Micro revision Flashcards
opportunity cost
is the benefit forgone of the next best alternative to the activity you have chosen
3 big economic questions
- what goods are produced
- how
- for whom
free market economy
economic system in which economic decisions and the pricing of goods and services are guided by interactions of a country’s individual citizens and business
traditional system
an economic system that does things as it always has
planned system
an economic system in which central authority, such as a government, makes economic decisions regarding the manufacturing and the distribution of products
production possibility curve
the boundary between those combinations of goods and services that can be produced and those that cannot (resources are fixed in quantity but can be shifted around)
circular flow diagram
households, firms (goods & services, wages, interest, rents and profits to households; profits & FOP to firms); government, financial institutions, foreign sector
injections: I, G, X
leaks: M, savings, taxes
monopoly
company without close substitutes
oligopoly
a few companies dominate in the market
monopolistic competition
competition with monopolistic characteristics because consumers aren’t willing to substitute
perfect competition
many buyers, sellers
identical products
freedom of entry
demand
the quantity of a good or service we are willing and able to buy given your income and the price of the good
marginal utility
the utility of each additional product
causes of the law of demand
real income effect
substitution effect (price rises → consumers buy alternatives)
price elasticity
a measure that indicates the degree of consumer response to a price change (inelastic - PED < 1)
elasticity of demand
price elasticity (PED)
cross elasticity (XED)
income elasticity (YED)
price ceiling
a maximum price that prevents the price of a good from rising above a certain level in the market (BELOW EQUILIBRIUM)
promotes black market
price floor
a minimal price, bellow which the price is not permitted to fall
marginal social cost
The extra cost to society of producing an additional unit of output, including both the private cost and the external costs
positive externalities
The beneficial effects that are enjoyed by a third party when a good or service is consumed/produced
merit goods
Merit goods are goods or services with strong positive externalities that would be under-provided by the market and so under-consumed
imperfect information
private good
has rivalry and excludability
public good
no rivalry, non-excludable (would not be provided by the free market)
increasing consumption of merit goods
subsidizing
improving information
legislation
reducing consumption of demerit goods
tax (internalizing the cost - to the consumers legislation / regulation (harming producers)
improving information
nudges
fixing positive externalities
direct provision
subsidy
common pool resources
non-excludable, rivalrious
will be degraded
how to prevent the tragedy of the commons
tradable permits
carbon tax
regulation & legislation
subsidies
collective self-governance
