Micro Flashcards
An indirect tax based on a percentage of the sales price of a good or service
Ad valorem tax
When the value that consumers place on a good or service equals the cost of the resources used up in production
Allocative efficiency
Factors making it expensive for new firms to enter a market
Barriers to entry
Branch of economics that studies the impact of psychological and social factors on economic decision making
Behavioural economics
An illegal market in which the market price is higher than a legally imposed price ceiling
Black market
Any factor that causes production to be delayed or stopped
Bottlenecks
They are schemes that seek to stabilise the market price of agricultural products by buying up supplies of the product when harvests are plentiful and selling stocks of the product onto the market when supplies are low
Buffer stock
The purchase by one organisation of large quantities of a product or raw material
Bulk-buying
A market that favours buyers because supply is plentiful relative to demand and therefore prices are relatively low
Buyer’s market
Something produced as a consequence of producing another good or service
By-product
The extent to which a business is making full use of existing factor resources
Capacity utilisation
Producer or capital goods are useful not in themselves but for the goods and services they can help produce in the future
Capital goods
Refers to the tools and technologies that are used to produce the goods and services we demand
Capital resources
A production technique which uses a high proportion of capital to labour
Capital-intensive
Economic system organised along capitalist lines uses market prices to guide our choices about the production and distribution of goods
Capitalist economy
The process of trapping and storing carbon dioxide produced by burning fossil fuels
Carbon capture and storage
An allowance to a business to generate a specific level of emissions
Carbon credits
A formal agreement among firms
Cartel
To simplify analysis, economists isolate the relationship between two variables by assuming ceteris paribus
Ceteris paribus
UK taxes on cigarettes
Cigarette duties
Any agreement between suppliers in a market to avoid competition
Collusion
Laws and regulation backed up by inspection and penalties for non-compliance
Command and control
Economic system where resources are allocated by the government
Command economy
Goods or services that have characteristics of rivalry in consumption and nonexcludability
Common resources
Government policy directed at encouraging competition in the private sector
Competition policy
A market where no single firm has a dominant position and where the consumer has plenty of choice
Competitive market
Alternative products a firm could make with its resources
Competitive supply
Two complements are said to be in joint demand
Complements
Where goods or services have more than one use so that an increase in the demand for one product leads to a fall in supply of the other
Composite demand
A direct charge for use of roads in a defined zone
Congestion charging
Consumption designed to impress others rather than something that is wanted for its own sake
Conspicuous consumption
Limits to what we can afford to consume
Constraints
A good such as a washing machine or a digital camera that lasts a period of time, during which the consumer can continue getting utility from it
Consumer durable
When the economic system allows scarce resources to be
allocated to producing goods and services that reflect the wishes of consumers
Consumer sovereignty
The difference between the total amount that consumers are
willing and able to pay for a good or service and the total amount that they actually pay
Consumer surplus
The act of buying and using goods and services to satisfy wants
Consumption
Market with no entry barriers - firms can enter or leave without significant cost
Contestable market
A decision making tool which compares the social costs and social benefits of a project, over time, to establish a net present value
Cost-benefit analysis
Costs faced by a business when producing a good or service for a market
Costs
Responsiveness of demand for good X following a change in the price of good Y
Cross-price elasticity of demand
Demand that changes in a regular way over time depending on the part of the business cycle that an economy is in
Cyclical demand
The consumption of de-merit goods can lead to negative externalities which causes a fall in social welfare
De-merit goods
The loss in producer and consumer surplus due to an inefficient level of production perhaps resulting from market failure or government failure
Deadweight loss
Quantity of a good or service that consumers are willing and able to buy at a given price in a given time period
Demand
A demand curve shows the relationship between the price of an item and the quantity demanded over a period of time
Demand curve
The removal of legally enforced rules that restrict or ban specified activities
Deregulation
When the demand for a particular product depends on the
demand for another product or activity
Derived demand
As more of a variable factor is added to a fixed factor a firm
will reach a point where it has a disproportionate quantity of labour to capital and so the marginal product of labour will fall, thus raising marginal costs
Diminishing returns
Disadvantages to the firm, in the form of higher long-run unit costs, from increasing their size of operation
Diseconomies of scale
A situation where there is a state of imbalance and so a tendency for change
Disequilibrium
The reduction of risk achieved by replacing a single risk with a larger number of smaller unrelated risks
Diversification
The specialisation of labour in specific tasks, intended to increase productivity
Division of labour
A firm with 40% or higher market share
Dominant monopoly
Decision makers
Economic agents
Making the best or optimum use of scarce resources among competing ends so that economic and social welfare is maximised over time
Economic efficiency
An increase in the productive potential of the country
Economy growth
Benefits, in the form of lower unit costs, from increasing the size of operation
Economy of scale
Economies of scope occur where it is cheaper to produce a range of products
Economy of scope
When a consumers’ desire to buy a product is backed up by an ability to pay for it do we speak of demand
Effective demand
Demand for which price elasticity is greater than 1
Elastic demand
Where the price elasticity of supply is greater than +1
Elastic supply
A measure of the sensitivity of one variable to changes in another variable
Elasticity
Price elasticity of supply measures the relationship between change in quantity supplied and a change in price
Elasticity of supply
A charge made to firms that pollute the environment based on the quantity of pollution they emit
Emission tax
An individual who seeks to supply products to a market for a rate of return
Entrepreneur
Refers to the innovation and creativity applied in the production of goods and services
Entrepreneurship resources
A situation where there is no tendency for change
Equilibrium
A view on the ‘rightness’ of an issue based on opinion rather than fact
Equity
The difference between the quantity supplied and the higher quantity demanded when price is set below the equilibrium price
Excess demand
When supply is greater than demand and there are unsold goods in the market
Excess supply
Indirect taxes levied on our spending on goods and services such as cigarettes, fuel and alcohol
Excise duties
The property of a good whereby a person can be prevented from using it
Excludability
Those costs faced by a third party for which no appropriate
compensation is forthcoming
External cost
Third party effects arising from production and consumption of goods and services for which no appropriate compensation is paid
Externalities
A severe and persistent deprivation of basic human needs
Extreme poverty
The rewards to factors of production
Factor incomes
Resources used in the production process; inputs into production (labour, capital, land and entrepreneurship)
Factors of production
There are only a finite number of workers, machines, acres of land and reserves of oil and other natural resources
Finite resources
An organisation that hires and organises resources to make products
Firm
The first company to introduce a new product to market, has the opportunity to extract the greatest long term benefit from the product introduction
First mover advantage
Costs that do not vary directly with the level of output
Fixed costs
A firm varies price by customer to maximise revenue
Flexible pricing
A workforce that is multi-skilled and able to work variable hours in response to changing demand
Flexible working
The forces of supply and demand alone determine price and output without any government intervention
Free market
A business model, especially on the Internet, whereby basic services are provided free of charge while more advanced features must be paid for
Freemium
There are barriers to them moving from one area to another to find work
Geographical immobility
measures the extent to which the distribution of income among individuals or households within an economy deviates from a perfectly equal distribution
Gini coefficient
A process by which economies and cultures have been drawn together through a global network of trade, investment, capital flows, and rapid spread of technology
Globalisation
Tangible, physical products
Goods
Policies that cause a deeper market failure
Government failure
Central and local government spending on goods and services
Government spending
A measure of economic activity carried out in an economy over a period of time
Gross domestic product (GDP)
When the demand for health care services outstrips the available resources leading to waiting lists and delays for health treatment
Health rationing
The process of protecting oneself against risk
Hedging
Requires equals to be treated equally
Horizontal equity
Where two firms join at the same stage of production in one industry
Horizontal integration
For competitive markets to work efficiently economic agents must respond to price signals in the market
Incentives
How the final burden of a tax is shared out
Incidence of a tax
A flow of earnings from using factors of production to generate an output of goods and services
Income
Measures the relationship between a change in quantity demanded and a change in real income
Income elasticity of demand
A measure of the gap between the incomes of various groups shown by plotting the average incomes of the between the lowest and highest decile
Income gap
A business already operating in and established in a market
Incumbent firm
Two products that have no price-quantity demanded relationship
Independent goods
A tax that’s imposed on producers by the government
Indirect tax
When the best use of resources is not being made
Inefficiency
When the co-efficient of price elasticity of demand is less than 1
Inelastic demand
When the co-efficient of price elasticity of supply is less than +1
Inelastic supply
When people have inaccurate, incomplete, uncertain or misunderstood data and so make potentially ‘wrong’ choices
Information failure
The stock of capital used to support the economic system
Infrastructure
The commercial development of exploiting new or improved products
Innovation
Labour, capital and other resources used in production
Inputs
Legal property rights over creations of the mind, both artistic and commercial, and the corresponding fields of law
Intellectual property
Where any spill-over effects from economic activity are absorbed by the consumer or firm themselves
Internalised
Unsold products, finished & unfinished, and raw materials used to make them
Inventories
“A situation where an increase or decrease in the supply of one
good leads to an increase or decrease in supply of another by-product”
Joint supply
Production that produces goods to order and where businesses hold few stocks
Just-in time
Refers to the human resources used in the production of goods and services
Labour resources
Quantity and quality of natural resources available in an economy
Land
When demand for a product falls as real incomes increases
Inferior good
Those things that are “gifts from nature”
Land resources
“When there is willingness to purchase a good or service, but
where the consumer lacks the purchasing power to to afford the product”
Latent demand
There is an inverse relationship between the price of a good
and demand
Law of demand
An hourly rate of pay set annually by reference to the basic cost of living in the UK and London
Living wage
A monopoly limited to a specific geographical area
Local monopoly
The time period when firms can adjust all factors used in production
Long-run
A good for which the income elasticity of demand is positive (and greater than 1) such that incomes rises, consumers spend proportionally more on the good
Luxury good
The study of the interrelationships between economic variables at an aggregate level
Macroeconomics
The use of machines, tools and labour to make things for use or sale
Manufacturing
Additional benefits received by those consuming or producing one extra product
Marginal benefit
The change in total costs resulting from increasing output by one unit
Marginal cost
The increase in revenue resulting from an additional unit of output
Marginal revenue
The additional benefit that society gains from consuming an extra unit of a good
Marginal social benefit (MSB)
The change in satisfaction from consuming an extra unit
Marginal utility
A set of arrangements that allows transactions to take place
Market
An economy in which market forces are allowed to guide the allocation of resources
Market economy
A state of equality between demand and supply
Market equilibrium
When the competitive outcome of markets is not efficient from the point of view of the economy as a whole
Market failure
Market signals that motivate economic actors to change their behaviour
Market incentives
The ability of a firm to influence or control the terms and condition on which goods are bought and sold
Market power
Where demand exceeds supply at a given price
Market shortage
The total amount of an item producers are willing and able to sell at different prices, over a given period of time egg one month
Market supply
A legally-imposed price in a market that suppliers cannot exceed
Maximum price
A product that society values and judges that everyone should have regardless of whether an individual wants them
Merit good
The study of economic decisions taken by individual economic agents, including households and firms
Microeconomics
A legally imposed price floor below which the normal market price cannot fall
Minimum price
Where resources are partly allocated by the market and partly by the government
Mixed economy
Products that have the characteristics of both private and public goods
Mixed goods
A simplified representation of reality used to provide insight into economic decisions and events
Model
A single seller of a product in a given market or industry
Monopoly
When people take actions that increase social costs because they are insured against private loss
Moral hazard
The transfer of ownership of a firm from the private to public sector
Nationalisation
Something that is essential for survival
Needs
When production and/or consumption impose external
costs on third parties outside of the market for which no appropriate compensation is paid
Negative externality
A specialist section of a larger market
Niche market
Competing not on the basis of price but by other means
Non-price competition
Resources which are finite and cannot be replaced
Non-renewable resources
The consumption of a good by one person does not reduce the
amount available for others
Non-rival consumption
A positive income elasticity of demand
Normal goods
They express an opinion about what ought to be
Normative statements
A specific target an organisation sets itself to achieve through its activity
Objectives
Charging lower prices outside periods of intensive use
Off-peak pricing
A government agency responsible UK competition policy
Office of Fair Trading
A market dominated by a few large suppliers
Oligopoly
The benefit or value of the next best alternative that has been sacrificed.
Opportunity cost
An efficient level of output which delivers both productive and allocative efficiency
Optimum output
Some goods are luxurious items where satisfaction comes from knowing both the price of the good and being able to flaunt consumption of it to other people
Ostentatious consumption
Subcontracting a process
Out-sourcing
Business costs that don’t directly relate to the production or sale of goods and services
Overhead costs
When resources cannot be reallocated without making someone else worse off
Pareto efficiency
Where access is restricted to users who have paid to subscribe to a website
Paywall
When a business raises prices at a time when demand is strongest
Peak pricing
Where a firm choose to set a low price to gain market share
Penetration pricing
A demand curve which slopes upwards from left to right
Perverse demand curve
Decisions about what to produce, how much to produce and for whom are decided by central planners rather than using the price mechanism
Planned economy
The government may choose to intervene in a market to ensure that the firms and consumers who create negative externalities include them when making decisions
Polluter pays principle
Goods which are at least in part demanded because their possession or consumption implies social or other status of those acquiring them
Positional goods
When third parties benefit from the spill-over effects of
production or consumption
Positive externalities
An expansion in the productive capacity of the economy
Positive statement
An expansion in the productive capacity of the economy
Potential economic growth
It creates a disincentive to look for work or work longer hours because of the effects of the tax and benefits system and affects people on low incomes
Poverty trap
Our tastes, likes, rankings reflected in the choices that people make in markets
Preferences
Responsiveness of demand for a product following a change in its own price
Price elasticity of demand
Relationship between change in quantity supplied and a change in the price of a product
Price elasticity of supply
The means by which decisions of consumers and businesses interact to determine the allocation of resources between different goods and services
Price mechanism
Manipulating consumer preferences and cause a change in demand
Persuasive advertising
Situation where the price of a product rarely changes
Price rigidity
Changes in price act as a signal about how resources should be allocated
Price signals
The rewards to individuals, firms or consumers from consuming or producing goods and services
Private benefit
Costs of an economic activity to individuals and firms
Private cost
Products which are both rival and excludable
Private goods
Where state owned firms are sold to the private sector
Privatisation
The difference between what producers are willing and able to supply a good for and the price they actually receive
Producer surplus
Relationship between a firm’s output and the quantities of factor inputs it employs
Production function
A boundary that shows the combinations of two or more goods and services that can be produced using all available factor resources efficiently
Production possibility frontier (PPF)
When a business in a given market or industry reaches the lowest point of its average cost curve implying an efficient use of scarce resources and a high level of factor productivity
Productive efficiency
Output per unit of input or output per person employed
Productivity
When total revenue exceeds total cost
Profit
They confer legal control or ownership of a good
Property rights
They include environmental damage and global warming which affects everyone
Public bads
Where it is not possible to provide a good or service to one person without it thereby being available for others to enjoy
Public goods
State owned companies
Public ownership
Government organisations that provide goods and services in the economy
Public sector
When firms gain discounts from bulk buying
Purchasing economies
A limit on the quantity of a product can be supplied to a market
Quota
The weighing up of costs and benefits and trying to maximise
the surplus of benefits over costs
Rational choice
When there is shortage of a product; price will rise and deter some consumers from buying the product
Rationing function
Measures taken by government to transfer income from some individuals to others
Redistribution
A tax is said to be regressive when low income earners pay a higher proportion of their income in tax than high income earners
Regressive tax
Legally enforced rules that restrict or ban specified activities
Regulations
A government agency that monitors the performance of firms in an industry
Regulator
Measures the extent to which a household’s financial resources falls below an average income threshold for the economy
Relative property
When the price elasticity of demand is greater than 1, but less than infinity
Relatively elastic
When the price elasticity of demand is less than 1, but greater than 0
Relatively inelastic
Natural resources that can be replenished
Renewable resources
Economics is about the allocation of resources among society’s various needs and wants
Resources
A direct charge to road users for their use of a particular road
Road pricing
There is only a limited amount of resources available to produce the unlimited amount of goods and services we desire
Scarcity
Prices have a signalling function because the price in a market sends important information to producers and consumers
Signalling
Where a firm or economy can produce more with existing resources
Spare capacity
A method of production where a business or area focuses on the production of a limited scope of products or services to gain greater productive efficiency
Specialisation
Payment to suppliers that reduce their costs
Subsidy
When a price fall encourages consumers to buy more of a relatively lower priced product and less of a higher priced substitute
Substitution effect
Goods in competitive demand and act as replacements for another product
Substitutes
Quantity of a good or service that a producer is willing and able to supply onto the market at a given price in a given time period
Supply
Different stages of making, distributing and selling a good or service from the production of parts, through to distribution and sale of the product
Supply chain
They occur in production, particularly in agriculture, when decisions about the quantity to be produced are made well ahead of the actual sale
Time lags
Total fixed costs plus total variable costs
Total costs
Found by multiplying price by the number of units sold
Total revenue
The total satisfaction fro a given level of consumption
Total utility
The process of making a choice between alternatives
Trade-off
Government issued licences allowing firms to emit a specified amount of pollutant
Tradeable permits
When the price elasticity of demand is equal to 1
Unitary elastic
A measure of the satisfaction that we get from purchasing and consuming a good or service
Utility
The excess of social cost over social benefit for a given output
Welfare loss
