MICRO Flashcards
Relationships between average values and marginal values.
As average values rise, marginal values are below the average values.
As average values fall, marginal values are above the average values.
If average values fall then rise, marginal values pass though the minimum point.
if average values rise then fall, marginal values pass through the maximum point.
The Law of Diminishing Returns
A short term law which states that as a variable factor of production is added to a fixed factor, eventually both the marginal and average return to the variable will begin to fall.
-total output is still rising but at a diminished rate.
Short Run
The time period in which at least one factor of production is fixed and can’t be varied.
Long run
the time period in which no factors of production are fixed and which all factor of production can be varied.
Total Returns of Labour
Total output produced by all the workers employed by the firm.
Average Returns of Labour
Total output divided by the total number of workers employed
Marginal Returns of Labour
The change in the quantity of total output resulting from the employment of one worker, holding all other factors of production fixed.
increasing return to scale
when an increasing factor input leads to a more than proportionate increasing in factor output
Decreasing Returns to Scale
increase in factor input leads to a less than proportionate increase in factor output
Constant Returns to Scale
increase in factor input leads to a proportionate increase in factor output.
Minimum Efficient Scale (MES)
lowest amount of output at which productive efficiency is achieved.–the higher the MES in an industry the greater the barriers to entry for firms.
Technological change
describes the overall effect of inventions, innovation and the spread of technology in the economy.
Technological change effects on method of production
- move from labour intensive to capital intensive
- increase in mechanisation and automation
- requires more resources.
- requires investment.
- less labour, though more skilled labour
- specialisation.
Productive efficiency
level of output at which average cost of production are minimised where more of one good can’t be made without producing less of another.
Allocative Efficiency
occurs when its impossible to improve overall economic welfare by re-allocating resources between markets;when the available economic resources are used to produce the combination of goods and services that best markets people’s tastes and preferences.
Dynamic Efficiency
occurs in the long run, leading to the development of new products and more efficient processes that improve productive efficiency.
Creative Destruction
Capitalism evolving and renewing itself overtime through new technology and innovations replacing older technologies and innovations
Rational Behaviour
acting in pursuit of self-interest, which for a consumer means attempting to maximise the welfare, satisfaction or utility gained from the good and services consumed.
utility
satisfaction or economic welfare an individual gains from consuming a good or service
marginal utility
the additional utility gained from consuming one extra unit of a good.
Internal economies of scale
- research and development
- technological
- financial
- managerial
External economies of scale
- education
- research and development
- infrastructure
- technological
Normal profit
minimum profit a firm must make to stay in business, which is insufficient to attract new firms into the markets.
Role of profit
- creation of business incentive
- creation of shareholder incentive
- profits and resources allocation