Micro Key Terms Flashcards
Capital Good (Producer Good)
A good which is used in the production of other goods and services
Command economy (Planned economy)
An economy in which government officials allocate economic resources to firms and other productive enterprises
Mixed economy
An economy that contains both a large market sector and a large non-market sector in which the planning mechanism operates
Market economy
An economy in which goods and services are purchased through price mechanism in a system of markets
Consumer surplus
A measure of the economic welfare enjoyed by consumers: surplus utility received over and above the price paid for a good
Producer surplus
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
Scarcity
Results from the fact that people have unlimited wants but limited resources. People want to consume more goods/services than the economy is able to produce
Derived demand
Demand for a good or FoP is wanted not for its own sake, but as a consequence of the demand for something else
Composite demand
Demand for a good which has more than one use, which means that an increase in demand for one use of the good reduces the supply of the good for an alternative use
Joint supply
When one good is produced, another good is also produced from the same raw materials.
Market equilibrium
A market is in equilibrium when planned demand equals planned supply, where the demand curve meets the supply curve
Factors of production
Inputs into the production process (CELL)
Demand
The quantity of a good or service that consumers are willing and able to but at given prices, in a given period of time
Supply
The quantity of a good or service that producers are willing and able to sell at given prices, in a given period of time
Productive efficiency
Occurs when it is impossible to produce more of one good without producing less of another. For a firm it occurs when the avg. total cost of prod. is minimised
Allocative efficiency
When it is impossible to improve overall economic welfare by reallocating resources between markets. In the whole economy, price must be equal marginal cost [P = MC] in every market
Signalling function of prices
Prices provide information to buyers and sellers
Positive statement
A statement that can be scientifically tested to see if it correct or incorrect
Normative statement
A statement that includes a value of judgement and cannot be proved just be looking at the evidence
Opportunity cost
The cost of giving up the next best alternative
