Microeconomics Flashcards
ad valorem taxes
- taxes calculated as a fixed percentage of the price of the good or service
- amount of taxes increases as the price increases
cap and trade scheme
- a scheme in which a government authority sets a limit or ‘cap’ on the amount of pollutants that can be legally emitted by a firm, set by an amount of pollution permits distributed to firms
- firms that want to pollute more can buy more permits, while firms that want to pollute less can sell their excess permits
capital
- one of the factors of production
- also known as “physical capital”, including machinery, equipment, buildings, etc.
- “human capital” refers to skills, abilities, knowledge and levels of good health acquired by people
- “natural capital” has to do with the factor of production ‘land’
- “financial capital” includes stocks and bonds
ceteris paribus
- “other things being equal”
- all other things are assumed to be constant or unchanging
circular flow of income model
model showing the flow of resources from consumers (households) to firms, and the flow of products from firms to consumers, as well as money flows consisting of consumers’ income arising from the sale of their resources and firms’ revenues arising from the sale of their products
clean technology
technology that is not polluting, associated with environmental sustainability; includes solar power, wind power, hydropower, recycling, etc
closed economy
an economy that has no international trade
common access resources
resources that are not owned by anyone, do not have a price, and are available for anyone to use (ex. lakes, fish in open seas, ozone layer); their depletion leads to environmental unsustainablity
Competitive market
a market composed of many buyers and sellers acting independently, none of whom has any ability to influence the price of the product
competitive supply
two goods compete with each other for the same resources
ex) if a farmer can produce wheat or corn, producing more of one means producing less of the other
complements (complementary goods)
- two or more goods that tend to be used together
- an increase in the price of one will lead to a decrease in the demand of the other
ex) a bike and a bike helmet
consumer surplus
the difference between the highest prices consumers are willing to pay for a good and the price actually paid
consumption
spending by households on goods and services (excludes spending on housing)
cross-price elasticity of demand (XED)
- a measure of the responsiveness of the demand for one good to a change in the price of another good; measured by the percentage change in the quantity of one good demanded divided by the percentage change in the price of another good
- if XED>0, two goods are substitutes
- if XED<0, two goods are complements
demerit goods
- goods that are considered to be undesirable for consumers and are overprovided in the market
- reasons for over provision: goods have negative externalities, or consumers are ignorant of harmful effects
direct taxes
taxes paid directly to the gov’t tax authorities by the taxpayer, including personal income taxes, corporate income taxes and wealth taxes
distribution of income
concerned with how much of an economy’s total income different individuals or different groups in the population receive, and involves answering the ‘for whom’ basic economic question
economic efficiency
condition that arises when allocative efficiency is achieved
economics
the study of choices leading to the best possible use of scarce resources in order to best satisfy unlimited human needs and wants
elasticity
a measure of the responsiveness or sensitivity of a variable to changes in any of the variable’s determinants
entrepreneurship
- one of the factors of production
- involves a special human skill that includes the ability to innovate by developing new ways of doing things, to take business risks and to seek new opportunities for opening and running a business
equilibrium
a state of balance such that there is no tendency to change
equilibrium level of output
the level of output (real GDP) where the aggregate demand curve intersects the aggregate supply curve
equilibrium price
the price determined in a market when quantity demanded is equal to quantity supplied, and there is no tendency for the price to change