Micro 1.3 Flashcards
What is a capital good?
A good that is used to make consumer goods and services. E.g. Machinery, hardware, software and factories.
What are consumer goods and services?
A good or service which satisfies a consumers needs and wants directly.
What are consumer durables?
A sub-division of consumer goods that provide a steady flow of satisfaction/utility over their working life. E.g. a washing machine or phone.
What are consumer non-durables?
A sub-division of consumer goods that are used up in the act of consumption. E.g. Drinking coffee or turning the heating on.
What are consumer services?
A haircut or a ticket to a show.
What is production?
The conversion of factor inputs into final output.
What is labour productivity?
The output per worker per unit of time.
Total output / no. of workers
What is Capital productivity?
The output per unit of capital.
What is factor productivity?
The average output of all the factors of production.
What is production?
The measure of the value of the output of the goods and services.
What is productivity?
A measure of efficiency of factors of production.
What factors effect Labour productivity?
Degree of competition, Advances in production technology, Quality of management, Specialisation within businesses, Level of investment, Level of demand.
Why is productivity important?
It ensures that a firm minimises costs.
When does productive efficiency occur?
When there are no additional output that can be produced from the factor inputs available at the lowest possible average or unit cost.
What is the minimum efficient scale (MES)?
The point where a business is productive efficient. Note: Different business’ have different MES.
What is specialisation?
When economic units such as individuals, firms, regions or countries focus on producing specific goods or services.
What is the division of labour?
The specialised use of workers within an organisation. The production process is broken down into separate tasks to increase the output per person.
What are short-run average costs (SRAC)?
The time period in which a minimum of one factor of production is fixed, looking at the marginal product of the variable factor of production and the productivity of the firm.
What are long-run average costs (LRAC)?
The time period in which no factors of production are fixed and their scale of output can be changed.
What are sunk costs?
The costs of a firm that have already been paid for and are not recoverable if the firm wishes to leave the industry. They are unavoidable.
How do you calculate total cost (TC)?
Fixed cost (FC) + Variable cost (VC)
What are fixed costs?
Costs that do not vary with the level of output in the short run. E.g. Rent
What are variable costs?
Costs that change depending on the level of output relating directly to the production or sale of a product. E.g. Wages and raw materials.
Note: Total variable costs and variable costs are the same.
How do you calculate Average total cost (ATC)?
Total cost (TC) / Output (Q)
Measured in cost per unit produced.
What are marginal costs?
The change in the total cost from a business producing just one extra unit of a good or service.
How do you calculate Average variable cost (AVC)?
Variable cost (VC) / Output (Q)
How do you calculate Average fixed costs (AFC)?
Fixed costs (FC) / Output (Q)
What is the economies of scale?
A proportionate saving in costs gained by an increased level of production.
What is the internal economies of scale?
A measure of a company’s efficiency of production.
What is the external economies of scale?
Business-enhancing factors that occur outside a company but within the same industry.
What are the characteristics of a monopoly?
-Larger barriers, preventing other firms from entering the market.
-Single firm has over 25% of the market
-Limited number of products
-Firms able to set market prices
Examples: Google, Tesco, British gas
What are the characteristics of an oligopolistic market?
-Few firms have over 50% of the market
-Products have differentiated
-Large obstacles preventing firms from entering the market (Barriers to entry)
-Lots of Advertising
-Lots of innovation and invention
What are the characteristics of a monopolistically competitive market?
-Large number of firms with little market power
-slightly differentiated products
-low barriers to enter market
-price dictated by market
-uses advertising locally
What are the characteristics of a perfectly competitive market?
-Large number of firms with little market power
-Homogenous products
-No obstacles to enter market
-Price dictated by market
-No advertising nessary
How do you calculate profit?
revenue - cost
What is economic efficiency?
Making the best use of scarce resources among competing ends so that economic and social welfare are maximised over time.
When does economic efficiency occur?
When the value that consumers placed on a good or service equals the cost of resources used in production. So price = marginal cost
When does allocative efficiency occur?
When a business in a given market or industry reaches the lowest point on the average cost curve.
What is dynamic efficiency?
Focusing on the changes in the consumer available in the a market together with the quality of of goods and services that we buy.
