Micro Definitions Flashcards
Ceteris paribus
All things being equal; the assumption that, whilst the effects of a change in one variable are being investigated, all other variables are kept constant
Economic goods
Goods which are scarce because their use has an opportunity cost
Free goods
Goods which are unlimited in supply and therefore have no opportunity cost
Needs
The minimum which is necessary for a person to survive as a human being
Production possibility curve
A curve which shows the maximum potential level of output of one good given a level of output for all other goods in the economy
Capital productivity
Output per unit of capital employed
Fixed capital
Economic resources such as factories and hospitals which are used to transform working capital into goods and services
Human capital
The value of the productive potential of an individual or group of workers. It is made up of the skills, talents, education and training of an individual or group and represents the value of the future earnings and production
Labour productivity
Output per worker
Market
Any convenient set of arrangements by which buyers and sellers communicate to exchange goods and services
Non-renewable resources
Resources such as coal or oil which once exploited cannot be replaced
Non-sustainable resources
Resources which are being economically exploited in such a way that it is being reduced over time
Primary sector
Extractive and agricultural industries
Productivity
Output per unit of input employed
Profits
The reward to owners of a business. It’s he difference between a firm’s revenues and costs
Renewable resources
Resources, such as fish stocks or forests, which can be exploited over and over again because they have the potential to renew themselves
Secondary sector
Production of goods, mainly manufactured
Specialisation
A system of organisation where economic units such as households and nations are not self-sufficient but concentrate on producing certain goods and services and trading the surplus with others
Stakeholders
Groups of people who have an interest in a firm, such as shareholders, customers, suppliers, workers, the local community in which it operates and the government
Sustainable resources
Renewable resources which can be economically exploited in such a way that it will not diminish or run out
Tertiary sector
Production of services
Utility
The satisfaction derived from consuming a good
Welfare
The well being of an economic agent or group of economic agents
Working it circulation capital
Resources which are in the production system waiting to be transformed into goods or other material before being finally sold to the consumer
Base period
The period, such as a year or a month, with which all other values in a series are compared
Index number
An indicator showing the relative value of one number to another from a base of 100. It is often used to present an average of a number of statistics
Equilibrium
The pint where what is expected or planned is equal to what is realised it actually happens
Normative economics
The study and presentation of policy prescriptions involving value judgments about the way scarce resources are allocated
Normative statement
A statement which cannot be supported or refuted because it is a value judgement
Positive statement
A statement which can be supported or refuted by evidence
Command/planned economy
An economic system where government, through a planning process, allocates resources in society
Economic system
A complex network of individuals, organisations and institutions and their social and legal interrelationships
Free market economy
An economic system which resolves the basic economic problem through the market mechanism
Mixed economy
An economy where both the free market mechanism and the government planning process allocate significant proportions of total resources
Consumer surplus
The difference between how much buyers are prepared to pay for a good and what they actually pay
Demand / effective demand
The quantity purchased of a good at any given price, given that other determinants of demand remain unchanged
Producer surplus
The difference between the market price which firms receive and the price which they are prepared to supply
Complement
A good which is purchased with other goods to satisfy a want
Composite demand
When a good is demanded for two or more distinct uses
Derived demand
When the demand for one good is the result of the demand for another good
Joint demand
When tow or kore complements are bought together
Joint supply
When two or more goods are produced together, so that a change in supple for one good will necessarily change the supply of the other goods
Substitute
A good which can be replaced by another to satisfy a want
Elastic demand
PED is greater than 1
Inelastic demand
PED is less than 1
Unitary elasticity
PED is 1
Cross elasticity of demand
A measure of the responsiveness of quantity demanded of one good to a change in price of another good
Giffen good
A special type of inferior good where demand increases when price increases
Income effect
The impact on quantity demanded of a change in price due to a change in consumers’ real incomes which results from this change in price
Inferior good
A good where demand falls when income rises
Normal good
A good where demand increases when incomes rise
Substitution effect
The impact on quantity demanded due to a change in price, assuming the consumers’ real income stay the same
Ad valorem tax
Tax levied as a percentage of the value of a good
Incidence tax
The tax burden on the taxpayer
Specific or unit tax
Tax levied on volume
Subsidy
A grant given which lowers the price of goods, usually designed to encourage production or consumption of a good
But labour costs
Cost of employing labour per unit of output or production
Allocative efficiency
Occurs when resources are distributed in a way that no consumers could be better off without other consumers becoming worse off
Dynamic efficiency
Occurs when resources are allocated efficiently over time
Market failure
When the free market price mechanism fails to achieve economic efficiency (allocative efficiency)
Productive efficiency
Achieved when production is at its lowest average cost
Static efficiency
Occurs when resources are allocated efficiently at a point in time
Technical efficiency
Achieved when a given quantity of output is produced with the minimum number of inputs
Spill over effect
The difference between social costs and benefits and private costs and benefits. If net social cost (social cost minus social benefit) is greater than net private cost (private cost minus private benefit), then a negative externality or external cost exists.
Free rider
A person or organisation which receives benefits that others have paid for without making any contributions themselves
Merit good
A good which is under provided by the market mechanism.
Demerit good
A good which is over provided by the market mechanism
Private good
A good where consumption by one person results in the good not being available for consumption by others
Public good
A good where consumption by one person does not reduce the amount available for consumption by others and once provided all individuals benefit or suffer whether they wish to or not
Quasi-public good
A good which may no possess perfectly the characteristics of being non-excludable but which is non-rival
