Micro Flashcards
1
Q
Market
A
a place where buyers and sellers meet.
2
Q
Demand
A
the quantity, of a good or service, bought at a given price.
3
Q
Ceteris Paribus
A
latin for everything else (all other variables) remains equal (constant)
4
Q
Income
A
the amount an individual or firm earns over a period of time (a year or month).
5
Q
Substitute
A
a good or service bought as an alternative.
6
Q
Complement
A
a good or service bought together with another good or service but paid for separately
7
Q
Supply
A
the quantity of a good or service that a firm is willing to sell at a given price.
8
Q
Land
A
any raw material
9
Q
Labour
A
people paid to work
10
Q
Capital
A
something man-made used in production
11
Q
Entrepreneur
A
a person that combines the other resources in production
12
Q
Rent
A
the payment from land
13
Q
Wage
A
the payment for labour
14
Q
Interest
A
the payment from capital
15
Q
Profit
A
the payment to entrepreneurs
16
Q
Tax
A
an additional amount (as cost or from income) that is paid to the government
17
Q
Subsidy
A
an additional amount that is paid by the government (to reduce costs)
18
Q
Opportunity cost
A
the difference between the best and next best alternatives
19
Q
Consumer surplus
A
the amount some consumers would have been willing to pay but don’t have to as there is a single market price (area below the demand curve and above the equilibrium price)
20
Q
Producer surplus
A
the amount some producers would have been willing to sell for but don’t have to as there is a single market price (area above the supply curve and below the equilibrium price)
21
Q
Allocative efficiency
A
where the consumer and producer surplus, welfare of society, is maximised; the equilibrium where supply equals demand (MSC = MSB or P = MC)
22
Q
Price Elasticity of Demand (PED)
A
the responsiveness of the quantity demanded to a change in price
23
Q
Cross Price Elasticity of Demand (XED)
A
the responsiveness of the quantity demanded of one good to a change in price of another (related) good
24
Q
Income Elasticity of Demand (YED)
A
the responsiveness of the quantity demanded to a change in income
25
Inferior good
a good for which demand falls when income rises
26
Normal good
a good for which demand rises when income rises
27
Price Elasticity of Supply (PES)
the responsiveness of the quantity supplied to a change in price
28
Primary sector
the supply of land
29
Secondary (manufacturing) sector
the supply of goods
30
Tertiary (service) sector
the supply of services
31
Indirect tax
a tax on a good or service
32
Specific tax
a tax of a fixed amount on a good or service that shifts the supply curve to the left and parallel to the original
33
Ad valorem tax
(latin: with value) is a tax as a percentage of the price that changes the gradient or slope of the supply curve as it shifts to the left.
34
Maximum (ceiling) price
a price set below the equilibrium
35
Minimum (floor) price
a price set above the equilibrium price
36
Parallel (or black) markets
markets that are illegal.
37
Stakeholder
anyone with an interest in the market; consumers producers, government, environmentalists, banks etc.
38
Welfare loss
the loss of consumer and producer surplus that results from taxation, subsidy, price control or externality
39
Market failure
when a market fails to produce in the best interests of society; not at allocative efficiency (over-production/allocation or under-production/allocation)
40
Negative externality of consumption
an additional cost occurring as a result of consumption that has an effect on a third party (is not paid for by consumers) and leaves society worse off, resulting in over-consumption
41
Negative externality of production
an additional cost occurring as a result of production that has an effect on a third party (is not paid for by firms in the production process) and leaves society worse off, resulting in over-production `
42
Positive externality of consumption
an additional benefit occurring as a result of consumption that is received by a third party (not paid for or gained by consumers), leaving society better off and resulting in under-consumption
43
Positive externality of production
an additional benefit occurring as a result of production that is received by a third part (not by firms), leaving society better off an resulting in under-production
44
Public good
a good that is non-rivalrous and non-excludable
45
Non-rivalrous
when one person benefiting from or using a good or service doesn’t stop others from doing so
46
Non-excludable
when once a good or service is provided it is no longer possible to exclude and stop people benefiting from it
47
Merit good
a good that gives positive externalities of consumption
48
Demerit good
a good that gives negative externalities of consumption
49
Common access resources
resources, land, that is non-excludable and so over-exploited creating a welfare loss and leaving society worse off.
50
Incidence of taxation
the amount of the total tax revenue that is paid for by the consumers and/or producers.
51
Asymmetric information
when either the buyer or seller has more information than the other and so can make a large profit.
52
Monopoly
when a firm has some control over the price; and sp society experiences a welfare loss.
53
Short run
when at least one factor of production is fixed.
54
Long run
when all factors of production vary
55
Total product
the quantity produced as more labour is added to a production process.
56
Marginal product
the additional production that an additional unit of labour produces; the change in total product divided by the change in labour (first derivative of total product).
57
Diminishing marginal returns
the fact that the marginal product falls as production increases; resulting in increased cost of production (and an upward sloping supply curve).
58
Economic cost
the cost of land, labour and capital in the production process.
59
Explicit cost
the actual cost of production; the cost of using labour, capital and land.
60
Implicit cost
the opportunity cost of using factors of production that a firm already has; this always includes entrepreneurship (may include capital).
61
Fixed cost
the cost of the factor(s) of production that are fixed in the short run (usually the cost of capital).
62
Variable cost
the factor(s) of production that are not fixed in the short run (usually the cost of land and labour).
63
Total cost
the cost of land, labour and capital at any given level of production
64
Average cost
the total cost per unit of production; the total cost divided by the quantity produced.
65
Marginal cost
the additional cost of producing one more (the last) unit of production; the change in total cost divided by the change in production (the first derivative of the total cost - the firm’s supply function)
66
Returns to scale
the relationship between the level of production and factors of production in the long run.
67
Increasing returns to scale
when an increase in all factors of production increases the level of production by a greater proportion in the long run.
68
Constant returns to scale
when an increase in all factors of production increases the level of production by the same proportion in the long run.
69
Diminishing returns to scale
when an increase in all factors of production increases the level of production by a lesser proportion in the long run.
70
Economies of scale
when the costs of production fall as production increases in the long run; very similar to increasing returns to scale
71
Dis-economies of scale
when the costs of production rise as production increases in the long run; very similar to diminishing returns to scale
72
Total revenue
the income of the firm from sales; the total production sold (quantity multiplied by price).
73
Average revenue
the total revenue per unit sold; total revenue divided by production (price has the same value as average revenue).
74
Marginal revenue
the additional revenue gained from selling one more unit; the change in total revenue divided by the change in production (the first derivative of total revenue and twice the slope of (a straight line) average revenue).
75
Profit
when total revenue is greater than total cost.
76
Normal profit
the minimum amount of profit necessary to keep the entrepreneur going and so the firm operating; covering the explicit costs (of land, labour and capital) and implicit cost (of entrepreneurship).
77
Economic profit (abnormal or supernormal)
any profit greater than normal profit.
78
Loss
when total revenue is less than total cost.
79
Profit maximisation
when a firm aims to make the greatest difference between total revenue and total cost; the level of output where marginal cost equals marginal revenue (MC = MR).
80
Revenue maximisation
when a firm aims to make the greatest total revenue possible;operating where marginal revenue is zero.
81
Satisficing
when a firm aims make enough profit to satisfy shareholders without actually maximising profit.
82
Corporate social responsibility
the responsibility that a firm has towards society as a whole (the environment, employees and the general public) rather than to shareholders
83
Perfect competition
when many small firms operate in a market with many consumers so the firms are price takers and there are no externalities, no economies of scale, homogenous products and perfect knowledge.
84
Price taker
when a firm has no control over the price in a market and faces a perfectly elastic average revenue (or demand) function.
85
Break-even price
the price at which a firm makes zero profit; total revenue equals total cost (quantity where average revenue equals average cost: AR = AC).
86
Shut-down price
the price at which a firm can only pay for variable costs: total revenue equals variable costs (quantity where average variable cost equals average revenue: AVC = AR)
87
Allocative efficiency
the quantity at which price equals marginal cost: price is the same value as average revenue and the average revenue function looks the same as the demand function while marginal cost is (when sloping upwards) the firm’s supply function so allocative efficiency is where supply equals demand and producer and consumer surplus are maximised or where MSB = MSC (with externalities)`
88
Productive efficiency
when a firm is using the minimum resources in production; the lowest level of the average cost or where average cost equals marginal cost (AC = MC).
89
Monopoly
when one firm dominates a market with no close substitutes and high barriers to entry
90
Barriers to entry
the cost (research and development, marketing etc.) or other barriers (legal barriers) that stop competing firms from entering a market.
91
Natural monopoly
when one firm is more efficient than two in a market so only one will actually operate
92
Monopolistic competition
when there are many firms competing with many consumers but the products are not homogenous and there can be externalities
93
Non-price competition
when firms compete on quality or design of a product rather than price; the quality and design of a smartphone rather than the price.
94
Oligopoly
when a few firms dominate a market.
95
Concentration ratio
measures the market share that a given number of firms has; a perfect monopoly is when 1 firm has 100% of the market and in an oligopoly the largest 5 firms may have 85% of the market.
96
Game theory
when firms use a matrix theory (maths) in order to take into account other firms’ operations and maximise profits.
97
Formal (open) collusion
when firms in an oligopoly meet to set prices or levels of production and so control the market like a monopoly: OPEC
98
Informal (tacit) collusion
when firms follow unwritten rules (price leadership of a dominant firm) in order to set prices or levels of production and so operate as a monopoly
99
Price discrimination
when a firm sells exactly the same product at different prices to different consumers
