Key terms Flashcards
rational behaviour
occurs when a consumer seeks to maximise the utility gained from a good or service consumed. acting in self interest
regulation
the implementation of rules to restrict economic action
regulatory capture
when regulatory agencies act in the interest of regulated firms rather than the interest of consumer they are trying to protect
relative poverty
occurs when income received is 60% lower than median income
absolute poverty
when income is so low that basic necessities such as such as food, shelter and housing can’t be bought
rule of thumb
a rough and practical method that can be easily applied when making decisions
satisficing
when a satisfactory outcome is achieved rather than the best possible outcome
sacrificing profit to satisfy as many key stakeholders as possible.
social norms
forms of patterns of behaviours which are considered acceptable by a society
substitution effect
eg higher hourly wages may make working more attractive so workers substitute labour for leisure
sunk costs
costs that cannot be recovered
eg rent or cost of machinery
trade union
a group of workers who come together to maintain and improve working conditions and pay
utility
the satisfaction or economic welfare an individual gains for consuming a good or a service
wealth
stock of everything which has value and a person or household owns at a particular point in time
private good
one which is excludable and rival
excludability
the degree to which a good can be limited to paying consumers. (eg sea defences can’t be limited to paying consumers)
rival good
when consumption of one good prevents other consumer from being able to consume the good.
(food)
privatisation
is the transfer of assets from the public sector into the private sector
producer surplus
the difference between the price a firm succeeds in charging and the minimum price it would be prepared to accept
consumer surplus
the difference in price the consumer is willing to pay compared to the price it does pay
productive efficiency
the level of output at which average costs of production are minimised
productivity
refers to output per unit of input (output per worker)
property rights
confer legal control or ownership of a good
public good
a good which is non excludable and non rival
sea defences
free rider problem
This occurs when people can benefit from a good/service without paying anything towards it.
This problem suggests that the government should provide them using tax revenue.
if private firms can’t make money (exclude consumers from benefitting without paying)
monopsony
when there is only one buyer in the market (such as the NHS for labour)
national living wage
an adult wage rate that must be by law paid to employees
non excludability
if a product is provided for one it is provided for all
Supernormal profit
Supernormal profit is all the excess profit a firm makes above the minimum return necessary to keep a firm in business.
normal profit
the minimum profit required to keep the entrepreneur in the market
and the opportunity cost to the entrepreneur of running this business.
sub normal profit
Sub-normal profit is any profit less than normal profit – where price < average cost
natural monopoly
occurs when an industry can only sustain one firm. more than one firm may be loss making and inefficient
what is tech change
Tech change is the improvements in various forms of technology, such as making robotics, machines, and software more efficient, increasing output and productivity at a fraction of the time and costs
static efficiency
when both productive and allocative efficiency is achieved
state provision
direct provision of goods and services free at the point of consumption
where are sales maximised
where AR=AC
why may a public good be non excludable
the social benefit can’t be confined to the individual who paid for it
(eg if someone pays for a streetlight the rest of the street can benefit from lit up streets
quasi public good
a good that can be semi excludable and semi rivalrous
example of quasi public good
eg tolled roads (m6 toll). makes drivers pay for use of motorway. Improving tech may mean cameras can be used instead of physical toll booths
eg beaches
what is a common access resource
a natural resource which has no private ownership
demerit good
one that creates negative externalities in consumption
you must consider the the private cost (impact to the individual)
and the external cost (cost to society)
what is a contestable market
A contestable market occurs when there is freedom of entry and exit into the market.
In a contestable market, there will be low sunk costs.
as a result profits are kept low otherwise new firms enter
trade union
a group of workers that come together to bargain for better working conditions and higher wages
around 20% of UK are in trade unions which has decreased over the years
declined by 2.9 million since 1983
CAIWU (TU for cleaners)
