micro def(blue) Flashcards
Centrally planned economy
decisions on resource allocation are guided by the state
Ceteris paribus
A latin phrase meaning ‘other things being equal’ ; it is used in economics when we focus on changes in one variable while holding other influences constant
Competitive demand
Demand for goods that are in competition with each other (these goods are also known as substitute goods)
Competetive market
A market in which individual firms cannot influence the price of the goods or service they are selling, because of competition from other firms
Complements
Two goods are said to be complements if people tend to consume them jointly, so that an increase in the price of one good causes the demand for the other good to fall
Composite demand
demand for a good that has multiple uses
Consumer surplus
The difference between the price consumers are willing and able to pay for a good or service and the price they actually pay for
Cross elasticity of demand (XED)
the responsiveness of quantity demanded for one product in relation to a change in the price of another product
Demand
the quantity of a product that consumers are willing and able to purchase at various prices over a given time period ( assuming ceteris paribus)
Derived demand
Demand for a factor of production or a good which derives not from the factor or the good itself but from the goods it produces
Economic agent
Economic agents are the households, firms and departments of government that make decisions about what and how to produce and consumer in an economy
Elasticity
A measure of the sensitivity of one variable to changes in another variable ( or the extent to which buyers and sellers respond to a change in market conditions)
Equilibrium
Classical economic equilibrium is a condition where market forces are balanced and demand equals supply
Equilibrium price
The price at which demand equals supply ( also referred to as the market clearing price)
Firm
An organisation that brings together factors of production in order to produce output
Free market economy
One in which resource allocation is guided by market forces without intervention by the state
Income elasticity of demand ( YED)
The responsiveness of quantity demanded to a % change in income
Inferior good
Goods for which an increase in income leads to a fall in quantity demanded, goods with a negative income elasticity of demand
Invisible hand
Term used by Adam Smith to describe the way in which the resources are allocated in a market economy
Joint demand
Demand for goods which are independent, such that they are demanded together
Join supply
Supply of products that do not compete for firms’ resources
Law of demand
A ‘law’ that states that there is an inverse relationship between quantity demanded and the price of a good or service, ceteris paribus
Luxury goods
One for which the income elasticity of demand is positive and greater than 1
Market
Where buyers and sellers meet for the purpose of trade/ exchange
Market economy
An economic system whereby resources are allocated through the free market mechanism
Mixed economy
Resources are allocated partly through free market price signals and partly on the basis of direction by government
Model
A simplified representation of reality used to provide insight into economic decisions and events
Normal good
Goods for which an increase in income leads to an increase in quantity demanded (.. goods with a positive income elasticity of demand)
Price
The amount of money that is paid for a given amount of a particular good or service
Price elastic
where the percentage change in the quantity demanded responds greater less than proportionally to a % change in price
Price inelastic
Where the percentage change in the quantity demanded responds less than proportionally to a % change in price
Price elasticity of demand (PED)
The responsiveness of quantity demanded to a % change in the price of the product
Price elasticity of supply (PES)
The responsiveness of quantity supplied to a % change in the price of the product
Price system
A method of allocating resources by the free movement of prices
Producer surplus
The difference between the minimum price that suppliers are willing and able to accept for a product and the price at which they actually sell
Resource allocation
The way in which a society’s productive assets are used — their alternative uses
Substitutes
Two goods are said to be substituted if consumers regard them as alternatives, so that the demand for one good is likely to rise if the price of the other good rises
Supply
The quantity of a product that producers are willing and able to provide at various prices over a given time period (assuming ceteris paribus)
Supply curve
The relationship between quantity supplied and the price of a product
