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OCR A level Economics > Micro key terms > Flashcards

Micro key terms Flashcards

1
Q

Accounting profit

A

Level of profit that is reported in business accounts. It does not take into account the opportunity cost of investment (normal profit).

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2
Q

Asymmetric information

A

When one party (consumers or producers) has more or better information about a product than the other party.

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3
Q

Barter system

A

System of exchanging one product for another without the use of money as a medium of exchange.

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4
Q

Buffer stock system

A

System of holding and releasing stock to maintain a market price despite supply fluctuations.

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5
Q

Ceteris paribus

A

Other things being equal - the assumption that everything else stays the same when looking at microeconomic models.

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6
Q

Collusion

A

Scenario in which firms work together in secret to gain an unfair market advantage.

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7
Q

Competition policy

A

Legislation and regulation that aims to make a market more competitive.

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8
Q

Competitive demand

A

When consumers demand one or the other product. The products are substitutes.

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9
Q

Competitive supply

A

When producers choose to supply one or the other product with given factors of production.

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10
Q

Complement

A

A good with a negative XED. As the price of Product B increases, the quantity demanded of Product A decreases (and vice versa).

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11
Q

Composite demand

A

When a product is demanded for multiple possible uses.

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12
Q

Concentration ratio

A

Way of measuring the market dominance of the top few firms in the market by adding up each firm’s individual market share and looking at this is a percentage of the total market.

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13
Q

Consumer surplus

A

Difference between the price consumers are willing and able to pay and the market price.

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14
Q

Contestable market

A

Market structure in which no firm can dominate enough to make supernormal profits.

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15
Q

Contraction of demand

A

A decrease in the quantity demanded.

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16
Q

Contraction of supply

A

A decrease in the quantity supplied.

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17
Q

Corporate social responsibility (CSR)

A

When a business aims to make a profit, do good for society and improve the environment.

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18
Q

Cross elasticity of demand (XED)

A

Measures the responsiveness of demand for one product to a change in the price of another product.

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19
Q

Decrease in demand

A

A shift inward of the demand curve so that there is a decrease in quantity demanded at every price.

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20
Q

Decrease in supply

A

A shift inward of the supply curve so that there is a decrease in quantity supplied at every price.

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21
Q

Demand

A

A consumer’s desire and willingness to purchase goods and services at a specific price.

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22
Q

Demand curve

A

Relationship between the price of a product and the quantity demanded by the market.

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23
Q

Demand for labour

A

Willingness and ability of a firm to hire labour at different wage rates.

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24
Q

Demerit good

A

Good that is likely to be over consumed in a free market because the consumer does not anticipate the lack of benefits.

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25
Q

Derived demand

A

Where demand is based on what that thing can produce, not the thing itself, e.g the demand for labour.

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26
Q

Direct taxation (tax)

A

Amount levied on a business or an individual that must be paid to the government.

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27
Q

Diseconomies of scale

A

Increases in average costs that can occur from the growth of a business.

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28
Q

Division of labour

A

Splitting up a task into smaller activities to be able to produce more efficiently

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29
Q

Dynamic efficiency

A

Incentive to innovate products and processes to become productively efficient in the long term.

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30
Q

Economic agents

A

Key groups involved in the economic problem, including governments, firms and households.

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31
Q

Economic goods

A

Goods that are scarce, i.e there is not an unlimited supply of these goods.

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32
Q

Economic rent

A

Any amount above the minimum needed to keep a factor of production in its current use.

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33
Q

Economics

A

The study of how scarce/limited resources are used in the world.

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34
Q

Elasticity

A

Responsiveness of a change in one thing to a change in something else.

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35
Q

Excess demand

A

Scenario in which the market price is too low, meaning there are unsatisfied consumers in the market.

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36
Q

Excess supply

A

Scenario in which the market price is too high, meaning there are unsold products in the market.

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37
Q

Extension of demand

A

An increase in the quantity demanded.

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38
Q

Extension of supply

A

An increase in the quantity supplied.

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39
Q

External economics of scale

A

Reductions in average costs that can occur from the growth of an industry.

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40
Q

Externality

A

A cost or benefit to a third party that has not been accounted for in the market transaction.

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41
Q

Factors of production

A

Land, labour, capital and enterprise, the building blocks needed for a business to operate.

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42
Q

Fixed costs

A

Costs that do not change as output changes.

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43
Q

Free goods

A

Resources that are usually not seen as limited, such as sunlight or air.

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44
Q

Free rider problem

A

Occurs when a person benefits from consuming a shared resource or good without paying for that good.

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45
Q

Government failure

A

When government intervention does not reduce market failure and may even increase it or introduce a new failure in the market.

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46
Q

Growth maximisation

A

When a business aims to increase its size as much as possible.

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47
Q

Incentive

A

Something that motivates an action. In economics, this usually relates to profit, prices and social welfare (the objectives of economic agents).

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48
Q

Income

A

Flow of money over a period of time.

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49
Q

Income elasticity of demand (YED)

A

Measures the responsiveness of demand after a change in income.

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50
Q

Increase in demand

A

A shift outward of the demand curve so that there is an increase in quantity demanded at every price.

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51
Q

Increase in supply

A

A shift outward of the supply curve so that there is an increase in quantity supplied at every price.

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52
Q

Indirect taxation (tax)

A

Amount levied on a producer to increase the cost of a product.

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53
Q

Individual demand

A

One consumer’s willingness and ability to purchase a product or service at a given price.

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54
Q

Individual supply

A

One business’s willingness and ability to sell a product at a given price.

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55
Q

Inferior good

A

When income changes, the quantity demanded of this good will change by a smaller proportion in the opposite direction.

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56
Q

Information failure

A

When consumers and/or producers do not have all the information when making decisions, leading to market failure.

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57
Q

Information provision

A

Act of informing the public about the true nature of a product or market.

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58
Q

Interdependence

A

Scenario in which firms base their decision- making on the decision of other firms in the market.

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59
Q

Internal economies of scale

A

Reductions in average costs that can occur from the growth of a business.

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60
Q

Joint demand

A

When products are demanded together. The products are complements.

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61
Q

Joint supply

A

When products are supplied together, often as a byproduct.

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62
Q

Kinked demand curve

A

Illustrates an elastic response to an increase in price and an inelastic response to a decrease in price.

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63
Q

Law of diminishing returns

A

Theory that in the short run, when at least one factor of production is fixed, the average return from a factor of production decreases.

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64
Q

Legislation

A

In relation to the economy, laws that a government puts in place in govern the production of and and consumption of products.

65
Q

Long run perfect competition

A

Market structure that has allocative and productive efficiency.

66
Q

Loss

A

If a business has higher costs than revenue, it will make a loss.

67
Q

Luxury good

A

A good for which when income changes, the quantity demanded will change by a larger proportion in the same direction.

68
Q

Macroeconomics

A

The study of the behaviour and performance of am economy as a whole.

69
Q

Marginal costs

A

Costs of producing one more product.

70
Q

Marginal utility

A

Benefit gained from consuming one more unit of a product.

71
Q

Market demand

A

The sum of all consumers’ willingness and ability to purchase a product or service at a given set of prices.

72
Q

Market disequilibrium

A

Any situation where supply does not equal demand. This could be a scenario where there is excess supply or excess demand.

73
Q

Market economy

A

Allocation of resources is decided by the interaction of supply and demand (market forces).

74
Q

Market equilibrium

A

Point at which the quantity supplied is equal to the quantity demanded of a particular product.

75
Q

Market failure

A

Failure of the market system to allocate resources efficiently.

76
Q

Market supply

A

Sum of all businesses’ willingness and ability to sell a product at a given set of prices.

77
Q

Merit good

A

Good that is likely to be under consumed in a free market because the consumer does not anticipate all the benefits.

78
Q

Microeconomics

A

The study of the behaviour of individuals, firms and governments in relation to the allocation of products and/or resources.

79
Q

Minimum efficient scale

A

Lowest point on the average cost curve.

80
Q

Mixed economy

A

Combination of market forces and and government policies that control the allocation of resources.

81
Q

Mobility of labour

A

Ability of workers to move geographically in order to respond to changes in wages and conditions of work.

82
Q

Monopolistic competition

A

Competitive market structure with a downward sloping demand curve and the ability for a firm to make supernormal profit in the short run.

83
Q

Monopoly

A

Situation in which there is a single seller in the market with no competitors.

84
Q

Monopsony

A

A single or dominant buyer of a product.

85
Q

Moral hazard

A

When one party (consumers or producers) changes their behaviour due to asymmetric information, which causes extra costs to the other party.

86
Q

Movement along the demand curve

A

Change in quantity demanded that results from a change in the price of a product.

87
Q

Movement along the supply curve

A

Change in quantity supplied that occurs from a change in the price of a product.

88
Q

Natural monopoly

A

Type of monopoly in which there are large economies of scale to be gained to the point where only one firm is viable.

89
Q

Negative externality (external cost)

A

Cost to a third party that has not been accounted for in the market transaction.

90
Q

Negative externality of consumption

A

Cost to a third party that arises from consumption of a product. This cost has not been accounted for in the market transaction.

91
Q

Negative externality of production

A

Cost to a third party that arises from production of a product. This could has not been accounted for in the market transaction.

92
Q

Non-excludability

A

When potential consumers cannot be prevented from consuming a good without paying for it.

93
Q

Non-price competition

A

Scenario in which firms compete on aspects other than price, such as the product, location and branding.

94
Q

Non-rejectability

A

When consumption cannot be prevented by a consumer.

95
Q

Non-rivalry

A

When consumption of a good does not prevent consumption by another person. Also known as non-diminishability.

96
Q

Normal good

A

When income changes, the quantity demanded of this good will change by a smaller proportion in the same direction.

97
Q

Normal profit

A

Minimum amount of profit required to convince an owner to stay in the market.

98
Q

Normative statement

A

Opinion-based statements that one might agree or disagree with.

99
Q

Oligopoly

A

Market structure with a few dominant firms.

100
Q

Opportunity cost

A

Cost of the next best alternative forgone when a decision is made.

101
Q

Overt collusion

A

Scenario in which firms work together with a formal agreement.

102
Q

Perfect competition

A

Market structure with many buyers and sellers that can achieve allocative and productive efficiency in the long run.

103
Q

Planned economy

A

The government controls the factors of production and decides on the allocation of resources.

104
Q

Positive externality

A

Benefit to a third party that has not been accounted for in the market transaction.

105
Q

Positive externality

A

Benefit of the third party that arises from consumption of a product. This benefit has not been accounted for in the market transaction.

106
Q

Positive externality of production

A

Benefit to a third party that arises from production of a product. This benefit has not been accounted for in the market transaction.

107
Q

Price control

A

A minimum or maximum price for which a product must be sold.

108
Q

Price discrimination

A

The ability of a firm to charge different prices to different customers.

109
Q

Price elastic (demand)

A

When price changes, the quantity demanded changes by a larger proportion.

110
Q

Price elasticity of demand (PED)

A

Measures the responsiveness of demand after a change in price.

111
Q

Price elasticity of supply (PES)

A

Measures the responsiveness of supply to a change in price.

112
Q

Price elastic (supply)

A

When price changes, the quantity supplied will change by a larger proportion.

113
Q

Price inelastic (demand)

A

When price changes, the quantity demanded changes by a smaller proportion.

114
Q

Price inelastic (supply)

A

When price changes, the quantity supplied will change by a smaller proportion.

115
Q

Price maker

A

A firm that has the ability to choose at what price it sells its products.

116
Q

Price taker

A

An individual or firm that must accept the ruling market price as it lacks the power to influence the market price.

117
Q

Principal-agent problem

A

The potential disagreement over the objectives of the managers (principals) and those of the owners (agents).

118
Q

Producer surplus

A

Difference between the price at which producers are willing and able to supply a product(s) and the market price.

119
Q

Product differentiation

A

Features or elements that make one product different from its competitors. Often used when sticky prices exist in a market.

120
Q

Productivity

A

Amount produced in relation to 1 unit. For example, labour productivity is the amount produced by 1 unit of labour.

121
Q

Profit

A

Amount of money a business gains from its sales after it has accounted for all of its costs.

122
Q

Profit maximisation

A

When a business aims to have the most difference between total costs and total revenue, leading to the highest profit.

123
Q

Profit satisficing

A

When a business sets a level of profit that it believes will be enough to keep the owners satisfied.

124
Q

Public goods

A

Goods that have the characteristics of being non-excludable, non-rivalrous, non-rejectable and with zero marginal cost.

125
Q

Public/private partnership

A

Joint initiative between government and a producer(s) in order to increase supply to a market.

126
Q

Rationality

A

Assumption that each economic agent acts in their own best interests.

127
Q

Regulation

A

Rules that are specific to an industry or market and that govern the production or consumption of a product within that industry/market.

128
Q

Reward for the factors of production

A

What needs to be returned by a business for using each of the factors of production.

129
Q

Sales revenue maximisation

A

When a business aims to sell at a price that allows it to make the most profit through sales.

130
Q

Sales volume maximisation

A

When a business aims to sell as many units as possible.

131
Q

Scarcity

A

When there is a limited amount of something.

132
Q

Short run perfect competition

A

Market structure that has allocative efficiency but not productive efficiency.

133
Q

Social welfare

A

When a business aims to make society better through its actions.

134
Q

Specialisation

A

Focusing on one activity (or part of an activity) to be able to produce more efficiently.

135
Q

Sticky prices

A

Scenario in which the price of a good is slow to change despite changes in the market that suggest a different price is optimal.

136
Q

Subsidy

A

Amount paid to a business to produce products.

137
Q

Substitute

A

A good with a positive XED. As the price of product A increases, the quantity demanded of product B also increases (and vice versa)

138
Q

Supernormal profit

A

Profit made above normal profit.

139
Q

Supply

A

Ability and willingness of a firm to sell products at a given price.

140
Q

Supply curve

A

Relationship between the price of a product and the quantity supplied by businesses.

141
Q

Supply of labour

A

Ability and willingness of households to work at different wage levels.

142
Q

Tacit collusion

A

Scenario in which firms work together without a formal agreement, often by observing other firms in the market.

143
Q

The economic problem

A

The problem of how to make the best use of limited or scarce resources.

144
Q

Total costs

A

All costs incurred by a business.

145
Q

Total revenue

A

The money a business receives from all of its sales.

146
Q

Total utility

A

Total benefit gained from consuming a product.

147
Q

Tradeable pollution permits

A

System that forces producers to include the costs of pollution in their production decisions.

148
Q

Trade-off

A

A sacrifice that is made in order to gain something.

149
Q

Trade union

A

Collection of workers usually in the same or similar industry that collectively bargains for the workforce on issues like fairness of pay, working conditions and benefits.

150
Q

Transfer earnings

A

Minimum amount needed to keep a factor of production in its current use.

151
Q

Unit labour costs

A

Average cost of labour per unit of output.

152
Q

Utility

A

Benefit gained from consuming a product.

153
Q

Utility maximisation

A

When the managers of a business aim to increase their own happiness as much as possible.

154
Q

Variable costs

A

Costs that change as output changes.

155
Q

Wage differentials

A

Differences in wages between workers with different skills in the same industry or those with comparable skills in different industries.

156
Q

Wage elasticity of demand for labour

A

Responsiveness of the quantity demanded for labour to changes in wages.

157
Q

Wage elasticity of supply of labour

A

The responsiveness of the quantity supplied of labour to changes in wages.

158
Q

X-inefficiency

A

Lack of incentive to reduce costs.

159
Q

Zero marginal cost

A

When production of an additional unit does not add extra costs to the business.

OCR A level Economics (2 decks)

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