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AS Economics > Micro: Markets and market failure > Flashcards

Micro: Markets and market failure Flashcards

0
Q

Define a market

A

Where buyers and sellers exchange goods and services

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1
Q

Define Equilibrium

A

Where supply and demand are equal or meet

Market clearing

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2
Q

What is derived demand

A

When the demand of one good is the result of the demand for another good
E.g. Cars and steel

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3
Q

Define Cross price elasticity of demand and give the equation

A

Measures the responsiveness of change in quantity demanded of one good to price change in another good

%change quantity demanded good A divided by %change price of good B

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4
Q

Define Productive efficiency

A

When a firm produces at lowest total average cost

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5
Q

Define Rationing function (price)

A

Where price acts as a signal to consumers to contract their demand as a result of scarce resources

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6
Q

Define Production possibility frontier

A

Shows the max possible combinations of two or more goods that can be produced whilst using all the factor resources efficiently

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7
Q

Define Opportunity cost

A

Benefits lost from not choosing the next best alternative

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8
Q

Income elasticity of demand

A

%change quantity demanded divided by the %change in real consumer income

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9
Q

Define Public good

A

A good that possesses the characteristics of non-excludability and non-rivalry in consumption

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10
Q

Define Private good

A

A good that is both excludable and rival in consumption

Private goods can also be rejected

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11
Q

What is the free-rider problem

A

Where some consumers benefit from other consumers purchasing a good, particularly in the case of public goods

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12
Q

Define merit good

A

Social benefits exceed private benefits
A good that would be under-consumed in a free market as individuals do not fully perceive the benefits obtained from consumption
Positive externalities
Desirable

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13
Q

Define demerit good

A

Social costs exceed private costs
A good that would be over-consumed in a free market as it brings less overall benefit to consumers than they realise
Negative externalities
Undesirable

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14
Q

Define Sunset industries

A

Industries in decline

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15
Q

Define Sunrise industries

A

Industries that are growing

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16
Q

2 methods used to estimate the value of externalities

A

Ex-ante: estimates the amount of money consumers are prepared to pay to avoid an externality e.g. Price of an insurance
Ex-post: estimating the cost of putting the externality right e.g. Clean up costs

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17
Q

Define Externality

A

Difference between social costs and benefits, and private costs and benefits of an economic decision
Also referred to as the spill over effect

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18
Q

What is Private cost and benefit

A

Cost or benefit of an activity to an individual economic unit such as a consumer of firm

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19
Q

What is Social cost and benefit

A

Cost or benefit of an activity to society as a whole

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20
Q

Define Negative externality

A

Exists when the net social cost is greater than the net private costs

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21
Q

Define Positive externality

A

Exists when the net social benefit is greater than the net private benefit

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22
Q

Define Marginal social cost

A

Marginal private cost and external cost

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23
Q

What is Marginal social benefit

A

Marginal private benefit and external benefit

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24
Q

Define Market failure

A

Where resources are allocated inefficiently due to imperfections in the working of the market mechanism

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25
Q

Define a Monopoly

A

When there is only one supplier in an industry

Market is dominated by a single seller of a good as Firm has 25% or more market share

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26
Q

Define Producer surplus

A

No. of producers that are willing to supply a good/service lower than the equilibrium price

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27
Q

Define Consumer surplus

A

No. Of people willing and able to pay a price higher than the equilibrium price

28
Q

Define Specialisation

A

Production of a limited range of goods by an individual, firm or country in cooperation with other so that together a complete range of goods is published

29
Q

Define Division of labour

A

Breaking the production process down into a sequence of tasks, with workers assigned to particular tasks

Specialisation by individuals is called division of labour

30
Q

Define Costs of production

A

Expenses faced by a firm when producing a good/service for a market

31
Q

Define Fixed costs

A

Costs that do not directly vary with the level of output

32
Q

Define Variable costs

A

Costs of production that vary directly with output

33
Q

What is Total costs

A

Fixed costs + variable costs

34
Q

How to find Total average costs

A

Total costs/output

35
Q

How to find marginal cost

A

Change in total cost/ change in output

36
Q

Define Economies of scale

A

Cost advantages that a business can exploit by expanding the scale of production

37
Q

Define Diseconomies of scale

A

Where an increase in the scale of production leads to increased in average total costs for firms

38
Q

Define Minimum efficient scale

A

Lowest cost per unit when firm is most productive

39
Q

Name all 5 internal economies of scale

A 
Purchasing (bulk-buying)
Managerial
Financial
Marketing
Technical
40
Q

What is the Container principle

A

Law of increased dimensions

Increase in size leads to s more than proportionate increase in volume

41
Q

Why do diseconomies of scale occur

A

Lack of control, communication, coordination

42
Q

Define Production

A

Outputs of goods and services produced by businesses within a market

Creates the supply that allows our needs and wants to be satisfied

43
Q

Name all Factors of production

A

Capital
Enterprise
Land
Labour

44
Q

Define Marginal product

A

Change in total output from adding one extra unit of labour

45
Q

How to find average product

A

Total output/ total units of labour employed

46
Q

How to avoid diseconomies of scale

A

Developments in HR managements
Performance related pay schemes
Our sourcing manufacturing and distribution operations

47
Q

What is composite demand

A

When a good is demanded for two or more distinct used

E.g. Milk to produce cheese and yoghurt

48
Q

What are substitute goods

A

A good that can be replaced by an alternative good/service
In competitive demand

e.g. Bus and rail

49
Q

What are complementary goods

A

Purchased along side each other in joint demand

E.g. DVD players and discs

50
Q

What is joint supply

A

Where an increase in supply of one good increased the supply of an another good

E.g. beef and leather quantity

51
Q

What is the basic economic problem?

A

The finite resources available are insufficient to satisfy all human wants and needs
Choices must be made regarding factors of production - this has opportunity costs

52
Q

What problems/questions does an economic system attempt to solve?

A

What goods should be produced?
How should goods be produced?
Who should get the goods the economy has produced?

53
Q

What 3 important functions does the price mechanism play in a market?

A

Signalling
Transmission of preferences
Rationing

54
Q

What are the 3 types of economy?

A

Mixed: allow free market but government can intervene
Command: govt decides and owns all resources
Free: all resources are privately owned by private firms, there is no govt intervention

55
Q

Explain the difference between value /normative and positive statements

A

Value/ normative: based in opinion, cannot be proven

Positive: based on fact, can be tested and proved correct

56
Q

What is the difference between a capital good and consumer good

A

Capital: Used in production of good/service

Consumer: End product or final good service purchased by consumers

57
Q

What is the difference between an economic good and free good?

A

Economic: scarce goods that have an opportunity cost

Free: good that have no opportunity cost e.g. Air

58
Q

Define allocative efficiency

A

When it is not possible to make anyone better off without making someone worse off
Cannot produce more of one good without making less of another

59
Q

Define demand

What is the law of demand?

A

No. Of people willing and able to purchase a good/service at given prices

Law: Diminishing national utility
Inverse relationship between price and quantity

60
Q

What is a normal good?

A

Goods that will see an increase in demand when incomes rise

They have a positive income elasticity of demand

61
Q

What is an inferior good?

A

Goods that will see demand fall when income rises

They have a negative income elasticity of demand

62
Q

Define supply

What is the law of supply?

A

No. Of producers willing and able to produce a good at any given price

Law: direct relationship between price and quantity

63
Q

Dynamic efficiency

A

Occurs when resources are allocated efficiently over time

64
Q

Static efficiency

A

When resources are allocated efficiently at a point in time

65
Q

Technical efficiency

A

Achieved when a given quantity of output is produced with the minimum no. Of inputs

66
Q

Community surplus

A

Consumer surplus + producer surplus

Welfare is maximised

67
Q

Define External economies of scale and give 3 examples

A

Occur outside of a firm but within an industry

Investment in better transportation network
Research and development
Agglomeration economies - clustering similar business in a distinct place

AS Economics (2 decks)

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