Microeconomics Flashcards
<p>Microeconomics</p>
<p>The study action of the behaviour of individuals or groups within an economy, typically within a market context. (Such as Tamimi Super Market)</p>
<p>Ceteris Paribus </p>
<p>“All else equal”; used as a reminder that all variables other than the ones being studied are assumed to be constant.</p>
<p>Complement Good</p>
<p>A good that should be purchased with other related goods to satisfy a consumer.</p>
<p>Accelerator theory</p>
<p>The theory that the level of planned investment is related to past changes in income. </p>
<p>Ad valorem tax</p>
<p>tax levied as a percentage of the value of the good.</p>
<p>Zero sum game</p>
<p>A game in which the gain of one player is exactly offset by the loss by other players.
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<p>Welfare</p>
<p>The well being of an economic agent or group of economic agents.</p>
<p>TOTAL REVENUE TEST OF PED </p>
<p>If the demand for a good is price elastic and the price falls, then the total revenues of producers will increase (as consumers are highly responsive to the lower price so the % increase in Qd will exceed the % decrease in price).
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<p>Working or circulating capital</p>
<p>Resources which are in the production system waiting to be transformed into goods or other materials before being finally sold to the consumer.</p>
<p>Collusion</p>
<p>Collective agreements between producers which restrict competition.</p>
<p>Tax incidence </p>
<p>(Sometimes called tax burden) When an indirect tax is placed on a particular good or group of goods, the incidence, or burden, of the tax is shared by producers and consumers. Buyers will pay a higher price, thus share some of the burden of the tax. But once the tax has been paid to the government, producers end up keeping a lower price, meaning they also share some of the tax burden. The amount of a tax on a particular good paid by consumers is the consumer tax incidence; the amount paid by producers is the producer tax incidence.</p>
<p>Demand side policies</p>
<p>government use of fiscal and other policies to manipulate the level of aggregate demand in the economy.</p>
<p>Fiscal policy</p>
<p>decisions about spending, taxes and borrowing of the government. Those decision would determine the amount of money available on the economy.</p>
<p>Short run aggregate supply curve</p>
<p>the upward sloping aggregate supply curve which assumes that money wage rates are fixed.</p>
<p>Break-even point </p>
<p>the levels of output where total revenue equals total cost.
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<p>
| Direct tax</p>
<p> a tax levied directly on an individual or organisation, such as income tax.
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<p>Economic cost </p>
<p>the opportunity cost of an input to the production process.</p>
<p>Total cost</p>
<p>the cost of producing any given level of output. It is equal to total variable cost + total fixed cost</p>
Specific or Unit Tax
A tax that is defined at a fixed amount for each unit of a good or service sold. (I.e. 15 cents of tax for each pack of cigarettes independent of the final price of the pack.)
<p>Profits</p>
<p>the reward to the owners of a business. It is the difference between a firm’s revenues and its costs.</p>
<p>Conglomerate merger</p>
<p>a merger between two firms producing unrelated products.
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<p>Allocative or economic efficiency
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<p>Occurs when resources are distributed in such a way that no consumers could be made better off without other consumers becoming worse off.</p>
<p>Average cost
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<p>The average cost of production per unit, calculated by dividing the total cost by the quantity produced. It is equal to average variable cost + average fixed cost.</p>
<p>Choice</p>
<p>Economic choices involve the alternative uses of scarce resources.</p>
<p>Barrier to Exit</p>
<p>Factors which make it difficult or impossible for firms to cease production and leave an industry.</p>
<p>Barrier to Entry</p>
<p>Factors which make it difficult or impossible for firms to enter an industry and compete with existing producers.</p>
<p>Basic Economic Problem</p>
<p>When resources have to be allocated between competing uses because wants are infinite whilst resources are scarce. The benefit is greater than net private benefit, a positive externality or external benefit exists.</p>
<p>Average product</p>
<p>the quantity of output per unit of factor input. It is the total product divided by the level of output.</p>
<p>Average revenue</p>
<p>The average receipts per unit sold. It is equal to total revenue divided by quantity sold. </p>
<p>Brand</p>
<p>A name, design, symbol or other feature that distinguishes a product from other similar products and which makes it non-homogeneous.</p>
<p>Factors of production </p>
<p>the inputs to the production process: land, which is all natural resources; labour, which is the workforce; capital, which is the stock of manufactured resources used in the production of goods and services; entrepreneurs, individuals who seek out profitable opportunities for production and take risks in attempting to exploit these.</p>
<p>Goods</p>
<p>physical products.</p>
<p>Very long run</p>
<p>the period of time when the state of technology may change.</p>
<p>Composite Demand</p>
<p>When a good is demanded for two or more distinct uses.</p>
<p>Demand for money </p>
<p>the total amount of money which households and firms wish to hold at a point in time. </p>
<p>Demerger </p>
<p> when a firm splits into two or more independent businesses. </p>
<p>Black Market</p>
<p>Black market is an economic activity, but not a specific place, where goods and services are bought and sold illegally </p>
<p>Consumer Surplus</p>
<p>The difference between how much consumers are prepared to pay more for a good and what they actually pay.
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<p>Concentrated Market</p>
<p>A market where most of the output is produced by a few firms. </p>
<p>Concentrated Ratio</p>
<p>The market share of the largest firms in an industry. For instance, a five firm concentration ratio of 60 per cent shows that the five largest firms in the industry have a combined market share of 60 per cent.</p>
<p>Progressive, regressive and proportional taxes</p>
<p>taxes where the proportion of income paid in tax rises, falls or remains the same respectively as income rises.</p>
<p>Indirect tax</p>
<p>a tax levied on goods or services, such as value added tax or excise duties.</p>
<p>Market</p>
<p>any convenient set of arrangements by which buyers and sellers communicate to exchange goods and services.</p>
<p>Minimum price</p>
<p>A price floor set by the government or an organization. The price may not fall below it, although it can rise above it. For example, if a company that sells oranges set the minimum price to $2 per kg then that would mean that the oranges cannot be worth less than $2 per kg. </p>
<p>Normal good</p>
<p>a good where demand increases when income increases (i.e. it has a positive income elasticity of demand).</p>
<p>Public good</p>
<p>a good where consumption by one person does not reduce the amount available for consumption by another person and where once provided, all individuals benefit or suffer whether they wish to or not.</p>
<p>Budget surplus </p>
<p>A government surplus arising from government spending being less than its receipts. Government can use the difference to repay part of the National Debt.</p>
<p>Contracted out </p>
<p>Getting private sector firms to produce the goods and services which are then provided by the state for its citizens.</p>
<p>Excess Supply</p>
<p>Where supply is greater than demand. </p>
<p>Free Goods</p>
<p>Goods which are unlimited in supply and which therefore have no opportunity cost.</p>
<p>Consumption function </p>
<p>The relationship between the consumption of households and the factors which determine it.</p>
<p>Market demand curve</p>
<p>the sum of all individual demand curves</p>
<p>Average revenue</p>
<p>the average receipts per unit sold. It is equal to total revenue divided by quantity sold. </p>
<p>Capital productivity</p>
<p>output per unit of capital employed.</p>
<p>Cost-plus pricing</p>
<p>The technique adopted by firms of fixing a price for their products by adding a fixed percentage profit margin to the long run average cost of production.</p>
<p>Disposable income</p>
<p>household income over a period of time including state benefits, less direct taxes. </p>
<p>Consumption externalities or external benefits in consumption</p>
<p>When the social costs of consumption are different from the private costs of consumption</p>
<p>Asymmetric information </p>
<p>A situation in which one party in a transaction has more or superior information compared to another.</p>
<p>Division of labour </p>
<p>specialisation by workers.</p>
<p>Market structure</p>
<p>the characteristics of a market which determine the behaviour of firms within the market.
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<p>Dead weight loss (Weight loss effect)</p>
<p>The costs to society created by market inefficiency. Mainly used in economics, deadweight loss can be applied to any deficiency caused by an inefficient allocation of resources. Price ceilings (such as price controls and rent controls), price floors (such as minimum wage and living wage laws) and taxation are all said to create deadweight losses. Deadweight loss occurs when supply and - are not in equilibrium. </p>
<p>Equilibrium</p>
<p>The point where what is expected or planned is equal to what is realised or actually happens</p>
<p>Cross Elasticity of Demand (XED)</p>
<p>A measure of the responsiveness of quantity demanded of one good to a change in price of another good. It is measured by dividing the percentage change in quantity demanded of one good by the percentage change in price of the other good. </p>
<p>Economic growth</p>
<p>It is typically measured by growth in real GDP although this is only a proxy measure because actual GDP can be above or below the productive potential of the economy at a point in time. </p>
<p>Excess demand</p>
<p>where demand is greater than supply </p>
<p>Gross profit </p>
<p>total sales revenue or turnover minus cost of sales, the direct costs of production.</p>
<p>Break even price</p>
<p>The break-even price represents the price that is required to cover total costs (both fixed and variable). Total profit at the break-even point is zero. Break-even is only possible if a firm’s prices are higher than its variable costs per unit. If so, then each unit of the product sold will generate some “contribution” toward covering fixed costs.</p>
<p>Market Failure</p>
<p>Where resources are inefficiently allocated due to imperfections in the working of the market mechanism.
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<p>Profit</p>
<p>Profit is Revenue minus cost. A business owner expects to earn a “normal” level of profit, otherwise it will not be worth his while to remain in a market. In this regard, profit is a cost of production, because if a minimum profit is not earned a firm will shut down.</p>
<p>Opportunity Cost</p>
<p>Is the value of the next best alternative foregone when an economic decision is made
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<p>Common Access Resources</p>
<p> also known as common pool resources or common property resources, these are resources which have properties similar to public goods in that it is very difficult or impossible to prevent people from using or consuming the resource. Therefore they are vulnerable to overuse/degradation.</p>
<p>Economic development</p>
<p>Measure of welfare, a measure of well-being. It is usual to measure economic development not just in monetary term, but also in term of other indicators, such as education indicators, health indicators, and social indicators. Look up HDI.</p>
<p>Wealth effect</p>
<p>the change in consumption following a change in wealth. This could work as an incentive to spend more as people would feel that they are wealthier. Ex: A house that someone owns has increased in value, so the head of the family decides to go on vacation.</p>
<p>Market supply curve</p>
<p>The supply curve of all producers within the market. In a perfectly competitive market it can be calculated by summing the supply curves of individual producers.</p>
<p>Merit good</p>
<p>A good which is underprovided by the market mechanism. A demerit good is one which is overprovided by the market mechanism.</p>
<p>Marginal cost</p>
<p>the cost of producing an extra unit of output.</p>
<p>Foreign Direct Investment (FDI)</p>
<p>Foreign direct investment is investment of foreign assets into domestic structures, equipment, and organizations.</p>
<p>Transition Economy</p>
<p>A transition economy is an economy which is changing from a centrally planned economy towards a Market-oriented economy. Ex: Eastern European countries who became independent after the collapse of the Soviet Union. Poland, Czech Republic...</p>
<p>Variable Costs</p>
<p>Costs directly related to variations in output. Ex: Electricity used to run a machine that produce goods.</p>
<p>Laissez-Faire</p>
<p>A doctrine opposing governmental interference in economic affairs beyond the minimum necessary for the maintenance of peace and property rights.</p>
<p>Quantity Supply</p>
<p>The amount of good or service the producer is willing and able to supply at each particular price.</p>
Equalibrium
The point where what is expected or planned is equal to what is realized or actually happens.
Necessity
An indispensable thing for survival. Water and food for humans. Have in mind that the level of necessities may vary from person to person. Think of the need of a heavy winter coat in different locations of the globe.
<p>Workforce or labour force</p>
<p>those economically active who are looking for work. Example on the diagram below.</p>
Actual growth
Actual increase in in levels of production. Can be represented by a shift of a point of the PPC closer towards the curve. Shifting from point A to point B.
Common Access Resources
Also known as common pool resources or common property resources, these are resources which have properties similar to public goods in that it is very difficult or impossible to prevent people from using or consuming the resource. Therefore they are vulnerable to overuse/degradation.
Entrepreneurship
The creativity and innovation an individual puts towards the production of goods and services by combining factors of production and with the willingness to take risks. (Example: Mark Zuckerberg: Facebook)
Actual output
The amount of a product that a firm or an economy actually produces. Can be represented as a real GDP value. On the diagram below it could be point A or B.
Contestable market
Barriers to entry are relatively low and new firms may enter the market to grab profits, and easily leave once no more profits can be earned.
Core inflation
A measure of inflation that factors out the changes in the prices of products that tend to experience volatile price swings, (e.g. food and energy prices). This gives policymakers a better indication of long term changes in the price level.
Fixed Costs
Costs that do not vary with production.
Free Good
A good that is demanded, but not limited in quantity, thus it is not scarce.
