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Economics A2 > Micro definitions > Flashcards

Micro definitions Flashcards

1
Q

Define adverse selection

A

Situation where people who buy insurance have a better idea of the risks they face than do the sellers of insurance

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2
Q

Define allocative efficiency

A

Impossible to improve overall economic welfare by reallocating resources between markets. It is where MC=AR

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3
Q

Define bad

A

Yielding dissatisfaction or dis utility when consumed. Consumption of bads reduces economic welfare

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4
Q

Define cartel

A

A collusive agreement by firms to usually fix prices and maybe output

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5
Q

Define CMA

A

Competition and markets authority which implements UK competition policy

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6
Q

Define competition policy

A

Aims to make (goods) markets more competitive.

Comprises policy toward monopoly, mergers and restrictive trading practices

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7
Q

Define concentration ratio

A

Measures the market share of the biggest firms in the market

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8
Q

Define Consumer surplus

A

A measure of economic welfare enjoyed by consumers

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9
Q

Define CBA

A

Cost benefit analysis is a technique for assessing all the costs and benefits likely to result from an economic decision

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10
Q

Define Demerit good

A

A good for which social costs of consumption exceed private costs
MSC>MPC
E.g. Tobacco

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11
Q

Define Diseconomies of scale

A

Rising long-run average costs as the size of the firm increases

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12
Q

Define Duopoly

A

Two dominant firms in a market

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13
Q

Define dynamic efficiency

A

Measure the extent to which various forms of static efficiency improve overtime
E.g. Technology

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14
Q

Define Economic efficiency

A

Minimise costs incurred with minimum undesired side effects

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15
Q

Define Economic welfare

A

Human happiness or utility

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16
Q

Define Economies of scale

A

Falling long-run average costs as the size of the firm increases

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17
Q

Define entrepreneur

A

A risk taker and decision maker within a firm

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18
Q

Define External diseconomies of scale

A

Higher long-run average PRODUCTION costs resulting from the growth of the INDUSTRY of which the firm is a part

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19
Q

Define external economies of scale

A

Lower long-run average PRODUCTION costs resulting from the growth of the INDUSTRY of which the firm is a part

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20
Q

Define external growth

A

Growth via acquisition, either takeover or merger

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21
Q

Define externality

A

An external benefit (public good) or external cost (public bad) that is dumped on third parties outside the market

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22
Q

Define Fiscal drag

A

A failure to raise personal tax thresholds in line with inflation that brings low paid into the tax net

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23
Q

Define fixed costs

A

The costs of employing the fixed factors of production in the short run

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24
Q

Define free rider

A

Somebody who benefits without paying

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25
Q

Define game theory

A

A mathematical approach to the study of conflict and decision making which treats conflict as games with set tactics and strategies and rational players

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26
Q

Define geographical immobility of labour

A

Difficulty of moving from on location to another

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27
Q

Define government failure

A

When government intervention is ineffective, wasteful or damaging.
Makes the market failure worse

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28
Q

Define horizontal equity

A

Household in similar circumstances paying similar taxes and receiving similar benefits

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29
Q

Define horizontal growth

A

Occurs when a firm undertakes more of the activities it is already involved in
Can lead to economies of scale

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30
Q

Define imperfect competition

A

The range of market structures lying between perfect competition and pure monopoly

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31
Q

Define industrial policy

A

The governments microeconomic policy towards firms and industry

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32
Q

Define internal diseconomies of scale

A

Higher long-run average PRODUCTION costs resulting from an increase in the size of the firm in the long-run

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33
Q

Define internal economies of scale

A

Lower long-run average PRODUCTION costs resulting from an increase in the size of the firm in the long-run

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34
Q

Define internal growth

A

Occurs when a firm invests in new capacity
E.g. Factories and offices
Also known as organic growth

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35
Q

Define absolute poverty

A

Occurs when income is below a particular level

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36
Q

Define inequitable

A

Unfair or unjust

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37
Q

Define Information problem

A

When people make poor decisions because they don’t possess or ignore relevant information

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38
Q

Define lag indicator

A

Provides information about past events that have already taken place in the economy

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39
Q

Define lateral growth

A

When a firm diversifies into new types of production

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40
Q

Define law of diminishing returns

A

A short-term law which states that as a variable factor of production is added to fixed factors, eventually the marginal returns of variable factor will begin to fall

41
Q

Define lead indicator

A

Provides information about the likely future state of the economy

42
Q

Define long run

A

The time period in which the scale of ALL factors of production can be changed

43
Q

Define marginal cost of labour (MC(L))

A

The addition to a firms total cost of production resulting from employing one more worker

44
Q

Define marginal physical product (MPP)

A

The addition to a firms total output brought about by employing one more worker

45
Q

Define marginal revenue (MR)

A

Change in total revenue / change in size of output

46
Q

Define marginal revenue product (MRP)

A

The monetary value of the addition to a firms total output brought about employing one more worker

47
Q

Define market failure

A

When a market functions badly, unsatisfactory or not at all

48
Q

Define market structure

A

The framework within which a firm sells it output

49
Q

Define market supply curve of labour

A

Planned supply of labour by all workers in a labour market

50
Q

Define merit good

A

A good which the social benefits of consumption exceed the private benefits
MSB>MPB
E.g. Health care

51
Q

Define minimum efficient scale (MES)

A

The smallest size of plant that can benefit from minimum long-run average costs

52
Q

Define missing markets

A

When the incentive function of prices completely breaks down and a market fails to come into existence or disappears completely

53
Q

Define monopoly profit (abnormal/supernormal profit)

A

The supernormal/abnormal profit made by monopoly or imperfect competitive firm in the long run and short run

54
Q

Define Monopsony

A

Only one buyer in a market

Also known as monopoly buyer

55
Q

Define profit maximisation

A

Occurs when total sales revenue is furthest above total cost

MR=MC

56
Q

Define multinational company

A

Business with headquarters in one country that owns and operates subsidiary companies in other countries
E.g. Microsoft

57
Q

Define national minimum wage

A

A minimum wage (wage rate) that must by law be paid to employees

58
Q

Define non pure public good

A

A good for which it may be possible to exclude free-riders but for which there is a case for not doing so

59
Q

Define normal profits

A

The minimum profit a firm must make to stay in business

While being insufficient to attract new firms into gets market

60
Q

Define occupational immobility of labour

A

Difficulty of moving from one occupation (job) to another

E.g. Coal miner to electrician

61
Q

Define oligopoly

A

An imperfectly competitive market containing only a few big firms
Concentrated market

62
Q

Define perfect competition

A

Exists in a market containing LARGE number of firms and meets the six conditions that define the market structure

63
Q

Define performance indicator

A

Provides information about what is happening in the economy

64
Q

Define policy indicator

A

Provides information about whether a particular policy is on course to achieve a desired policy objective

65
Q

Define poverty trap

A

A situation in which the low paid are trapped in relative poverty by having to pay income tax and NICs at the same time as losing welfare benefits

66
Q

Define price discrimination

A

Charging DIFFERENT prices to DIFFERENT customers for the same product based on different willingness to pay

67
Q

Define principal/agent problem

A

Recognises that the principals (shareholders) have a different objective from that of the agents (managers)

68
Q

Define private benefit maximisation

A

Occurs when MPB=MPC

69
Q

Define private company

A

Issues shares that are not for sale on a market

70
Q

Define private good

A

A good which exhibits characteristics of excludability and rivalry

71
Q

Define producer surplus

A

A measure of the economic welfare enjoyed by firms or producers
The difference between the price a firm succeeds in charging and the minimum price it would be prepared to accept

72
Q

Define production

A

Process or set of processes that convert inputs into outputs

73
Q

Define productive efficiency

A

Minimising the average costs of production

Producing on the economy’s production possibility frontier

74
Q

Define profit

A

Revenue - costs

75
Q

Define progressive tax

A

A tax in which the rich pay a higher proportion of income in tax than the poor

76
Q

Define public good

A

A good which exhibits the characteristics of non-excludability and non-rivalry

77
Q

Define public bad

A

Bad for which the producers free ride, dumping the bad on third parties

78
Q

Define public company

A

Issues shares that the general public can buy on a market or stock exchange

79
Q

Define pure monopoly

A

Exists where there is ONLY one firm in a market

80
Q

Define relative poverty

A

Occurs when income is below a specified proportion of average income

81
Q

Define restrictive trading practices

A

An activity undertaken by a firm on its own or in COLLUSION with other firms that restricts competition

82
Q

Define returns to scale

A

How output changes when the scale of all the factors of production changes in the long run

83
Q

Define revenue

A

The money income a firm receives from selling its output

84
Q

Define satisficing

A

Achieving a satisfactory objective acceptable to all the competing member groups of the coalition that makes up the firm

85
Q

Define short run

A

The time period in which at least one factor of production is fixed

86
Q

Define social benefit maximisation

A

Occurs when MSB=MSC

87
Q

Define static efficiency

A

Measures technical, productive, X and allocative efficiency at a particular point in time

88
Q

Define supernormal/abnormal profit

A

Profit over and above normal profit

89
Q

Define technical efficiency

A

Maximises output from the available inputs

90
Q

Define trade union

A

A collective association of workers whose aim is to improve the pay and per conditions of work of its members

91
Q

Define traded pollution permits

A

These allow governments to give companies licences to pollute at a certain level.
Companies can buy, sell and trade these permits on a market

92
Q

Define transfer

A

An income paid by the state to benefit recipients and financed from taxation

93
Q

Define unemployment trap

A

The unemployed are trapped in unemployment as hey are better off living on benefits than in a low-wage job paying income tax and NICs, while also losing the ability to claim benefits

94
Q

Define variable costs

A

The costs of employing the variable factor of production in the short run

95
Q

Define vertical equity

A

Redistributes income from the rich to the poor on the basis of need

96
Q

Define vertical growth

A

Occurs when a firm grows by expanding back up its supply chain or forward along its distribution chain

97
Q

Define wage discrimination

A

Paying DIFFERENT workers DIFFERENT wages for doing the same job

98
Q

Define welfare

A

Human happiness

Economics A2 (1 decks)

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