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Micro Economics > Key Terms > Flashcards

Key Terms Flashcards

1
Q

Factors of production

A

Society’s economics resources; land, labour, enterprise, capital

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2
Q

Scarcity

A

Economic resources are limited relative to society’s infinite demand for goods and services

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3
Q

Economic good

A

Good of service where its production requires use of scarce resources

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4
Q

Free good

A

A good eith no opportunity cost, can be enjoyed without the need to use scarce resources

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5
Q

Opportunity cost

A

The opportunity cost is the benefit which would have been enjoyed from choosing an alternative

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6
Q

Production Possibility Frontier/curve

A

Represents society’s full productive potential at any point in time

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7
Q

Investment

A

Money set aside by firms to spend in capital goods, may be human capital or capital equipment e.g machinery

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8
Q

Factors of production

A

Society’s economic resources; land, labour,capital, enterprise

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9
Q

Specialisation

A

Decision of labour, where a worker has a specific job. In order to increase productivity/quality of a product

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10
Q

Market

A

An arrangement where buyers and sellers come into contact and engage in trade

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11
Q

Demand

A

The quantity of a product consumers are willing and able to purchase at the current price at any given time

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12
Q

Supply

A

The quantity producers are willing and able to sell at the current price at a period of time

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13
Q

Giffen good

A

A product where price and quantity demanded are positively related

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14
Q

Equilibrium market price

A

It represents a state of rest in the market, were consumers and firms have no incentive to change their behaviour. The market clearing price.

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15
Q

Disequilibrium market price

A

A price at which gives rise to excess demand or excess supply.

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16
Q

Price mechanism

A

The dynamic whereby price changes to to eliminate excess supply or demand in a market. It will move markets into equilibrium by rationing, signalling, incentives

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17
Q

Rationing function

A

Process by which price rises to eliminate excess demand

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18
Q

Signalling function

A

Process by which price signals to consumers and firms about value for money/ profit

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19
Q

Incentive function

A

Process by which a change in price gives an incentive to consumers or firms to increase there consumption/profit by changing demand and supply decisions. Profit incentive for firms

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20
Q

Substitute goods

A

Goods are substitutes if they are in competitive demand and a consumer considers them as alternatives. The cross price elasticity of demand is a positive

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21
Q

Complementary goods

A

Goods which go hand in hand in consumption, they are in joint demand. Cross price elasticity of demand is a negative

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22
Q

Derived demand

A

The demand of a product gives a rise in demand to a factor of its production .

23
Q

Joint supply

A

A situation where 2 or more products are produced simultaneously, so production of one automatically produces demand of the other

24
Q

Composite demand

A

A factor of production is in demand for more than one product market, so that greater supply of it in making one reduces the the supply available to make the other

25
Q

Price elasticity

A

Measures the responsiveness of demand for a product to a change in price

26
Q

Income elasticity

A

Measure of the responsiveness of demand of a product to a change in the income of consumers

27
Q

Normal good

A

Positive income elasticity of demand

28
Q

Inferior good

A

Products with a negative income elasticity of demand, rising income causes a fall in demand

29
Q

Cross elasticity of demand

A

Measure of the responsiveness of demand for a product to a change in price for a sub or comp good.

30
Q

Price elasticity of supply

A

Measures the responsiveness of supply of a product to a change in its price

31
Q

Indirect taxation

A

Taxation imposed to firms to increase costs of production which shifts the supply curve inwards

32
Q

Subsidy

A

A sum of money paid to firms for producing a good, it reduces costs of production and will shift the supply curve outwards

33
Q

Allocative efficiency

A

Situation where a market is in equilibrium, with neither excess demand or excess supply and MSB = MSC

34
Q

Productive efficiency

A

Products are made at minimum possible average cost of production

35
Q

Equity

A

A distribution of wealth and income in society which is considered to be fair

36
Q

External costs

A

Spillover Costs felt by a third party/society which aren’t taken into account by consumers or firms when trading

37
Q

External benefits

A

Spillover benefit enjoyed by a third party/ society which isn’t taken into account when being traded between firms and consumers

38
Q

Social costs

A

Private costs + external costs. The total cost suffered by society from the production of a product

39
Q

Social benefits

A

Private benefit + external benefit. Total benefit enjoyed by society from the production of a good

40
Q

Merit good

A

A good which is under-consumed in the free market

41
Q

Demerit good

A

Good which is over consumed in the free market

42
Q

Info gap

A

Consumers/firms lack the info to accurately see the social costs/benefits in the production or consumption of a good

43
Q

Black market

A

An illegal market which is a made when a maximum price is set on a product and it experiences excess demand…. The black market price will be above the legal maximum price.

44
Q

Buffer stocks

A

Stocks of a products/raw materials held by the government to stabilise a free market price at a target level. The government will but stocks in periods of excess supply and sell stock when there is excess demand

45
Q

Barriers to entry

A

Factors which make it difficult for new firms to break into product markets. Which strengthens the power of the existing firms

46
Q

Economies of scale

A

Factors which reduce the average cost of production as a firm increases its volume of production, therefore increasing its productive efficency

47
Q

Public good

A

A good which is non-rivalry and non-excludable, as they can’t be charged for leads to a missing market and allocative inefficiency, so usually supplied by the government

48
Q

Non-rivalry

A

Consumption by one person doesn’t reduce the ability of others to consume the good, all consumers can consume simultaneously

49
Q

Non-excludable

A

Can’t exclude anybody from the consumption e,g emergency services

50
Q

Government failure

A

When the government intervenes in a market only to fail to improve efficiency or equity, or reduce efficiency or equity

51
Q

Positive statements

A

Capable of being tested and declared either true or false

52
Q

Normative statement

A

Statements which are value judgements and incapable of being declared true or false

53
Q

Market failure

A

Occurs due to the mid allocation of resources, total mf is seen by a missing market and partial mf where a market exists but contributes to the misallocation of resources, merit/ demerit goods

Micro Economics (1 decks)

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