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Micro Economics > Key Terms > Flashcards

Key Terms Flashcards

1
Q

Allocative efficiency

A

Occurs when the available resources are used to produce goods and services that best match people’s needs

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2
Q

Allocative function of prices

A

Changing relative prices allocate scarce resources away from markets exhibiting excess supply and into markets in which there is excess demand

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3
Q

Artificial barrier to entry

A

A barrier to market entry which is man made

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4
Q

Average revenue

A

The total revenue divided by output. In a single product firm, average revenue equals the price of the product

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5
Q

Capital good

A

A good which is used in the production of other goods or services. Also known as a producer good

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6
Q

Capital productivity

A

Output per unit of capital

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7
Q

Collusion

A

Co-operation between firms, for example to fix prices. Some forms of collusion may be in the public interest, e.g labour training schemes

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8
Q

Competing supply

A

When raw materials are used to produce one good they can’t be used to produce another good

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9
Q

Competitive market

A

A market in which the large number of buyers and sellers possess good market information and can easily enter or leave the market. A competitive market is one in which firms strive to outdo their rivals, but it does not necessarily meet all the conditions of perfect competition.

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10
Q

Complementary good

A

A good in joint demand, or a good which is demanded at the sane time as the other good

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11
Q

Composite demand

A

Demand for a good which has more than one use

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12
Q

Concentrated market

A

A market containing very few firms in the extreme only one firm

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13
Q

Concentration ratio

A

A ratio which indicates the total market share of number of leading firms in a market, or the output of these firms as a percentage of total market output

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14
Q

Condition of demand

A

A determinant of demand, other than the goods own price, that fixes the position of the supply curve

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15
Q

Conditions of supply

A

Determinants of supply, other than the goods own price, that fixes the position of the supply curve

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16
Q

Consumer good

A

A good which is consumed by individuals or households to satisfy their needs or wants

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17
Q

Consumer sovereignty

A

Through exercising their spending power, consumers collectively determine what is produced in a market. Consumer sovereignty is strongest in a perfectly competitive market

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18
Q

Consumption externality

A

An externality generated in the course of consuming a good or service

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19
Q

Cross elasticity of demand

A

Measures the extent to which demand for a good changes in response to a change in the price of another good; it is calculated by dividing the percentage change in quantity demanded by the percentage change in the price of another good

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20
Q

Decrease in demand

A

A leftward shift in the demand curve

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21
Q

Decrease in supply

A

A leftward shift in the supply curve

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22
Q

Demand

A

The quantity of a good or service that consumers are willing and able to buy at given prices in a given period of time. For economists, demand is always effective demand

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23
Q

Demerit good

A

A good, for which social costs of consumption exceed the private cost e.g tobacco

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24
Q

Derived demand

A

Demand for a good which is an input into the production of another good

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25
Q

Diseconomy of scale

A

As output increases long run average cost rises

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26
Q

Disequilibrium

A

When there is excess supply or excess demand

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27
Q

Distribution of income and wealth

A

The way in which income and wealth are divided among the population

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28
Q

Division of labour

A

Specialisation, different workers perform different tasks in the course of producing a good or service

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29
Q

Economic growth

A

The increase in the potential level of real output the economy can produce over a period of time

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30
Q

Economic welfare

A

The economic well-being of an individual, a group within society, or an economy

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31
Q

Economy of scale

A

As output increases long run average cost falls

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32
Q

Effective demand

A

The desire for a good or service backed by an ability to pay

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33
Q

Elasticity

A

The proportionate responsiveness of a second variable to an initial proportionate change in the first variable

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34
Q

Entry barrier

A

Makes it difficult or impossible for new firms to enter a market

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35
Q

Equilibrium

A

A state of rest or balance between opposing forces

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36
Q

Equilibrium price

A

The price at which planned demand for a good or service exactly equals planned supply

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37
Q

Equity

A

Fairness or justness

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38
Q

Excess demand

A

When consumers wish to buy more than firms wish to sell, with the price below the equilibrium price

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39
Q

Excess supply

A

When firms wish to sell more than consumers wish to buy, with the price above the equilibrium price

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40
Q

Exit barrier

A

Makes it difficult or impossible for firms to leave a market

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41
Q

External economy of scale

A

Cost saving resulting from the growth of the industry or market of which the firm is a part

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42
Q

Externality

A

A public good (external benefit) or a public bad (external cost) which is dumped on third parties outside the market

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43
Q

Factors of production

A

Inputs into the production process, such as land, labour, capital and enterprise

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44
Q

Fixed cost

A

A cost of production which in the short run doesn’t change with output

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45
Q

Fundamental economic problem

A

How to best make decisions about the allocation of scarce resources among competing uses so as to improve and maximise human happiness and welfare

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46
Q

Geographical immobility of labour

A

When workers find it difficult to move to other places for jobs

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47
Q

Government failure

A

When government intervention reduces economic welfare leading to an allocation of resources that is worse than the free market outcome

48
Q

Immobility of labour

A

The inability of labour to move from one job to another

49
Q

Imperfect competition

A

Any market structure lying between the extremes of perfect completion and pure monopoly

50
Q

Incentive function of prices

A

Prices create incentives for people to alter their economic behaviour

51
Q

Income elasticity of demand

A

Measures the extent to which demand for a good changes in response to a change in income. Calculated by dividing the perfect change in quantity demanded by the the percentage change in income

52
Q

Increase in demand

A

A rightward shift if the demand curve

53
Q

Increase in supply

A

A rightward shift in the supply curve

54
Q

Inequity

A

Unfairness

55
Q

Inferior good

A

A good for which demand decreases as income rises and demand increases as income falls

56
Q

Innovation

A

Converts the results of invention into marketable products or services

57
Q

Internal economy of scale

A

Cost saving resulting from the growth of the firm itself

58
Q

Joint supply

A

When one good is produced, another good is also produced from the same raw materials

59
Q

Limit pricing

A

Reducing the price of s good to just above average cost to deter the entry of new firms into the market. Prices are set at levels which are likely to make it unprofitable for potential entrants who might consider coming into the market

60
Q

Long run

A

The time period in which no factors of production are fixed and can be varied

61
Q

Market disequilibrium

A

Exists at any price other than the equilibrium price, there is either excess demand or supply

62
Q

Market equilibrium

A

When planned demand equals planned supply in the market

63
Q

Market failure

A

When the market mechanism leads to a misallocation of resources in the economy

64
Q

Market share maximisation

A

When a firm maximises it’s percentage share of the market in which it sells its product

65
Q

Market structure

A

The organisation of a market in terms of the number of firms in the market and ways in which the behave

66
Q

Merit good

A

When consumed it leads to benefits which the third party benefits from.

67
Q

Missing market

A

A situation in which there is no market because the functions of prices have broken down

68
Q

Monopoly power

A

The power of a firm to act as a price maker rather than as s price taker

69
Q

Natural monopoly

A

When a country or firm has complete control of a natural resource.

70
Q

Negative externality

A

Where the social cost is greater than private cost

71
Q

Normal good

A

A good for which demand increases as income increases

72
Q

Normative statement

A

A statement that includes s value judgment and can’t be refuted just by looking st the evidence

73
Q

Oligopoly

A

A market dominated by a few firms

74
Q

Opportunity cost

A

The cost of giving up the next best alternative

75
Q

Patent

A

A man made barrier to market entry caused by government legislation protecting the right if s firm to be the sole producer of a patented good

76
Q

Perfect competition

A

A market which has;
•a large number of buyers and sellers
•perfect market information
•the ability to buy or sell as much as is desired at the market price
•the inability of an individual buyer or seller to influence the market price
•a uniform or homogeneous product
•no barriers to entry or exit in the long term

77
Q

Positive externality

A

Where the social benefit is greater than the private benefit

78
Q

Positive statement

A

A statement of fact that can be tested

79
Q

Predatory pricing

A

Temporarily reducing the price of a good to below average cost to drive smaller firms or new market entrants out of the market

80
Q

Price ceiling

A

A price above which it is illegal to trade. Price ceilings can distort markets by creating excess demand

81
Q

Price competition

A

Reducing the price of a good or service to gain sales by making it more attractive for consumers

82
Q

Price elasticity of demand

A

Measures the extent to which the demand for s good changes in response to a change in the price of that good

83
Q

Price elasticity of supply

A

Measures the extent to which the supply of a good changes in response to a change in the prude of that good

84
Q

Price floor

A

A price below which it is illegal to trade. Price floors can distort markets by creating excess supply

85
Q

Price maker

A

A firm possessing the power to set the price within the market

86
Q

Price taker

A

A firm which passively accepts the ruling market price set by market conditions outside its control

87
Q

Private good

A

A good, such as an orange, that is excludable and rival

88
Q

Producer sovereignty

A

Producers or firms in a market determine what is produced and what prices are charged

89
Q

Product differentiation

A

Making a product different from other products through product design, the method of producing the product, or through its functionality

90
Q

Production externality

A

An externality generated in the course of producing a good or service

91
Q

Production possibility frontier

A

A curve depicting the various combinations of two products that can be produced when all the available resources re fully and efficiently employed

92
Q

Productive efficiency

A

When it is impossible to produce more of one good without producing less of another

93
Q

Productivity gap

A

The difference between labour productivity in the uk and in other developed countries

94
Q

Profit maximisation

A

When a firms total sale revenue revenue is the furthest above the total cost of production

95
Q

Public good

A

A good that is non excludable and non rivalrous such as a radio programme

96
Q

Quantity setter

A

A firm chooses the quantity of a good to sell rather than a price

97
Q

Quasi public good

A

A good which is not fully non rivalrous and non excludable

98
Q

Rationing function of prices

A

Riding the prices ration demand for a product

99
Q

Regulation

A

Involves the imposition of rules, controls and constraints, which restrict freedom of economic action in the market place

100
Q

Sales maximisation

A

Occurs when the sale revenue is maximised

101
Q

Saturation advertising

A

Flooding the market with information and persuasion about a firms product, this is a man made barrier to entry as it makes it hard for small firms to compete

102
Q

Short run

A

The time period in which at least one factor of production is fixed and can’t be varied

103
Q

Short run production

A

Occurs when a firm adds variable factors of production to fixed factors of production

104
Q

Signalling function of prices

A

Prices provide information to buyers and sellers

105
Q

Social benefit

A

The total benefit of an activity, social benefit=private benefit+external benefit

106
Q

Social cost

A

The total cost of an activity, social cost=private cost+external cost

107
Q

Subsidy

A

A payment made by the government usually to producers for each unit of subsidised good produced

108
Q

Substitute good

A

A good in competing demand, which can be used in place of the other good

109
Q

Supply

A

The quantity of a good or service that firms are willing and able to sell at given prices and in a given period of time

110
Q

Tax

A

A compulsory levy imposed by the government to pay for its activities.

111
Q

Technical economy of scale

A

A cost saving generated through changes to the “productive process” as the scale of production and the level of output increase

112
Q

Total cost

A

The whole cost of producing a particular level of output

113
Q

Total revenue

A

The money a firm receives from selling its output, calculated by multiplying the price by the quantity sold

114
Q

Trade

A

The buying and selling of goods and services

115
Q

Unemployment

A

The number of people that are willing and able to work that are not employed

116
Q

Variable cost

A

Cost of production which changes with the amount that is produced, even in the short run

Micro Economics (6 decks)

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