GOOD microeconomic definintions Flashcards
Define the economic problem?
How to allocate scarce resources among unlimited and competing wants
Define opportunity cost?
The value of the next best alternative forgone when a choice is made.
Define specialisation?
The concentration of a worker, firm , region or country on a narrow range of tasks or goods and services.
Define the Production Possibility curve?
The production possibility curve shows the maximum output combination of two goods and services that an economy can produce with all resources fully employed.
Define a market?
A market is any interaction between buyers and sellers for the exchange of goods and services
Define Demand?
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.
What is consumer surplus?
The extra amount that a consumer is willing to pay for a product above the price that is actually paid
What is producer surplus?
The difference between the price a producer receives and the minimum price they are willing to accept
Define Price Elasticity of demand?
PED measures the responsiveness of quantity demanded to a change in the price of the good or service.
Define Cross elasticity of demand?
XED measures the responsiveness of demand for one product in relation to a change in the price of another product
Define Income Elasticity of demand?
The responsiveness of demand of a good or service when income changes
Define Supply?
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
Define producer surplus?
Producer surplus is the difference between the price a producer is willing to accept and the market price actually received
Define Price elasticity of supply?
Price elasticity of supply is the responsiveness of the quantity supplied to a change in the price of the product
Define productive efficiency?
Where production takes place using the least amount of scarce resources
Define Allocative efficiency?
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
What is economic efficiency?
Where both productive and Allocative efficiency are satisfied
Define market failure?
Where the free market mechanism fails to achieve economic efficiency
Define an externality?
Externalities are spill over effects on third parties arising from production and consumption
Define a negative externality?
An unfavourable spill over effect on third parties arising from production and consumption
Define a positive externality?
A favourable spill over effect on third parties arising from production and consumption
What are private costs?
The costs involved in an action borne directly by the decision makers
What are social costs?
They are the full costs to society of the production or consumption of any good.
What are external costs?
The costs borne by a third party or to society as a whole
What are private benefits?
They are benefits that accrue directly to the decision makers
What are external benefits?
They are the benefits accrued to a third party or to society as a whole
What is the social benefit?
The full benefits to the society of production or consumption of any good
Define information failure?
Information failure occurs when a lack of information results in consumers and/or producers making decisions that do not maximise their welfare
Define asymmetric information failure?
Where information is not shared equally between consumers and producers
Define merit good?
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
Define De-merit good?
A good that is worse for a person than that person realises. Individual consumers overvalue the benefits from consuming such a good
Define a public good?
A public good is a good or service that is both non-excludable and non-rival
Define non-excludable?
Non-excludable means that an individual cannot be prevented from consuming the good or service
Define non-rival?
Non-rival means that consumption by one person doesn’t reduce the amount available for consumption by others
Define a quasi-public good?
A quasi public good has one characterise of a public good but not both
Define Indirect taxation?
A tax levied on goods and services that increases the cost of production
Define subsidy?
A payment, usually from the government to encourage production or consumption of a product
Define Provision of Information?
Providing information about goods and services
Define state provision?
-The provision or supply of something from the state
Define Regulation?
Regulation is the setting of laws, standards and controls to influence production and/or consumption to correct failure
Define tradable pollution permits?
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
Define scarcity?
A situation where there are insufficient resources to meet all wants
