Microeconomics Flashcards
What is a Market?
Where buyers and sellers come together to carry out an economic transaction
Define Demand
The total amount of goods and services that consumers are willing and able to purchase at a given price within a given time period
Define Ceteris paribus and explain when you would mention it in an exam setting
Ceteris paribus is latin for everything else stays the same, you would use it when describing an economic variable’s effect on another (it is assumed that all other variables stay the same)
Substitute
An alternative good or service that may be purchased by consumers.
Complementary goods
Goods that are consumed together, paid separately.
Remote complements
Goods that are sometimes consumed together, but the consumption of one good does not depend on the other. (eg. Book and reading lamp)
Close Complements
Goods that are usually consumed together, such that one good has little use without the other. (eg. cereal and milk)
Income
Payments for the factors of production, such as rent, wages, interest, dividends and profit.
Nominal GDP
the value of all goods/services produced in an economy in a one-year period
Nominal GDP = C + I + G + (X-M)
Law of Supply
As the price of a product increases, the quantity supplied will usually increase, ceteris paribus.
Individual Supply
The supply of one product by one firm at every price.
Market Supply
The sum of all the individual supplies of a product at every price.
Factors of Production
Land, Labour, Capital, entrepreneurship or enterprise
Inferior good
A good whose demand falls as income rises
Normal good
A good whose demand rises as income rises
Capital goods
The tools and machinery necessary for the production of other goods. They are what we call the ’capital’ factor of production.
Consumer goods
Finished products that are ready for satisfying people’s wants, not used in any further production process.
Demerit Goods
Goods that have negative effects when consumed and cause negative externalities of consumption.
Merit Goods
Goods that are beneficial to the individual and society as a whole, and are usually under-provided in a free market.
Positive Externalities of Production
Positive production externalities refer to the benefits that are generated for third parties as a result of the production of a good or service. These benefits are not reflected in the market price of the good/service and are therefore not taken into account by the producers or consumers. Instead they are enjoyed by the wider society, resulting in market failure and an inefficient allocation of resources.
Eg. Research and Development, Infrastructure, Education.
May be subsidised by government to encourage production.
Positive Externalities of Consumption
Positive consumption externalities occur when the consumption of a good or service positively benefits a third party.
Positive consumption externalities can lead to the underconsumption of goods or services, as consumers do not consider the full social benefit of their consumption. This can result in an inefficient allocation of resources, where too little of a good or service is consumed leading to a net loss in social welfare.
Eg. Vaccination, Education
May be subsidised by government to encourage consumption.
