Micro Definitions Flashcards
Market
Space where people willing and able to purchase a good/service, and exchanges are carried out with those who are willing and able to provide that same good/service
Product Market
Market where goods and services are sold
Factor Market
Market where resources are sold.
Labour Market
Markets where people offer their services in exchange for a salary.
Financial Market
Markets where foreign currencies, company shares or other financial contracts are traded.
Market Power
The ability of a firm to set prices above the level that would occur in competition.
Consumers
A person or an organisation that buys goods or services in a market.
Demand
The quantity of a good or service that consumers are willing and able to purchase at various prices during a specific time period, ceteris paribus.
Assumptions of Law of Demand:
Law of diminishing marginal utility
The principle that as additional units of a good or services are consumed, the marginal utility will decline.
Law of Demand
The principle that as the price of a product decreases, the quantity demanded of it will increase, ceteris paribus.
Assumptions of Law of Demand: Substitution Effect
When consumers substitute relatively lower-priced goods when the prices of those goods decline, thereby consuming more of them.
Normal Goods
Goods whose demand increases as people’s incomes increase.
Inferior Goods
Goods whose demand decreases as people’s incomes increase.
Substitute Goods
Goods that have similar characteristics and uses to consumers.
Complementary Goods
Goods that are consumed together.
Producers
People, companies or countries that make, grow or supply goods, services or resources in a market.
Law of Supply
As the price of a product increases, the quantity supplied will usually increase, ceteris paribus.
Assumptions of Law of Supply:
Law of diminishing marginal returns
The principle that adding more of one factor of production (input), while holding at least one other factor of production constant, will at some point yield lower marginal returns (output/product).
Productivity
The quantity of output per unit of input.
Market Equilibrium
The point where the supply curve of a good or service crosses the demand curve.
Price where the quantity demanded equals the quantity supplied - no surpluses/losses.
Price Mechanism: Incentive Function
Motivation is provided to consumers and producers to reallocate resources in a market.
Price Mechanism: Rationing Function
Economic question of ‘for whom’ is determined.
Scarcity
Efficiency
Where a firm can produce the same good, but with fewer resources.
Luxury Goods
Quantity demanded increases as income increases
Capital
Physical capital stock used to produce Goods and Services.
Capital Goods
Tools and machinery necessary for producing other goods.
Command/Central Economy
Rationing system where all economic decisions are taken at the centre of the government.
All resources are owned by the state.
Commodity
Primary good / Production Input
Consumer Goods
Finished Products ready to be sold
Consumer Expenditure
The total value of household spending on goods and services.
Economic Goods
Goods that are produced with scarce resources, and therefore have an opportunity cost and a price
Elasticity
The responsiveness of one variable to a change in another variable.
Factor Endowments
The amount of land, labour, capital, and entrepreneurship that a country possesses and can exploit for manufacturing.
Free Market Economy
A rationing system where all economic decisions are taken by consumers and producers through the price mechanism without government intervention, and resources are privately owned by people and firms.
Homo Economicus
Assumes that human behaviour is completely rational and utility-maximising.
Human Capital
The contribution of labour (knowledge, skills and physical effort) to the production process.
Imperfect Information
A situation in which the parties to a transaction have different or limited information.
Inefficiency
Not achieving maximum productivity; failure to make the best use of time or resources.
Infrastructure
Large-scale physical capital, usually provided by the government, that facilitates economic activity.
Invisible Hand (Self-regulating)
A term first brought up by the Scottish philosopher Adam Smith in the 18th century, in reference to the tendency of free markets to regulate themselves by means of competition in the pursuit of self-interest.
Labour
The human factor needed for production.
It includes the physical and mental effort that people contribute to the production of goods and services.
Necessity Good
A good or service whose quantity demanded does not change much in response to a price change because consumers consider it essential.
Needs
Things that people must have for survival such as food, shelter and clothing.
Normative Economics
Economic statements based on norms, and thus based on subjective evaluation.
Perfect information
An assumption of free market theory that all participants have complete knowledge of prices, quality of goods, and number of sellers, and consumers have perfect knowledge of their own potential utility/satisfaction.
Positive Economics
Economics statements based on facts or evidence, free from subjectivity.
Private Goods
Goods and services that are simultaneously rivalrous and excludable.
Public Goods
Both non-rivalrous and non-excludable
S
Scarcity
When the available resources or factors of production are finite, while human wants and needs are infinite.
There are not enough resources to produce everything that is necessary to satisfy human beings’ needs and wants.
