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Economics > Micro Definitions > Flashcards

Micro Definitions Flashcards

1
Q

Scarcity

A

Situation that arises because people have unlimited wants in the face of limited resources.

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2
Q

Economics Goods

A

Goods that are scarce.

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3
Q

Free good

A

Goods that are not normally regarded as scarce. No opportunity cost.

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4
Q

Poverty

A

A situation in which individuals lack the basic necessities of life and have low incomes relative to their fellow citizens.

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5
Q

Needs

A

Things that are essential for human survival.

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6
Q

Wants

A

Things that are non-essential desires.

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7
Q

choice

A

Deciding what to buy or sell from a range of possible options.

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8
Q

basic economic problem

A

People just choose how best to use their limited resources because not all needs and wants can be satisfied.

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9
Q

Firm (Business)

A

An organisation that produces output (goods or services).

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10
Q

Household

A

A person or people that engage in economic activity as one or together.

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11
Q

Government

A

The group of MPs with responsibility to develop and implement policy and laws.

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12
Q

Rationality

A

Economic agents acting in their best interests.

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13
Q

Utility

A

The benefit derived from the consumption of a good or service.

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14
Q

Incentive

A

A thing that motivates or encourages someone to do something.

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15
Q

Positive statement

A

A statement about what is. ie. facts

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16
Q

normative statement

A

a statement involving a value judgement about what ought to be.

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17
Q

Value judgement

A

A statement based in your opinion or beliefs, rather on facts.

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18
Q

factor of production

A

Resources used in the production process, or inputs into production, including land, labour, capital and enterprise.

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19
Q

trade-off

A

a situation in which the choice of one alternative requires the sacrifice of another.

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20
Q

opportunity cost

A

in decision making, the value of the next best alternative forgone.

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21
Q

production possible curve (PPC)

A

a curve showing the maximum combinations of goods or services than can be produced in a set period of time given available resources.

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22
Q

capital goods

A

Goods used as part of the production process, such as machinery or factory buildings.

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23
Q

consumer goods

A

Goods produced for present use (consumption).

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24
Q

long run economic growth

A

an expansion in the productive capacity of the economy

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25
Q

specialisation

A

the process of concentrating on a task or activity in order to become expert in it.

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26
Q

division of labour

A

a process whereby the production is broken down into a sequence of stages, and workers are assigned to particular stages.

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27
Q

barter system

A

an economy without money so that transactions in goods and services rely on direct exchange.

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28
Q

Money as medium of exchange

A

function of money that enables transactions to take place.

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29
Q

Labour productivity

A

output per worker per unit of input

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30
Q

demand

A

quantity of good or seduce that consumers are willing and able to buy give its price.

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31
Q

joint demand

A

Demand for goods which are interdependent, such that they are demanded together.

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32
Q

composite demand

A

Demand for a good that has multiple uses.

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33
Q

competitive demand

A

Demand for goods that are in competition with each other.

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34
Q

Ceteris Paribus

A

Latin phrase ‘all other things being equal’ - when we focus on changes in one variable while holding other influences constant.

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35
Q

law of demand

A

a law that states there is an inverse relationship between quantity demanded and the price of a good to service, ceteris paribus.

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36
Q

normal good

A

One where quantity demanded increases in response to an increase in consumer incomes.

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37
Q

Inferior good

A

One where the quantity demanded decreases in response to an increase in consumer incomes.

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38
Q

substitutes

A

Two goods are said to be substitutes if consumers regard them as alternatives.

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39
Q

complements

A

two goods are said to be complements if people tend to consume them jointly, so an increase in the price of one good causes demand of the other to fall.

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40
Q

extension

A

a movement along the demand curve to the right

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41
Q

extension

A

a movement along the demand curve to the right

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42
Q

contraction

A

a movement along the demand curve to the left

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43
Q

competitive market

A

a market in which individual firms cannot influence the price of the good or service they are selling, because of competition from other firms.

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44
Q

competitive supply

A

a situation in which a firm can use its factors of production to produce alternative products.

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45
Q

joint supply

A

where a firm produces more than one product together.

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46
Q

Consumer surplus

A

value that consumers gain from consuming a good or service over and above the price paid.

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47
Q

Producer surplus

A

The difference between the price recieved by firms for a good or service and the price at which they would have been prepared to supply that good or service.

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48
Q

market equilibrium

A

occurs in a market when the price is such that the quantity that consumers wish to buy is exactly balanced by the quantity that firms wish to supply.

49
Q

excess supply

A

a situation in which the quantity that firms are willing and able to supply exceeds the quantity that consumers wish to demand at the going price (also known as surplus).

50
Q

excess demand

A

the quantity that consumers wish to demand at the going price exceeds the quantity that firms are willing and able to supply (also known as a shortage).

51
Q

disequilibrium

A

a shortage or a surplus exists so the market does not clear.

52
Q

elasticity

A

a measure of sensitivity of one variable to changes in another variable.

53
Q

price elasticity of demand (PED)

A

a measure of sensitivity of quantity demanded to a change in the price of a good or service.

54
Q

elastic

A

a term used when price elasticity of demand is between -1 and negative infinity.

55
Q

inelastic

A

a term used when price elasticity of demand is between -1 and 0.

56
Q

unit elastic

A

a term used when the price elasticity of demand is equal to negative 1.

57
Q

income elasticity of income (YED)

A

a measure of sensitivity of quantity demanded to a change in consumer incomes.

58
Q

superior good (luxury good)

A

One for which the income elasticity of demand is positive and greater than 1, such that as income rises, consumers spend proportionally more on the good.

59
Q

National Minimum Wage

A

the minimum pay per hour most workers under the age of 23 are entitled to by law.

60
Q

National living wage

A

The minimum pay per hour most workers over the age of 23 are entitled to by law.

61
Q

VAT (value added tax)

A

A tax added to price of services and goods. VAT is usually 20%.

62
Q

Cross elasticity of demand

A

a measure of sensitivity of quantity demanded to a change in the price of some other good or service.

63
Q

Loss leader

A

A product sold at a price below its market cost to stimulate other sales of more profitable goods or services.

64
Q

marginal price

A

the idea that economic agents may take decisions by considering to effect of small changes from the existing.

65
Q

rational decision making

A

a decision that allows an economic agent to maximise their objective, by setting the marginal benefit of action and equal to its marginal cost.

66
Q

marginal utility

A

the additional utility gained from consuming an extra unit of a good or service.

67
Q

law of diminishing marginal utility

A

states that the more units of a good that see consumed, the lower the utility from consuming those additional units.

68
Q

market failure

A

a situation in which the free market mechanism does not lead to an optimal allocation of resources.

69
Q

private cost

A

a cost incurred by an individual as part of its production or other economic activities.

70
Q

external cost

A

a cost that is associated with an individual production or other economic activities, which is borne by a third party.

71
Q

marginal social cost (MSC)

A

the cost to society of producing an extra unit of good.

72
Q

marginal private cost (MPC)

A

the cost to an individual or consuming an extra unit of a good. (SAME AS THE SUPPLY CURVE ON GRAPH).

73
Q

marginal external cost

A

additional cost to society, not considered by the individual consuming an extra unit of a good.

74
Q

private benefit

A

a benefit gained by an individual as part of its consumption.

75
Q

external benefit

A

A benefit gained by an individual’s consumption, which spill over to a third party.

76
Q

social benefit (equation)

A

private benefit + external benefit

77
Q

marginal social benefit (MSB)

A

the additional benefit that society gains from consuming an extra unit of a good.

78
Q

Marginal private benefit (MPB)

A

additional benefit that a consumer gains from consuming an extra unit of a good. (SAME AS DEMAND CURVE ON GRAPHS)

79
Q

marginal external benefit

A

the additional benefit to society, not considered by the individual consuming an extra unit of a good.

80
Q

externality

A

a cost or a benefit that is external to a market transaction, and is thus not reflected in market prices.

81
Q

negative externality of consumption

A

a negative externality caused by consumption that has a negative external benefit borne by third party.

82
Q

positive externality of consumption

A

a positive externality caused by consumption that leads to external benefits for a third party.

83
Q

production externality

A

an externality that affects the production side of a market, which may be either positive or negative.

84
Q

negative production externality

A

a negative externality caused by production that has an external cost borne by a third party.

85
Q

information failure

A

a type of market failure where economic agent slack sufficient information to make fully informed decisions.

86
Q

asymmetric information

A

a situation in which some participant in a market have better information about market conditions than others.

87
Q

adverse selection

A

A situation in which a person at risk is more likely to take out insurance.

88
Q

moral hazard

A

a situation in which a person who has taken out insurance is prone to taking more risk.

89
Q

merit good

A

a good that brings unanticipated benefits to consumers, such that society believes it will be under consumed in a free market.

90
Q

demerit good

A

a good that brings less benefit to consumers than they expect, such that too much will be consumed by individuals in a free market.

91
Q

private good

A

a good that, once consumed by one person, cannot be consumed by somebody else - such a good has excludability and is rivalrous.

92
Q

public good

A

a good that is non-exclusive and non-rivalrous - consumers cannot be excluded from consuming the good, and consumption by one person does not affect the amount of the good available for others to consume

93
Q

non-excludability

A

a situation in which it is not possible to provide a product to one person without allowing others to consume it as well.

94
Q

non-rivalry

A

a situation in which one person’s consumption of a food does not prevent others from consuming it as well.

95
Q

non-rejectability

A

a situation in which an individual cannot avoid consuming a good.

96
Q

free-rider problem

A

when an individual cannot be excluded from consuming a good, and so has no incentive to pay for its provision.

97
Q

quasi-public good

A

a good that has some, but not all, the characteristics of public goods.

98
Q

quasi

A

a prefix that means ‘almost’ or ‘in part’

99
Q

tax

A

compulsory fees levied on individuals or firms by government.

100
Q

indirect tax

A

a tax levied on expenditure on good or services.

101
Q

direct tax

A

a tax charges directly to an individual based on a component of income.

102
Q

incidence of tax

A

the way in which the burden of paying a sales tax is divided between buyers and sellers.

103
Q

specific tax

A

A tax of a fixed amount imposed on purchases of a commodity.

104
Q

ad valorem tax

A

a tax levied on a commodity set as a percentage of the selling price.

105
Q

excess burden of a sales tax

A

the dead weight loss to society following the imposition of a sales tax.

106
Q

polluters pays principle

A

an argument that a firm causing pollution should be charged the full external cost that it inflicts on society.

107
Q

Subsidy

A

A grant given by the government to producers.

108
Q

State provision

A

Government expenditure (state provision) is where the government decides which goods or services to provide and then spends money providing them.

109
Q

price control

A

A legal maximum or minimum price

110
Q

Price floor

A

A legal minimum price

111
Q

Price ceiling

A

A legal maximum price

112
Q

merger

A

Two or more firms joining to form a new firm.

113
Q

cartel

A

an agreement between firms on price and/ or output with the intention of maximising their joint profits.

114
Q

buffer stock

A

a scheme intended to stabilise the price of a commodity by buying excess supply in periods when supply is high, and selling when supply is low.

115
Q

legislation

A

laws created by government to enforce regulations.

116
Q

regulation

A

rules created by government to control activities of producers and consumers by changing their behaviour.

117
Q

prohibition

A

an attempt to prevent the consumption of a demerit good by declaring it illegal.

118
Q

information provision

A

when the government educates the public to help comsumers make better choices.

119
Q
A

Economics (1 decks)

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