micro key terms Flashcards
allocative efficiency
occurs when the available economic resources are used to produce the combination of goods and services that best matches people’s tastes and preferences.
allocative function of prices
changing relative prices allocate scarce resources away· from markets exhibiting ,excess supply and into markets in which there is excess demand.
artificial barrier to entry
a barrier to market entry which is man- made.
average cost
total cost of
production divided by output.
average revenue
total revenue divided by output; in a single product firm, average revenue equals the price of the product.
capital good
a good which is used in the production of other goods or services. Also known as a producer good.
capital productivity
output per unit of capital.
choice
choosing between
alternatives when making a decision on how to use scarce resources.
collusion
co-operation between firms. for example to fix prices. Some forms of collusion may be in the public interest. for example joint research and labour training schemes.
competing supply
when raw materials are used to produce one good they cannot be used to produce another good.
competitive market
a market in which the large number of buyers and sellers possess good market information and can, easily enter or leave the market. A competitive market is one in which firms strive to outdo their rivals, but it does not necessarily meet all the conditions of perfect competition
complementary good
a good in joint demand, or ,a good which is demanded at the same time as the other good.
composite demand
demand for a good which has more than one use.
concentrated market
a market containing very few firms. in the extreme only one firm.
concentration ratio
a ratio which indicates, the total market share of a number of leading firms in a market, or the output of these firms as a percentage of total market output.
condition of demand
a determinant of demand, other than the good’s own price, that fixes the position on the demand curve.
conditions of supply
determinants of supply. other than the good’s own price, that fix the position of the supply curve.
consumer good
a good which is consumed by individuals or households to satisfy their needs or wants.
consumer sovereignty
through exercising their spending power. consumers collectively determine what is produced in a market. Consumer sovereignty is strongest in a perfectly competitive market.
consumption externality
an externality (which may be positive or negative) generated in the course of consuming a good or service.
cross- elasticity of demand
measures the extent to which the demand for a good changes in response to a change in the price of another good; it is calculated by dividing the percentage change in quantity demanded by the percentage change in the price of ,another good.
decrease in demand
a leftward shift of the demand curve
decrease in supply
a leftward shift of the supply curve.
demand
the quantity of a good or service that consumers are willing and able to buy at given prices in a given period of time.
For economists, demand is always effective demand.
demerit good
a good, such as tobacco, for which the social costs of consumption exceed the private costs. Value judgements are involved in deciding that a good is a demerit good.
derived demand
demand for a good which is an input into the production of another good.
diseconomy of scale
as output increases, long-run average cost rises
disequilibrium
a situation in a market when there’s excess supply or excess demand.
distribution of income and wealth
the way in which income and wealth are divided among the population
division of Labour
this concept goes hand in hand with specialisation. Different. workers perform different tasks in the course of producing a good or service.
economic growth
the increase in the potential level of real output the economy can produce over a period of time.
economic welfare
the economic well-being of an individual, a group within society or an economy.
economy of scale
as output increases. long-run average cost falls.
effective demand
the desire for a good or service backed by an ability to pay.
elasticity
the proportionate responsiveness of a second
variable to an initial proportionate, change in the first variable.
entry barrier
makes it difficult or impossible for new firms, to enter a market.
equilibrium
a state of rest or balance between opposing forces
equilibrium price
the price at which planned demand for a good ror service exactly equals planned supply.
equity
fairness or justness
excess demand
when consumers wish to buy more than firms wish to sell. with the price below the equilibrium price.
excess supply
when firms wish to sell more than consumers, wish to buy, with the price above the equilibrium price.
exchange
to give something in return for something else recieved. Money is a medium of exchange.
exit barrier
makes it difficult or impossible tor firms to leave a market.
external economy of scale
cost saving resulting from the growth of the industry or market of which the firm is a part.
externality
a public go1od, in the ,case of an external benefit, or a public bad, in the case of an external cost, that is ‘dumped’ on third parties outside the market.
factors of production
inputs into the production process, such as land. labour capital and enterprise.
finite resource
a resource, such as oil. which is scarce and runs out as, it is used. Also known as a non-renewable resource.
fixed cost
cosit of production which, in the short run, does not change with output.
full employment
when all who are able and willing to work ,are employed.
fundamental economic problem
how best to make decisions about the allocation of scarce resources among competing uses so as to improve and maximise human happiness and welfare.
geographical immobility of labour
occurs when workers find it difficult or impossible to move to jobs in other parts of the country or in other countries for reasons such as higher housing costs in locations where the jobs exist.
government failure
occurs when government intervention reduces economic welfare, leading to an allocation of resources that is worse than the free-market outcome
immobility of labour
the inability of labour to move from one job to another, either for occupational reasons e.g. the need for training) or for geographical reasons (e.g. the cost of moving to another part of the country.
imperfect competition
any market structure lying between the extremes of perfect competition and pure monopoly.
incentive function of prices
prices create incentives for people to alter their economic behaviour: for example, a higher price creates an incentive for firms for supply more of .ai good or service.
income elasticity of demand
measures the extent to which the demand for a good ,changes in response to a change in income; it is calculated by dividing the percentage change in quantity demanded by the percentage change in income.
increase in demand
a rightward shift of the demand curve.