Micro 1 Flashcards
Allocative efficiency
When an economy’s factors of production are used to produce the combination of g and s that maximises society’s welfare
Allocative function
The function of prices that acts to divert resources to where returns can be maximised
Asymmetric info
A source of info failure where one economic agent knows more than another , giving them more power in a market transaction
Average revenue
Total revenue divided by units of output.
Average total cost
Total costs of production divided by the number of units of output
Barrier to entry
Feature of a market that makes it difficult or impossible for new firms to enter
Capital
Productive resources
Ceteris paribus
All other factors remaining constant
Command economy
An economic system where all decisions about resource allocation are made centrally by the state
Competitive market
A situation where there is a large number of potential buyers and sellers with abundant info about the market
Complement
A product generally consumed together with another e.g fish and chips
Complete market failure
When the free market fails to create a market for a good or service - missing market
Composite demand
When a good is demanded for more than one distinct purpose
Concentrated market
A market dominated by a small number of firms
Concentration ratio
A measurement of how concentrated a market is -
Conditions of demand
Factors other than price of a product that lead to a change in the position of the demand curve
Conditions of supply
Factors other than price of a product that lead to a change in the position of the supply curve
Cross elasticity of demand
The responsiveness of quantity demanded of one good to the change in price of another good
Demand
The amount of a product that consumers are willing and able to buy at each given price level
Demerit good
A good that would be over consumed in a free market as it brings less overall benefit to consumers than they realise
Derived demand
When the demand for a product or factor of production comes from the demand for another product
Diseconomies of scale
When an increase in the scale of production leads to an increase in average total costs for firms
Disequilibrium
When supply in a market doesn’t equal demand
Division of labour
Breaking the production process down into a sequence of tasks, with workers assigned to particular task
Dynamic efficiency
Improvement in productive efficiency over time
Economic good
Goods that are scares and therefore have an opportunity cost in consumption
Economic problem
Scarce economic resources compared with society’s unlimited wants
Economic welfare
The benefit or satisfaction an individual gets from the allocation of resources, also the standard of living or general wellbeing of people in society
Economies of scale
Where an increase in the scale of production leads to reductions in average total costs for firms
Effective demand
Demand backed up by the ability to pay for the good or service
Enterprise
The risk taking role of business owners in combining other factors of production
Equilibrium
The market situation where planned demand of consumers equals the planned supply of firms
Equilibrium price
The price at which the planned demand of consumers equals the planned supply of firms
Equity
The notion of fairness in society
Exchange
Where one thing is traded for something else
External economies of scale
Reductions in long run average total costs arising from growth of the industry in which the firm operates
Externalities
Spillover effects third parties of a market transaction
Factors of production
A country’s productive economic resources : capital equipment , enterprise , land and labour
Factor market
The market for a factor of production that makes a good or service
Fixed costs
Costs of production that do not vary with output
Free goods
Goods that have no opportunity cost in consumption e.g air
Free market economy
One in which there is very little gov intervention in the allocation of resources
Free rider problem
Where some consumers benefit from other consumers purchasing a good, especially in the case of public goods
Geographical immobility
A source of factor immobility that means workers have difficulty in moving locations where jobs are available e.g lack of affordable housing
Gov failure
When gov intervention to correct market failure does not improve the allocation of resources
Imperfect competition
Any market structure that isn’t perfect competition
Imperfect info
When economic agents do not know everything they need to know in order to make a fully informed decision
Incentive function
Prices create incentives for market participants to change their actions
Incidence of tax
The proportion of tax passed on to the consumer
Income elasticity of demand
The responsiveness of quantity demanded to a change in income
Indirect tax
A tax on spending
Inequitable distribution
When the way in which income and wealth are distributed in society is considered unfair
Inferior goods
G or s that will see a fall in demand when income rises
Info failure
A source of market failure where market participants do not have enough info to be able to make effective judgements about the optimum levels of consumption or production of a good
Innovation
New products and production processes that are developed into marketable products
Internal economies of scale
Reductions in long run average costs arising from growth of the firm
Joint demand
Goods that tend to be demanded together I.e complementary goods
Joint supply
When the production of one good results in the production of another
Long run
A period of time over which all factors of production can be varied
Market failure
When the free market fails to achieve an efficient or equitable allocation of resources
Market structure
The no. And the size of firms within a market for a particular product
Max price
A price ceiling above which the price of a good or service is not allowed to increase
Merit good
A g or s that would be under consumed in a free market, as individuals do not fully perceive the benefits from consumption
Microeconomics
Study of individual markets
Minimum price
A price floor below which the price of a good or service is not allowed to decrease
Mixed economy
An economic system where resources are allocated by state planning and market forces
Monopoly
A market structure dominated by a single seller of a g or s
Monopoly power
The power of a firm in a market to act as a price maker
Natural monopoly
A market where a single firm can benefit from continuous economies of scale
Need
Something which humans need to survive
Negative externalities
Costs imposed on a third party not involved with the consumption or production of the good
Non excludable
Where it is impossible to prevent non paying consumers from consuming a good
Non price competition
Competition on the basis of product features rather than price, e.g. Quality, advertising or after sales service
Non rival
Where one persons enjoyment of a good does not diminish another persons enjoyment of the good
Normal good
A g or s that will see an increase in demand as income rises
Normative statements
Opinions that require value judgements to be made
Occupational immobility
A source of factor immobility that means workers find it difficult to move between occupations because they lack the desirable skills
Oligopoly
A market structure where a few large firms dominate
Opportunity cost
The next best alternative given up when an economic decision is made
Partial market failure
Where the free market provides a product but with the misallocation of resources
Perfect competition
An extremely competitive market structure that has a large number of buyers and sellers
Pollution permit
A permit sold to firms by the gov allowing them to pollute up to a certain limit
Positive externality
A beneficial spillover effect to third parties of a market transaction
Positive statement
Statements that can be tested against data to be declared either true or false
Price competition
Reducing the price of a g or s in order to make it more attractive than those of competitors
Price elasticity of demand
The responsiveness of quantity demanded to a change in price
Price elasticity of supply
The responsiveness of quantity supplied to a change in price
Price maker
A firm with the power to set the ruling market price
Price taker
A firm that is unable to influence the ruling market price and thus has to accept it
Price war
Where firms in an industry repeatedly cut prices below those of competitors in order to win market share
Private benefit
The benefit to an individual consumer involved in a market transaction
Private cost
The cost to an individual producer involved in a market transaction
Private good
A good that is both excludable and rival in consumption
PPC
Production possibility curve - a diagram showing the maximum possible output that can be achieved given a fixed amount of resources
Product differential
Using advertising or product design to make a product seem different from those of competitors
Production
The total output of g and s produced by an individual, firm or country
Productive efficiency
When a firm operates at minimum average total cost
Productivity
A measure of efficiency- output per worker per hour
Profit
When total income or revenue of a firm is greater than total costs
Profit maximisation
When a firm seeks to make the largest difference between total revenue and total costs
Public good
A good that posses the characteristics of non excludability and non rivalry in consumption
Quasi public good
A good that has some of the characteristics of a public good but it is not completely non excludable or non rival
Rationing function
Increasing prices rations demand to those most able to afford a product
Regulation
Rules or laws used to control or restrict the actions of economic agents in order to reduce market failure
Scarcity
The economic problem. Society’s wants exceed the amount available of the factors of production
Short run
A period of time in which the availability of at least one factor of production is fixed
Signalling function
Prices provide important information to market participants
Social benefit
The total of private benefit plus external benefit of a market transaction
Social cost
The total of private cost plus the external cost of a market transaction
Specialisation
The production of a limited range of goods by an individual factor of production, firm or country, in co operation with others so that together a complete range of goods is produced
Stakeholder
Any individual or group with an interest in how a business is run
Static efficiency
Efficiency measures at a point in time, comprising productive efficiency and allocative efficiency
Substitutes
Goods that can be used as alternatives to other goods e.g. Butter margarine
Sunk costs
Costs that cannot easily be recovered if a firm is unsuccessful in a market And has to exit
Supply
The quantity of a product that supplied at a given price
Total cost
The addition of fixed costs and variable costs at a given level of output
Total revenue
The money a firm receives from selling its output , calculated by price x quantity sold
Variable costs
Costs of production that vary with output
Want
Something which people feel improves their standard of living or general wellbeing in society
