Micro Definitions

Question 1

Market

Answer 1

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

Question 1

Product Market

Answer 1

Market where goods and services are sold

Question 2

Factor Market

Answer 2

Market where resources are sold.

Question 3

Labour Market

Answer 3

Markets where people offer their services in exchange for a salary.

Question 4

Financial Market

Answer 4

Markets where foreign currencies, company shares or other financial contracts are traded.

Question 5

Market Power

Answer 5

The ability of a firm to set prices above the level that would occur in competition.

Question 6

Consumers

Answer 6

A person or an organisation that buys goods or services in a market.

Question 7

Demand

Answer 7

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.

Question 7

Assumptions of Law of Demand:
Law of diminishing marginal utility

Answer 7

The principle that as additional units of a good or services are consumed, the marginal utility will decline.

Question 8

Law of Demand

Answer 8

The principle that as the price of a product decreases, the quantity demanded of it will increase, ceteris paribus.

Question 9

Assumptions of Law of Demand: Substitution Effect

Answer 9

When consumers substitute relatively lower-priced goods when the prices of those goods decline, thereby consuming more of them.

Question 10

Normal Goods

Answer 10

Goods whose demand increases as people’s incomes increase.

Question 11

Inferior Goods

Answer 11

Goods whose demand decreases as people’s incomes increase.

Question 12

Substitute Goods

Answer 12

Goods that have similar characteristics and uses to consumers.

Question 13

Complementary Goods

Answer 13

Goods that are consumed together.

Question 14

Producers

Answer 14

People, companies or countries that make, grow or supply goods, services or resources in a market.

Question 15

Law of Supply

Answer 15

As the price of a product increases, the quantity supplied will usually increase, ceteris paribus.

Question 16

Assumptions of Law of Supply:
Law of diminishing marginal returns

Answer 16

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).

Question 17

Productivity

Answer 17

The quantity of output per unit of input.

Question 18

Market Equilibrium

Answer 18

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.

Question 19

Price Mechanism: Incentive Function

Answer 19

Motivation is provided to consumers and producers to reallocate resources in a market.

Question 20

Price Mechanism: Rationing Function

Answer 20

Economic question of ‘for whom’ is determined.

Scarcity

Question 21

Efficiency

Answer 21

Where a firm can produce the same good, but with fewer resources.

Question 22

Luxury Goods

Answer 22

Quantity demanded increases as income increases

Question 23

Capital

Answer 23

Physical capital stock used to produce Goods and Services.

Question 24

Capital Goods

Answer 24

Tools and machinery necessary for producing other goods.

Question 25

Command/Central Economy

Answer 25

Rationing system where all economic decisions are taken at the centre of the government.

All resources are owned by the state.

Question 26

Commodity

Answer 26

Primary good / Production Input

Question 27

Consumer Goods

Answer 27

Finished Products ready to be sold

Question 28

Consumer Expenditure

Answer 28

The total value of household spending on goods and services.

Question 29

Economic Goods

Answer 29

Goods that are produced with scarce resources, and therefore have an opportunity cost and a price

Question 30

Elasticity

Answer 30

The responsiveness of one variable to a change in another variable.

Question 31

Factor Endowments

Answer 31

The amount of land, labour, capital, and entrepreneurship that a country possesses and can exploit for manufacturing.

Question 32

Free Market Economy

Answer 32

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.

Question 33

Homo Economicus

Answer 33

Assumes that human behaviour is completely rational and utility-maximising.

Question 34

Human Capital

Answer 34

The contribution of labour (knowledge, skills and physical effort) to the production process.

Question 35

Imperfect Information

Answer 35

A situation in which the parties to a transaction have different or limited information.

Question 36

Inefficiency

Answer 36

Not achieving maximum productivity; failure to make the best use of time or resources.

Question 37

Infrastructure

Answer 37

Large-scale physical capital, usually provided by the government, that facilitates economic activity.

Question 38

Invisible Hand (Self-regulating)

Answer 38

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.

Question 39

Labour

Answer 39

The human factor needed for production.

It includes the physical and mental effort that people contribute to the production of goods and services.

Question 40

Necessity Good

Answer 40

A good or service whose quantity demanded does not change much in response to a price change because consumers consider it essential.

Question 41

Needs

Answer 41

Things that people must have for survival such as food, shelter and clothing.

Question 42

Normative Economics

Answer 42

Economic statements based on norms, and thus based on subjective evaluation.

Question 43

Perfect information

Answer 43

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.

Question 44

Positive Economics

Answer 44

Economics statements based on facts or evidence, free from subjectivity.

Question 45

Private Goods

Answer 45

Goods and services that are simultaneously rivalrous and excludable.

Question 46

Public Goods

Answer 46

Both non-rivalrous and non-excludable

Question 47

S

Question 48

Scarcity

Answer 48

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.