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A Level Economics > Key Words - Micro > Flashcards

Key Words - Micro Flashcards

1
Q

Adverse selection

A

A situation in which a person at risk is more likely to take out insurance

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2
Q

Allocative efficiency

A

Achieved when consumer satisfaction is maximised

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3
Q

Asymmetric information

A

A situation in which some participants in a market have better information about market conditions than others

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4
Q

Average total cost

ATC

A

Total cost divided by the quantity produced

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5
Q

Buffer stock

A

A scheme intended to stabilise the price of a commodity by buying excess supply in periods when supply is high, and selling when supply is low

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6
Q

Capitalism

A

A system of production in which there is a private ownership of productive resources, and individuals are free to pursue their objectives with minimal interference from government

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7
Q

Centrally planned economy

A

Decisions on resource allocation are guided by the state

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8
Q

Ceteris paribus

A

A Latin phrase meaning ‘other things being equal’; it is used in economics when we focus on changes in one variable while holding other influences constant

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9
Q

Comparative static analysis

A

Examines the effect on the equilibrium of a change in the external conditions affecting a market

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10
Q

Competitive demand

A

Demand for goods that are in competition with each other

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11
Q

Competitive market

A

A market in which individual firms cannot influence the price of the good or service they are selling because of competition from other firms

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12
Q

Competitive supply

A

A situation in which a firm can use its factors of production to produce alternative products

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13
Q

Complements

A

Two goods are said to be complements if people tend to consume them jointly, so that an increase in the price of one good causes the demand for the other good to fall

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14
Q

Composite demand

A

Demand for a good that has multiple uses

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15
Q

Composite supply

A

Where a product produced by a firm serves more than one market

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16
Q

Consumer surplus

A

The value that consumers gain from consuming a good or service over and above the price paid

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17
Q

Consumption externality

A

An externality that affects the consumption side of a market, which may be either positive or negative

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18
Q

Cost efficiency

A

The appropriate combination of inputs of factors of production, given the relative prices of those factors

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19
Q

Cross elasticity of demand (XED)

A

A measure of the sensitivity of a quantity demanded of a good or service to a change in price of some other good or service

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20
Q

Demand

A

The quantity of a good or service that consumers are willing and able to buy at any possible price in a given period

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21
Q

Demand curve

A

A graph showing how much of a good will be demanded by consumers at any given price

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22
Q

Demerit goods

A

A good that brings less benefit to consumers than they expect, such that too much will be consumed by individuals in a free market

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23
Q

Derived demand

A

Demand for a factor of production or a good which derives not from the factor or the goods itself, but from the goods it produces

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24
Q

Division of labour

A

A process whereby the production procedure is broken down into a sequence of stages and workers are assigned to particular stages

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25
Q

Economic efficiency

A

A situation where both productive efficiency and allocative efficiency have been reached

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26
Q

Economic growth

A

An expansion in the productive capacity of the economy

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27
Q

Economies of scale

A

They occur for a firm when an increase in the scale of productions leads to production at lower long run average costs

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28
Q

Elasticity

A

The measure of the sensitivity of one variable to changes in another variable

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29
Q

Excess burden of a sales tax

A

The deadweight loss to society following the imposition of a sales tax

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30
Q

External cost

A

A cost which is associated with an individual’s (a firm or households) production or other economic activities, which is borne by a third party

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31
Q

Externality

A

A cost of benefit that is external to a market transaction, and thus not reflected in market prices

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32
Q

Factors of production

A

Resources used the the production process; inputs into production, including labour, capital, land and entrepreneurship

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33
Q

Firm

A

An organisation that brings together factors of production in order to produce output

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34
Q

Fixed costs

A

Costs incurred by a firm that do not vary with the level of output

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35
Q

Free market economy

A

One in which resource allocation is guided by market forces without intervention by the state

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36
Q

Free-rider problem

A

When an individual cannot be excluded from consuming a good and thus has no incentive to pay for its provision

37
Q

Government failure

A

A misallocation of resources arising from government intervention

38
Q

Gross domestic product (GDP)

A

A measure of the economic activity carried out in an economy during a period

39
Q

Incidence of tax

A

The way in which the burden of paying a sales tax is divided between buyers and sellers

40
Q

Income elasticity of demand (YED)

A

A measure of the sensitivity of quantity demanded to a change in consumer income

41
Q

Indirect tax

A

A tax levied on expenditure on goods and services (as opposed to a direct tax, which is a tax charged directly to an individual based on a component of income)

42
Q

Inferior good

A

One where the quantity demanded decreases in response to an increase in consumer incomes

43
Q

Ad valorem tax

A

A tax levied on a commodity set as a percentage of the selling price

44
Q

Internalising an externality

A

An attempt to deal with an externality by bringing an external cost or benefit into the price system

45
Q

Invisible hand

A

Term used by Adam Smith to describe the way in which resources are allocated in a market economy

46
Q

Joint demand

A

Demand for goods which are interdependent, such that they are demanded together

47
Q

Joint supply

A

Where a firm produces more than one product together

48
Q

Law of demand

A

A law that states that there is an inverse relationship between quantity demanded and the price of a good or device, ceteris paribus

49
Q

Macroeconomics

A

The study of the interrelationships between economic variables at an aggregate (economy-wide) level

50
Q

Marginal cost

A

(MC) the cost of producing an additional unit of output

51
Q

Marginal social benefit

A

(MSB) the additional benefit that society gains from consuming an extra unit of a good

52
Q

Marginal social costs

A

(MSC) the cost to society of producing and extra unit of a good

53
Q

Market

A

A set of arrangements that allow transactions to take place

54
Q

Market economy

A

Market forces are allowed to guide the allocation of resources within a society

55
Q

Market equilibrium

A

A situation that occurs in a market when the price is such that the quantity that consumers wish to buy is exactly balanced by the quantity that firms wish to supply

56
Q

Market failure

A

A situation in which the free market mechanism does not lead to an optimal allocation of resources, e.g. Where there is a divergence between marginal social benefit and marginal social costs

57
Q

Merit good

A

A good that brings unanticipated benefits to consumers, such that society believes it will be under consumed in a free market

58
Q

Microeconomics

A

The study of economic decisions taken by individual economic agents, including households and firms

59
Q

Minimum wage

A

A system designed to protect the low paid by setting a minimum wage rate that employers are permitted to offer workers

60
Q

Mixed economy

A

Resources are allocated partly through price signals and partly on the basis of direction by government

61
Q

Model

A

A simplified representation of reality used to provide insight into economic decisions and events

62
Q

Moral hazard

A

A situation in which a person who has taken out insurance is more prone to taking more risk

63
Q

Normal good

A

One where the quantity demanded increases in response to an increase in consumer incomes

64
Q

Normative statement

A

A statement involving a value judgement that is what ought to be

65
Q

Opportunity cost

A

In decision making, the value of the next-best alternative forgone

66
Q

Pareto optimum

A

An allocation of resources is said to be a Pareto optimum if no reallocation of resources can make an individual better off without making some other individuals worse off

67
Q

Positive statement

A

A statement about what is, i.e. About facts

68
Q

Price elasticity of demand

A

PED

A measure of the sensitivity of quantity demanded to a change in the price of a good or service

69
Q

Price elasticity of supply

A

PES

A measure of the sensitivity of quantity supplied of a good or service to a change in the price of that good or service

70
Q

Private costs

A

A cost incurred by an individual (firm or consumer) as part of its production or other economic activities

71
Q

Producer surplus

A

The difference between the price received by firms for a good or service and the price at which they would have been prepared to supple that good or service

72
Q

Production externality

A

An externality that affects the production side of a market, which may be either positive or negative

73
Q

Production possibility curve

A

A curve showing the maximum combinations of goods or services that can be produced in a set period of time given available resources

74
Q

Productive efficiency

A

Attained when a firm operates at minimum average costs, chiding an appropriate combination of inputs (cost efficiency) and producing the maximum output possible from the or inputs (technical efficiency)

75
Q

Prohibition

A

An attempt to prevent the consumption of a demerit good by declaring it illegal

76
Q

Public good

A

A good that is non-exclusive and non-rivalrous
Consumers cannot be excluded from consuming the good, and consumption by one person does not affect the amount of the good available for others to consume

77
Q

Resource allocation

A

The way in which a society’s productive assists are used amongst their alternative uses

78
Q

Scarcity

A

A situation that arises because people have unlimited wants in the face of limited resources

79
Q

Specific tax

A

A tax of a fixed amount imposed on purchases of a commodity

80
Q

Subsidy

A

A grant given by the government to producers to encourage production of a good or service

81
Q

Substitutes

A

Two goods are said to be substitutes if consumers regard them as alternatives, so that the demand for one good is likely to rise if the price of he other good rises

82
Q

Sunk costs

A

Costs incurred by a firm that cannot be recovered if the firm ceases trading

83
Q

Superior good

A

One for which the income elasticity of demand is positive, and greater than 1, such that income rises, consumers spend proportionally more on the good

84
Q

Supply curve

A

A graph showing the quantity supplied at any given price

85
Q

Technical efficiency

A

Attaining the maximum possible output from a given set of inputs

86
Q

Total cost

A

(TC)

The sum of all costs that are incurred in producing a given level of output

87
Q

Unemployment

A

Results when people seeking work at the going wage cannot find a job

88
Q

Variable costs

A

Costs that vary with the level of output

A Level Economics (12 decks)

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