quasi public good has one characterise of a public good but not both

Question 36

Define Indirect taxation?

Answer 36

A tax levied on goods and services that increases the cost of production

Question 37

Define subsidy?

Answer 37

A payment, usually from the government to encourage production or consumption of a product

Question 38

Define Provision of Information?

Answer 38

Providing information about goods and services

Question 39

Define state provision?

Answer 39

-The provision or supply of something from the state

Question 40

Define Regulation?

Answer 40

Regulation is the setting of laws, standards and controls to influence production and/or consumption to correct failure

Question 41

Define tradable pollution permits?

Answer 41

A permit which allows the owner to emit a certain amount of pollution and which can be sold to another polluter if it is not required

Question 42

Define scarcity?

Answer 42

A situation where there are insufficient resources to meet all wants