Micro Year 1 Flashcards
Ceteris paribus
Theme 1.1 Economics as Social Science
All things being equal; the assumption that, whilst the effects of a change in one variable are being investigated,a ll the other variablels are kept contsant
Law
Theme 1.1 Economics as Social Science
A thoery or model whihc has been verifited by empirical evidence
Normative economics
Theme 1.1 Economics as Social Science
The study and presnetioan of policy prescriptions invovling value judgements about the way in whihc scare resouces are allocated
Normatitve Statement
Theme 1.1 Economics as Social Science
A statement whihc cannot be supported or refuted because it is a value judgement
Positive Economics
Theme 1.1 Economics as Social Science
The scientific or objective study of the allocation of scare resources
Positive Statement
Theme 1.1 Economics as Social Science
A statement which can be supported or refuted by evidence
Scientific Method
Theme 1.1 Economics as Social Science
A method which subjects theories or hypotheses to falsification by empirical evidence
Social Science
Theme 1.1 Economics as Social Science
The study of societies and human behaviour using a variety of methods, including the scientific method
Theory or model
Theme 1.1 Economics as Social Science
A hypothesis which is capable of refutation by empirical
Base Period
Economic Data
The period, such as a year or a month, with which all other values in a series are compared
Index number
Economic Data
An indicator showing the relative valye of one number to another from a base of 100. It is often used to present an average of a number of statistics
Nominal values
Economic Data
Values unadjusted for the effects of inflation (i.e values at current prices)
Real values
Economic Data
Values adjusted for inflation (i.e. values at a constant price)
Basic economic problem
Theme 1.1.3 - The Economic Problem
Resouces have to be allocated between competeing uses because wants are infinite whilst resoucres are scarce
Capital
Theme 1.1.3 - The Economic Problem
As a factor of production is the stock of manufactured resources used in the production of goods and services
Choice
Theme 1.1.3 - The Economic Problem
Economic choice invovled the alternative uses of scare resources
Economic goods
Theme 1.1.3 - The Economic Problem
Goods that are scarce because their use has an opportunity cost
Entrepreneurs
Theme 1.1.3 - The Economic Problem
Indivduals who seek out profitable opportunites for production and take risks in attempting to exploit these
Enterprise or entrepreneurship
Theme 1.1.3 - The Economic Problem
As a factor of production is the seeking out of profitiable opportunites for production and taking risks in attempting to exploit these
Factors of Production
Theme 1.1.3 - The Economic Problem
The inputs to the production process: land, labour, capital and enterprise
Fixed capital
Theme 1.1.3 - The Economic Problem
Economic resource such as factories and hospitals whicha re used to transform working capital into goods and services
Free goods
Theme 1.1.3 - The Economic Problem
Goods that are unlimted in supply and which therefore have no opportunity cost
Human capital
Theme 1.1.3 - The Economic Problem
The value of the productive potential of an individual or group or wokers; it is made up of the skills, talents, eductation and trainign of an individual or group and represents the value of future earnings and production
Labour
Theme 1.1.3 - The Economic Problem
As a factor of production is the workforce
Land
Theme 1.1.3 - The Economic Problem
As a factor of production, is all natural resources
Needs
Theme 1.1.3 - The Economic Problem
The minimum that is necessary for a person to survive as a human being
Non-renewable resources
Theme 1.1.3 - The Economic Problem
Resources, such as coal or oil, which once exploited cannot be replaced
Non- sustainable resource
Theme 1.1.3 - The Economic Problem
A resource whihc can be economically exploited in such as a way that its stock being reduced over time
Opportunity cost
Theme 1.1.3 - The Economic Problem
The benefits forgone of the next alternative
Renewable resources
Theme 1.1.3 - The Economic Problem
Resources, such as fish stocks or forests, that can be exploited over and over again because they have the potential to renew themselves
Resources that are limited in supply so that choices have to made about their use
Sustainable resource
Theme 1.1.3 - The Economic Problem
Renewable resource that is being economically exploited in such a way that it will not diminish or run out
Wants
Theme 1.1.3 - The Economic Problem
Desires for the consumption of goods and services
Working or Circulating Capital
Theme 1.1.3 - The Economic Problem
Resources that are in the production system waiting to be transformed into goods or other materials before being finally sold to the consumer
Capital Goods
1.1.4 - Production Possibility Frontiers
Goods that are used in the production of other goods such as factories, offices, roads, machines and equipment
Consumer Goods
1.1.4 - Production Possibility Frontiers
Goods and services that are used ot people to satisify their needs and wants
Margin
1.1.4 - Production Possibility Frontiers
A point of possible change
Production Possibility Frontiers
1.1.4 - Production Possibility Frontiers
A curve which shows the maximum potential level of output of one good given a level of output for all others goods in the economy
Barter
1.1.5 - Specialisation and the division of labour
Swapping one good for another without the use of money
Capital Productivity
1.1.5 - Specialisation and the division of labour
Output per unit of capital employed
Division of Labour
1.1.5 - Specialisation and the division of labour
Specialisation by workers, who perform different tasks at different stages of production to make a good or service, in co-operation with other workers
Labour productivity
1.1.5 - Specialisation and the division of labour
Output per worker
Market
1.1.5 - Specialisation and the division of labour
Any convenient set of arrangements by which buyers and sellers communicate to exchange goods and services
Money
1.1.5 - Specialisation and the division of labour
Any item, such as a coin or a bank balence which fulfills four functions: A medium of exchange, a measure of value, a store of value and a method of deferred payment
Money subsititutes
1.1.5 - Specialisation and the division of labour
Anything which can be used as a medium of exchange but which are not stores of value. Examples are charge cards or credit cards
Primary sector
1.1.5 - Specialisation and the division of labour
Extractive and agricultural industries
Private sector
1.1.5 - Specialisation and the division of labour
The part of the economy owned by individuals, companies and charities
Productivity
1.1.5 - Specialisation and the division of labour
Output per unit of input employed
Secondary or manufacturing sector
1.1.5 - Specialisation and the division of labour
Industries involved in the production of goods, mainly manufactured goods
Specialisation
1.1.5 - Specialisation and the division of labour
A system of organisation where economic units such as households or nations are not self-sufficient but concentrate on producing certain goods and services and trading the surplus with others
Sub-market
1.1.5 - Specialisation and the division of labour
A market which is a distinct and identifiable part of a larger market
Tertiary or service sector
1.1.5 - Specialisation and the division of labour
Industries invovled in the proudction of services
Command or planned or centrally planned economy
1.1.6 - Types of Economy
An economic system where government, through a planning process, allocates resources in society
Economic system
1.1.5 - Specialisation and the division of labour
A complex network of individuals, organisations and institutions and their socail and legel interrelationships which allocates resources
Free market economy
1.1.5 - Specialisation and the division of labour
An economic system that resolves the basoc economic problems mainly through the market mechanism
Mixed Economy
1.1.5 - Specialisation and the division of labour
An economy where both the free market mechanisms and the government planning process allocate significant proportions of total resources
Economic Welfare
1.2.1 - Rational decision making
The level of well-being or proesperity or living standards of an individual or group of individuals such as a country
Macroeconomics
1.2.1 - Rational decision making
The study of the economy as a whole including inflation, growth and unemployment
Microeconomics
1.2.1 - Rational decision making
The study of the behaviour of individuals or groups such as consumers, firms or workers, typically within a market context
Neo-classical theory
1.2.1 - Rational decision making
A theory of economics which typically starts with the assumption that economic agents will maximise their benefots and act rationally, and which develops how resources will be allocated in markets and at what price through the forces of demadn and supply; the margin is a key concept in neo-classical theory
Utility or economic welfare
1.2.1 - Rational decision making
The satisfaction or benefit derived from consuming a good or a set of goods
Conditions of demand
1.2.2, 1.2.8 - Demand
Factors other than price, such as income or the price of other goods, which lead to changes in demand and are associated with shifts in the demand curve
Consumer Surplus
1.2.2, 1.2.8 - Demand
The difference between how much buyers are prepared to pay for a good and what they actually pay
Contraction of demand
1.2.2, 1.2.8 - Demand
When quantitiy demanded for a good falls because its price rises; it is shown by a movment up the demand curve
Demand curve
1.2.2, 1.2.8 - Demand
The line on a price/quantity diagram which shows the level of effective demand at any given price
Demand or effective demand
1.2.2, 1.2.8 - Demand
The quantity purchased of a good at any given price, given that other determinants of demadn remain unchanged
Extension of demand
1.2.2, 1.2.8 - Demand
When quantitiy demanded for a good increases because its price falls; it is shown by a movement down the demand curve
Law of diminishing marginal utility
1.2.2, 1.2.8 - Demand
The value or utility that individual consumers gain from the last product consumed falls the greater the number consumed. So the marginal utility of consuming the sixth product is lower than the second product consumed
Shift in the demand curve
1.2.2, 1.2.8 - Demand
A movement of the whole demand curve to the right or left of the original caused by a change in any variavle affecting demand except price
Elastic Demand
1.2.3 - Price elasticity of demand
Where the price elasticity of demand is greater than 1. The responsiveness of demand is proportioanlly greater than the change in price.D emadn is perfectly elastic if the price elasticaity of demand is infinity
Inelastic demand
1.2.3 - Price elasticity of demand
Where the price elasticity of demadn is less than 1. The responsiveness of demadn is proportionally less than the change in price. Demand is perfectly inelastic if the price elasticity of demand is 0
Price elasticity of demand
1.2.3 - Price elasticity of demand
The proportionate response of changes in quantity demanded to proportionate change in price, measured by the formula:
Unitary elasticity
1.2.3 - Price elasticity of demand
Where the value of price elasticity of demand is 1. The responsiveness of demadn is proportionally equal to the change in price
Total expenditure
1.2.3 - Price elasticity of demand
Quantity bought times the average price of a product
Total revenue
1.2.3 - Price elasticity of demand
Quantity sold times the average price of a product
Complement
1.2.3 - Income and cross elasticities
A good that is purchased with other goods to satisfy a want. Complements have a negative cross elasticity of demadn with each other
Cross elasticity of demand
1.2.3 - Income and cross elasticities
A measure of the responsiveness of quantity demanded of one good to a change in the price of another good. It is measured by the equation:
Income elasticity of demand
1.2.3 - Income and cross elasticities
A measure of the responsiveness of quantity demanded to a change in income. It is measured by the formula
Inferior good
1.2.3 - Income and cross elasticities
A good where demand falls when income increases
Negative income elasticity of demand
Normal good
1.2.3 - Income and cross elasticities
A good where demand increases when income increases
Positive inomce elasticity of demand
Substitute
1.2.3 - Income and cross elasticities
A good which can be replaced by another to satisfy a want. Substitutes have a positve cross elasticiy of demand with each other
Conditions of Supply
1.2.4, 1.2.5 - Supply
Factors other than price such as income or the price of other goods, which lead to changes in supply and are associated with shifts in the supply curve
Long Run
1.2.4, 1.2.5 - Supply
The period of time whena ll factor inputs can be varied but the state of technology remains constant
Price elasticity of supply
1.2.4, 1.2.5 - Supply
A measure of the responsiveness of quantity supplied to a change in price. It is measured using the equation
Producer surplus
1.2.4, 1.2.5 - Supply
The difference betw2een the market price which firms recieve and the price at which they prepared to supply
Short Run
1.2.4, 1.2.5 - Supply
The period of time when at least one factor input to the production process can be varied
Supply
1.2.4, 1.2.5 - Supply
The quantitiy of goods that supplieres are willing to sell at any given price over a period of time
Equilibrium Price
1.2.6 - Price Determination
The price at which there is no tendency to change because planned (or desired or ex ante) purchases (i.e. demand) are equal to planned sales (i.e. supply)
Excess Demand
1.2.6 - Price Determination
Where demand is greater than supply
Excess supply
1.2.6 - Price Determination
Where supply is greater than demand
Free market forces
1.2.6 - Price Determination
Forces in free markets which act to reduce prices when there is excess supply and raise prices when there is excess demand
Market-clearing price
1.2.6 - Price Determination
The price at which there is neither excess demand not excess supply but where everything offered for sale is purchased
Incentive function
1.2.7 - The price mechanism
When changes in price encourage buyers and sellers to change the quantity they buy and sell. A rise in price encourages buyers to purchase less and sellers to produce more; and vice versa
Rationing function
1.2.7 - The price mechanism
When changes in price lead to more or less being produced, so increasing or limiting the quantity demanded by buyers
Signalling function
1.2.7 - The price mechanism
When changes in price give information to buyers and sellers whihc influence thier decisions to buy and sell
Ad valorem tax
1.2.9 - Indirect taxes and subsidies
Tax levied as a percentage of the value of the good
Incidence of tax
1.2.9 - Indirect taxes and subsidies
The tax burden of the taxpayer
Specific or unit tax
1.2.9 - Indirect taxes and subsidies
Tax levied on volume
Subsidy
1.2.9 - Indirect taxes and subsidies
A grant given which lowers the price of a good, usally designed to enoucrage production or consumption of a good
Complete market failure
1.3.1 - Types of market failure
When a market fails to supply any of a good which is demanded, creating a missing market
Market failure
1.3.1 - Types of market failure
Where resources are inefficiently allocated due to imperfections in the working of the market mechanisms
Missing market
1.3.1 - Types of market failure
A market where the market mechanism fails to supply any of a good
Partial market failure
1.3.1 - Types of market failure
When a market for a good exists but there is overproduction or underproduction of the good
Consumption externalities
1.3.2 - Externalities
When the social costs of consumption are different from the priveate costs of consumption. If social benefits exceed private benefits, then there are positive consumption externalites. If social benefits are less than private benefits then there are negative consumption externalities
Externality
1.3.2 - Externalities
It is a third party spill-over effect
Marginal social and private costs and benefits
1.3.2 - Externalities
The social and private costs and benefits of the last unit either prodeuced or consumed
Private cost adn benefit
1.3.2 - Externalities
The cost or benefit of an activity to an individual economci unit such as a consumer or a firm
Production externalities
1.3.2 - Externalities
When the social costs of production are different from the private costs of production. If social costs exceed private costs, then there are negative production externalities. If social costs are less than private costs, then there are positive production externalities
Social cost and benefit
1.3.2 - Externalities
The cost or benefit of an activity to society as a whole
Free rider
1.3.3 - Public Goods
A person or organisation which receives benefits that other have paid for without making any contributions
Non-excludability
1.3.3 - Public Goods
Once provided, it is impossibel to prevent any economic agent from consuming the good
Non-rejectability
1.3.3 - Public Goods
Once provided, it is impossible for any economic agent not to consume the good
Non-rivaly
1.3.3 - Public Goods
Consumption by one economic agent does not reduce the amount available for consumption by others
Private good
1.3.3 - Public Goods
A good which possesses the characteristics of rivalry and excludability
Public good
A good which possesses the characteristics of non-rivalry and non-excludabilty
Quasi-public good
1.3.3 - Public Goods
A good which does not perfectly possess the characteristics of non-rivalry and non-excludability and yet which also is not perfectly rival or excludable
Asymmetric information
1.3.4 - Information gaps
Where buyers and sellers have different amounts of information, with one group having more information than the other
Imperfect information
1.3.4 - Information gaps
Where buyers or sellers or both lack information to make an informed decision
Information failure/gap
1.3.4 - Information gaps
Where buyers or sellers or both don’t have the information that is available to make a decision
Moral hazard
1.3.4 - Information gaps
When an economci agent makes a decision in their own best interest knowing that there are potential adverse risks, and that if problems result, the cost will be partly borne by other economic agents
Principal-agent problem
1.3.4 - Information gaps
Occurs when the goals of principals, those standing gain or lose from a decision, are different from agents those making decisions on the behalf of the principal. E.g. shareholders (principles) and managers (agents)
Cap and trade schemes
1.4.1 - Government intervention in markets
Schemes which set a limit on a particular type of pollution, and then issue pollution permits to the total of that limit which can be bought and sold between firms which pollute
Trade pollution permit
1.4.1 - Government intervention in markets
A permission issued, usually by a government, to allow a fixed amount of pollution to be created; this permit can be used by the owner or sold to another firm
Government failure
1.4.2 - Government failure
Occurs when government intervention leads to a net welfare loss compared to the free market solution
Public choice theory
1.4.2 - Government failure
Theories about how and why public spending and taxation decisions are made
Rent-seeking
1.4.2 - Government failure
The use of political power by an economic agent to manipulate the distribution of resources for their own benefit at the expense of others without creating any extra wealth for society
