Micro Flashcards
Demand
The quantity of a good or service consumers are willing and able to buy at a given price in a given period of time.
Market Demand
The total quantity demanded in a market
Condition of demand
A determinant of demand, other than its price that fixes the position of a demand curve
Inferior good
A good for which demand decreases as income rises
Normal good
A good for which demand decreases as income rises
Supply
The quantity of a good or service that firms plan to sell at given prices in a given period of time
Market supply
The quantity of a good or service that all the firms in the market plan to sell
Profit
Total revenue minus total cost
Condition of supply
A determinant of supply, other than a good’s price, that fixes the position of the supply curve
Ad valorem tax
A percentage expenditure tax e.g. VAT
Expenditure tax
A tax levied by the government on spending by consumers. The firm pay the government, consumers pay indirectly via price rise
Unit/specific tax
A tax levied on a particular unit of a good, irrespective of its price
Subsidy
Money given to firms to offset the cost of production
Competitive market
A market with a large number of buyers and sellers possessing good market info and are easily able to enter or leave the market
Market equilibrium
When planned demand equals planned supply
Excess supply
When firms wish to sell more than consumers wish to buy at a price above the equilibrium price
Market disequilibrium
When a market fails to clear. Plans of consumer and suppliers are inconsistent with each other
Excess demand
When consumers wish to buy more than firms wish to sell, the the price below the equilibrium price
Incentive function
Price creates incentives for consumers and firms to behave in certain ways
Rationing or allocative function
Prices allocate scarce resources between competing uses
Signalling function
Prices provide information to buyers and sellers
Elasticity
The proportionate responsiveness of one variable to an intial proportionate change in another
Price elasticity of demand
The proportionate response of demand in response to a proportionate change in price
Price elasticity of supply
The proportionate response of supply in response to a proportionate change in price
Cross elasticity of demand
The proportionate change in demand for one good in response to a change in price of another
Income elasticity of demand
The proportionate change in demand in response to a proportionate change in income
Speculation
The belief price will either fall or rise in the future, results in capital gains or losses
Production
Conversion of inputs into outputs
Productivity
Output per unit of input. e.g. labour
Division of labour
The concept that different workers should be made to perform different tasks. This allows for specialization.
Specialisation
A worker performing one or few tasks.
Exchange
The changing of goods, or trade. Money is used for a medium for exchange
Average/unit cost
The cost per unit of input
Productive efficiency
Occurs when a firm minimises its average cost to the lowest point on the average cost curve
Economy of Scale
The falling unit cost as a firm increases its output
Diseconomy of scale
Rising average cost as a firm’s output increases
Market failure
A market completely or partially failing to provide the wrong quantity of a good, leading to a misallocation of resources.
Equity
Fairness or justness
Private good
A good such as an orange which is both excludable and rival
Public good
A good which is both non-excludable and non-rival. Such as a radio programme
Free rider
Somebody who benefits from a good without paying for it.
Good
Something that yields utility
Bad
Something that yields disutility
Externality
A benefit or cost ‘dumped’ on third parties outside the transaction.
Margin
Refers to the last unit of a good.
Marginal benefit
The benefit from the last unit of a good
Marginal cost
The cost resulting from the last unit of a good
Social cost
The total cost of an activity
Private benefit maximisation
MPC=MPB
Social benefit
The total benefit of an activity
Social benefit maximisation
MSC-=MSB
Merit good
A good where the social benefits of consumption are greater than the private benefits. e.g. healthcare
Demerit good
A good, where the social cost of consumption exceed the private cost. e.g. Tabacco
Normative statement
A statement of opinion based on a value judgement
Positive statement
A statement of fact, or one that can be scientifically tested
Monopoly
A market dominated by one firm
Pure monopoly
One firm only in a market
Natural Monopoly
A market in which there is only room for one firm benefiting from full economies of scales
Utility industry
A industry such as post, which delivers its service to millions of separate customers
Immobility of labour
The inability of labour to move from one job to another. Geographic, occupational
Income
The flow of money received e.g. wage
Wealth
The total stock of assets that a person owns
Regulation
The imposition of rules, controls and constraints which restrict the freedom of economic action in a market.
Taxation
A compulsory levy placed by the government to pay for its activities. Can be placed on things like demerit goods.
Nationalisation
The state taking over firms previously in the private sector
Privatisation
The state selling nationalised firms into the private sector
Fiscal policy
Use of taxation and spending to achieve policy objectives
Government transfers
The payment of money to an individual without receiving any service in return
Progressive taxation
A tax imposed where people pay more as income rises
Price ceiling
A price above which it is illegal to trade. Maximum legal prices, create excess demand
Price floor
A price which below which it is illegal to trade. Creates excess supply
Secondary market
A market which comes into existence when a primary market can’t function properly
Buffer stock
A store of an commodity or agricultural good, added to market in a shortage and removed in excess
Intervention price
A price at which a buffer stock agency will either buy or sell a good.
Government failure
When government intervention is either wasteful or ineffective.
