micro economics Flashcards
1
Q
what is scarcity?
A
a situation where people have unlimited wants but limited resources.
2
Q
what is an economic good?
A
goods that are scarce.
3
Q
what is a free good?
A
goods that are not normally regarded as being as scarce.
4
Q
What is a basic economic problem?
A
people must choose how best to use their limited resources because not all needs and wants can be satisfied
5
Q
what is absolute poverty?
A
lack of basic needs
6
Q
what is relative poverty?
A
poor by comparison
6
Q
what is rationality?
A
economic agents acting in their best interest
7
Q
what is utility in economics?
A
the benefit derived from the consumption of a good or service
7
Q
what is a positive statement?
A
a statement of factual information
7
Q
what is a normative statement?
A
a statement involving judgment about what ought to be
7
Q
what is a value judgement
A
a statement based on opinions and beliefs
8
Q
what are the rewards for the factors of production?
A
land=rent, labour=wages, capital=interest, enterprise=profit
9
Q
what is a centrally planned economy?
A
the government guides resource allocation in an economy
10
Q
what is a mixed economy?
A
a combination of market forces and government interventionsfor allocating resources
11
Q
what is a market economy?
A
market forces are allowed to allocate resources within their own economy
12
Q
what does gdp stand for?
A
gross domestic product- the value of all final goods and services produced in a country year
13
Q
what is a trade-off?
A
a situation where the choice of one alternative requires the sacrifice of another
14
Q
what is opportunity cost?
A
in decision making, the value of the next best alternative forgone
15
Q
production possibility curve is?
A
a curve that shows the maximum combinations of goods or services that can be produced in a set period of time
16
Q
what is a capital good?
A
goods used as a part of the production process, such as machinery or factory buildings
17
Q
what is a consumer good?
A
goods produced for present use
18
Q
what is long run economic growth?
A
an expansion in the productive capacity of the economy
19
Q
why does scarcity arise?
A
economic agents have unlimited wants in the face of finite resources
20
Q
what does a PPC graph show?
A
the limit that scarcity imposes on possible production combinations of two goods
21
what is the difference between a movement and a shift on a PPC graph in terms of the resources?
movements along a PPC graph show reallocation of resources whereas a shift shows a change in quantity or quality of labour
22
what would shifts in a PPC graph be a result of?
technology, natural disasters, quantity or quality in land labour capital and enterprise
23
what is barter system?
an economy without money so that transactions in goods and services rely on a direct exchange
24
what is the formula for productivity?
units of output/units of input
25
what is demand?
the quantity of a good or service that consumers are willing and able to buy given its price
26
what is joint demand?
goods that are demanded together(interdependent) e.g. printers and ink
27
what is composite demand?
demand for a good that has multiple uses e.g. corn
28
what is competitive demand ?
goods that are in competition with each other e.g. fast food restaurants
29
what is ceteris paribus?
Latin for all things are equal-changes in one variable while holding other influences constant
30
when is normal good desirable?
the quantity demanded increases in response to a rise in consumer income
31
when is an inferior good favourable?
quantity demanded increases due to a reduction in consumers income
32
what is a competitive market?
a market where an individual firm cannot influence the prices because of competition from other firms
33
what is competitive supply?
a firm can use its factors of production to produce alternate products
34
what is joint supply?
a firm produces more than one product together e.g. cattle
35
what is consumer surplus?
the value that consumers gain from consuming a good and service above what they paid for it
36
what is producer surplus?
the difference between the price received by firms of the good or service and the price they were willing to supply a good or service at
37
Factors that cause the demand curve to shift to the right:
something becomes more popular, consumers RDI rises, price of substitutes increase and complementary goods fall
38
factors that cause demand curve to shift left
something becomes less fashionable, fall in consumer RDIs, price of substitutes fall and complementary goods rises
39
factors that cause supply curve to shift right.
decreased cost of production and T, increased technology, number of suppliers, subsidies
40
factors that can cause shift left of the supply curve.
increased cost of production and T, decreased number of suppliers, technology, productivity of factors of production, lower subsidies and poor expectations of future prices.
41
what is elasticity?
a measure of sensitivity of one variable to changes in another variable
42
What does PED stand for?
Price elasticity of demand
43
what is price elasticity of demand?
a measure of sensitivity of quantity demanded to a change in the price of a good and service
44
what does unitary mean in terms of PED?
the percentage rise or fall in price is exactly equal to the percentage fall or rise in quantity demanded (PED= -1)
45
what is the formula for PED?
%change in quantity demanded / %change in price
46
is PED always a negative?
yes
47
what counts as elastic demand?
PED<-1
48
what counts as inelastic demand?
PED>-1
49
what is YED?
Income elasticity of demand
50
what is an inferior good?
the quantity demanded decreases in response to an increase of incomes
51
What is a normal good?
the quantity demanded increases in response to an increase to consumer incomes
52
what is a superior good?
the income elasticity of demand is positive and greater than 1 so that when income rises consumers will spend proportionally more
53
what is the formula for YED?
%change in quantity demanded/%change in income X100
54
what are the YED values for an inferior good?
-1> elastic inferior good
-1< inelastic inferior good< 0
55
What are the YED values for a normal good?
0
56
What are the YED values for a superior good?
1< superior goods
57
what is national minimum wage?
the minimum pay per hour most workers under the age of 23 are entitled to by law
58
What is the national living wage?
what is the minimum pay per hour most workers over the age of 23 are entitled to by law
59
What is XED?
cross elasticity of demand
60
what is the formula for cross elasticity of demand?
%change in quantity demanded of good A / %change in price of good B
61
what does calculating YED do for a firm?
allows firms to predict impact of changes to GDP on demand for their goods or services
62
is an elastic PED demand curve relatively flat or relatively steep?
flat because even a small change in demand will have a big difference in quantity demanded.
63
is a inelastic PED demand curve relatively flat or relatively steep?
steep because even a big change in price will not cause a change in the quantity demanded
64
what happens to revenue for elastic, inelastic and unitary demand when the price increases?
elastic- fall, unitary- doesn't change, inelastic-rises
65
what happens to revenue when for elastic, inelastic and unitary demand when the rice decreases?
elastic- rises, unitary- doesn't change, inelastic-falls
66
is a perfectly elastic PED demand curve horizontal or vertical?
horizontal
67
is a perfectly inelastic PED demand curve horizontal or vertical?
vertical
68
why is YED not useful to government or firms?
it will be unreliable for firms as they will base it off historical figures and the government cant rely on it as consumer preferences change
69
what does XED tell you about substitute goods?
if its a close substitute increases price it will have a high xed value for the quantity demanded e.g. 5, if its a weak substitute an increases in price will have a low xed value for the quantity demanded e.g. 0.5, therefore a firm can identify competitors
70
what does XED tell us about complementary goods?
close compliment XED will be something like -5, a weak substitute will have a XED value of somethimg like -0.5
71
What is the marginal principle ?
the idea that economic agents may take decisions by considering the effect of small changes from the existing
72
what is rational decision making in economics?
a decision that allows an economic agent to maximise their objective, by setting the marginal benefit of and action equal to its marginal cost
73
what is utility?
a measure of the satisfaction received from consuming a good or a service
74
what is marginal utility ?
The additional utility gained from consuming an extra unit of a good or a service
75
what is the law of diminishing marginal utility ?
the more units of a good that are consumed the lower the utility from consuming those additional units
76
what is the difference between the marginal utility and total utility?
marginal utility is the benefit gained from one additional unit whereas total utility is the overall benefit gained from consuming the good
77
what is market failure ?
a situation in which the free market mechanism does not lead to an optimal allocation of resources,
78
what is private cost?
a cost incurred by an individual(firm or consumer) as part of its production or other economic activities
79
what is external cost?
a cost that is associated with an individuals production or other economic activities, which is borne by a third party
80
what is social cost?
private cost + external cost
81
how do you define a third party?
someone who is not involved in the production or consumption of a good or service
82
What is MSC?
the marginal social cost is the cost to society of producing an extra unit of a good
83
What is MPC?
the cost to an individual of consuming an extra unit of a good
84
what is private benefit?
a benefit gained by an individual as a part of its consumption
85
what is the external benefit?
a benefit gained by an individuals consumption which spills over into a third party
86
what is social benefit?
private benefit + external benefit
87
What is marginal social benefit?
the additional benefit that society gains form consuming an extra unit of a good
88
what is marginal private benefit?
the additional benefit that a consumer gains from consuming an extra unit of a good
89
what is marginal external benefit?
the additional benefit to society, not considering by the individual consuming and extra unit of a good
90
what is the MPC curve the same as (in a free market?)
the supply curve
91
what is the MPB curve the same as (in a free market?)
the demand curve
92
in a free market producers only consider ___ of their production meaning that hey miss out ___ which will lead to divergent ___ of their production.
private costs - external costs - social costs
93
in a free market consumers only consider ___ of their consumption meaning that they miss out ___ which will lead to divergent ___ of their production.
private benefits - external benefits - social benefits
94
How is the welfare loss represented on a negative externality of consumption graph
the shaded area which is a triangle created by the MPB and the MSC=MPC intersection, Q0 and the MSB line
95
What is the definition of externality?
a cost or a benefit to a market transaction, and is thus not reflected in market prices
96
what are some examples of positive externalities of consumption?
christmas lights, education, healthcare, vaccination
97
what are some examples of negative externalities of consumption?
air pollution, household waste, noise pollution- vehicles, litter
98
How is the welfare gain represented on a positive externality of consumption graph
the shaded area which is a triangle created by the MPB and the MSC=MPC intersection, Q0 and the MSB line
99
What does a positive externality of consumption cause in a free market
underconsumption
100
What does a negative externality of consumption cause in a free market
overconsumption
101
what is information failure?
a type of market failure where economic agents lack sufficient information to make fully informed decisions
102
what is asymmetric information?
a situation in which some participants in a market have better information about market conditions than others
103
what is adverse selection?
a situation where a person at risk is more likely to take out insurance
104
what is moral hazard ?
a situation in which a person who has taken out insurance is prone to taking more risks
105
in a competitive market when buyers and sellers have full knowledge of prices, costs, benefits, availability and substitute goods this is known as?
perfect information
106
What is a merit good?
a good that brings unanticipated benefits to a consumer, such that society believes that it will be under consumed in a free market.
107
What is a demerit good?
a good that brings less benefit to consumers than they expect, such that too much consumption will be consumed by individuals in a free market.
108
examples of demerit goods?
tobacco, alcohol, gambling, junk food, sugary soft drinks and illegal drugs
109
examples of merit goods?
museums, libraries, art galleries, healthcare, education and work training programmes
110
what is a private good?
a good that once consumed by one person cannot be consumed by someone else
111
What is a public good?
consumers cannot be excluded from consuming the good and the consumption by one person does not affect the amount consumed by another person,
112
What is non-excludability?
a situation in which it is not possible to to provide a product to one person without allowing others to consume it aswell
113
what is non-rivalry?
a situation in which one person consumption does not prevent the other person consuming it aswell
114
What is non-rejectability?
a situation in which an individual cannot avoid consuming a good.
115
What is a free rider problem?
when an individual cannot be excluded from consuming a good and so has no incentive to pay for its provision
116
What is zero marginal cost?
the cost of providing the good to an extra consumer is zero
117
What is a quasi-public good?
a good that has some but not all the characteristics of public goods i.e. it could be non-exclusive and rivalrous
118
examples of private goods?
street lights, light houses, defense, nuclear deterrent, firework displays, flood defenses, Wikipedia
119
What is a free rider problem?
When an individual cannot be excluded from consuming a good, thus has no incentive to pay for its provision
120
what is an example of a free rider in the economy?
A billionaire who has no incentive to pay for nuclear weapons but lives in a country that is protected by nuclear weapons
121
What is a tax?
compulsory fee levied on individuals or firms by government
122
what is an indirect tax?
a tax levied on expenditure on goods or services
123
what is a direct tax?
a tax charged directly to an individual based on a component of income
124
what is the incidence of tax?
the way in which the burden of paying a sales tax is divided between buyers and sellers
125
what is a specific tax?
a tax of a fixed amount imposed on purchases of a commodity
126
what is an ad valorem tax?
a tac levied on a commodity set as a percentage of the selling price
127
What is a commodity?
the raw materials used in the production of goods
128
What is the excess burden of sales tax?
the deadweight loss to society following the imposition of a sales tax
129
what is the polluter pays principle?
an argument that a firm causing pollution should be charged the full external cost that it inflicts on society
130
What is state provision/government expenditure?
when it the government decides which goods or services to provide and then spends money providing them.
131
What is the difference between state provision and government expenditure
with state provision the government provides the action of carrying out what needs to be done
132
What is price control?
a legal maximum or minimum price
133
What is a price floor?
a legal minimum price
134
What is a price ceiling?
a legal maximum price
135
What is a merger?
two or more firms joining to form a new business
136
What is a cartel?
an agreement between firms on price and/or output with the intention of maximizing their joint profits
137
What is a buffer stock?
a scheme intended to stabilise the price of a commodity by buying excess supply in period when supply is high and selling when supply is low
138
What is legislation?
laws created by the government to enforce regulations
139
What is a regulation?
rules created by a government to control activities of producers and consumers by changing their behaviour
140
What is prohibition?
an attempt to prevent the consumption of a demerit good by declaring it illegal
141
What is information provision?
when the government educates the public to help consumers make better decisions
142
