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Economics A-Level > Microeconomics > Flashcards

Microeconomics Flashcards

1
Q

Basic economic problem

A

Resources have to be allocated between competing uses because wants are infinite whilst resources are scarce

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2
Q

Choice

A

Economic choices involve the alternative uses of scarce resources

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3
Q

Economic goods

A

Goods which are scarce because their use has an opportunity cost

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4
Q

Free goods

A

Goods which are unlimited in supply and which therefore have no opportunity cost

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5
Q

Margin

A

A point of possible change

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6
Q

Needs

A

The minimum which is necessary for a person to survive as a human being

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7
Q

Opportunity cost

A

The benefit forgone for the next best alternative

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8
Q

Production Possibility Frontier (PPF)

A

A curve which shows the maximum potential level of output of one good given a level of output for all other goods in the economy, with all its resources fully and efficiently employed

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9
Q

Scarce resources

A

Resources which are limited in supply so that choices have to be made about their use

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10
Q

Wants

A

Desires for the consumption of goods and services

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11
Q

Consumer/consumption goods

A

Goods that are produced to satisfy the consumption demands of the present

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12
Q

Depreciation/Capital consumption

A

The wearing out of capital over time

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13
Q

Capital productivity

A

Output per unit of capital employed

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14
Q

Division of labour

A

Where a productive process is broken down into a sequence of jobs with a particular worker doing one or a few only of them

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15
Q

Factors of Production

A

The inputs to the production process

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16
Q

Land

A

All natural resources

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17
Q

Capital

A

The stock of manufactured resources used in the production of goods and services

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18
Q

Entrepreneurs

A

Individuals who seek out profitable opportunities for production and take risks in attempting to exploit these

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19
Q

Labour

A

The workforce

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20
Q

Fixed capital

A

Economic resources which are used to transform working capital into goods and services

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21
Q

Human capital

A

The value of the productive potential of an individual or group of workers (It is made up of the skills, talents, education and training of an individual group and represents the value of future earning and production)

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22
Q

Labour productivity

A

Output per worker

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23
Q

Market

A

Any convenient set of arrangements by which buyers and sellers communicate to exchange goods and services

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24
Q

Non-renewable resources

A

Resources exploited in such a way that they are being reduced over time

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25
Q

Primary sector

A

Extractive and agricultural industries

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26
Q

Productivity

A

Output per unit of input

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27
Q

Profits

A

The reward to the owners of a business

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28
Q

Renewable resources

A

Resources which can be exploited over and over again because they have the potential to renew themselves

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29
Q

Secondary sector

A

Production of goods, mainly manufactured

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30
Q

Stakeholders

A

Groups of people who have an interest in a firm, such as shareholders, customers, supplied, the local community and government

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31
Q

Sustainable resource

A

A renewable resource which is being exploited in such a way that it will not diminish or run out

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32
Q

Tertiary sector

A

Production of services

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33
Q

Unit labour costs

A

Cost of employing labour per unit of output or production

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34
Q

Utility

A

The satisfaction derived from consuming a good

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35
Q

Welfare

A

The well being of an economic agent or group of economic agents

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36
Q

Base period

A

The period with which all other values in a series are compared

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37
Q

Index number

A

An indicator showing the relative value of one number to another from a base of 100

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38
Q

Nominal values

A

Values unadjusted for the effects of inflation

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39
Q

Real values

A

Values adjusted for inflation

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40
Q

Ceteris paribus

A

The assumption that all other variables within the model remain constant whilst one change is being considered (“All other things being equal/constant”)

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41
Q

Equilibrium

A

The point where what is expected or planned it equal to what is realised or actually happens

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42
Q

Normative economics

A

The study and presentation of policy prescriptions involving value judgements about the way scarce resources are allocated

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43
Q

Normative statement

A

A statement which cannot be supported or refuted because it is a value judgement

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44
Q

Partial model

A

A model with few variables

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45
Q

General models

A

A model with many variables

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46
Q

Positive economics

A

The scientific or objective study of the allocation of resources

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47
Q

Positive statement

A

A statement which can be supported or refuted by evidence

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48
Q

Static model

A

A model in which time is not a variable

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49
Q

Dynamic model

A

A model in which time is a variable explicit

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50
Q

Scientific method

A

A method which subjects theories or hypotheses to falsification by empirical evidence

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51
Q

Theory or model

A

A hypothesis which is capable of refutation by empirical evidence

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52
Q

Command/planned economy

A

An economy system where government allocated resources in a society through planning

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53
Q

Economic system

A

A complex network of individuals, organisations and institutions and their social and legal interrelationships

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54
Q

Free market economy

A

An economic system which resolves the basic economic problem through the market mechanism

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55
Q

Market mechanism (aka the price system)

A

The way prices respond to changes in demand and supply for a product, service or factor input so that a new market equilibrium is reached

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56
Q

Mixed economy

A

An economy where both the free market mechanism and the government planning process allocate a significant proportion of total resources

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57
Q

Consumer surplus

A

The difference between how much buyers are prepared to pay for a good and what they actually pay

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58
Q

(Effective) Demand

A

The quantity purchased of a good at any given price over a period of time

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59
Q

Law of Demand

A

Says that demand is inversely related to price, all other things being equal

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60
Q

Individual demand curve

A

The demand curve for an individual consumer, firm or other economic unit

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61
Q

Market demand curve

A

The sum of all individual demand curves

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62
Q

Competitive demand

A

When two or more goods are substitutes for each other

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63
Q

Complement

A

A good which is purchased with another good (the XED of the complement is negative)

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64
Q

Composite demand

A

When a good is demanded for two or more distinct uses

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65
Q

Derived demand

A

When the demand for one good is the result of another good

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66
Q

Joint demand

A

When two or more goods are brought together

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67
Q

Joint supply

A

When two or more goods are produced together so that a change in supply of one good will necessarily change the supply of the other good(s) with which it is in joint supply

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68
Q

Substitute

A

A good which can be replaced with another to satisfy a want (the XED of the substitute is positive)

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69
Q

Elastic demand

A

The responsiveness of demand is proportionally less than the change in price (PED>1)

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70
Q

Infinitely elastic demand

A

PED = infinity

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71
Q

Inelastic demand

A

The responsiveness of demand is proportionally less than the change in price (PED<1)

72
Q

Infinitely inelastic demand

A

PED = 0

73
Q

Price elasticity of demand (PED)

A

The proportionate response of changes in quantity demanded to a proportionate change in price (responsiveness of demand to a change in price)

74
Q

PED formula

A

%ΔQd / %ΔP

75
Q

Unitary elasticity

A

The responsiveness of demand is proportionally equal to the change in price (PED = 1)

76
Q

Cross-price elasticity or demand (XED)

A

A measure of the responsiveness of quantity demanded of one good to a change in price of another good

77
Q

XED formula

A

%ΔQd of good A / %ΔP of good B

78
Q

Income elasticity of demand (YED)

A

A measure of the responsiveness of quantity demanded to a change in income

79
Q

YED formula

A

%ΔQd / %ΔY

80
Q

Price elasticity of supply (PES)

A

A measure of the responsiveness of quantity supplied to a change in price

81
Q

PES formula

A

%ΔQs / %ΔP

82
Q

Giffen good

A

A special type of inferior good where demand increases when price increases

83
Q

Income

A

The flow of payments (e.g. salaries, dividends, interest) over a period of time

84
Q

Income effect

A

The impact on quantity demanded of a change in price due to a change in consumers’ real income which results from this change in price

85
Q

Inferior good

A

A good where demand falls as income increases (YED = positive)

86
Q

Substitution effect

A

The impact on quantity demanded due to a change in prices, assuming that consumer’s real incomes stay the same (i.e. impact of a change in price excluding the income effect)

87
Q

Wealth effect

A

Where people feel better off because of an increase in the value of their assets and spend more as a result

88
Q

Ad valorem tax

A

Tax levied as a percentage of the value of the good

89
Q

Incidence of tax

A

The ultimate distribution of the tax burden on the taxpayers

90
Q

Specific or unit tax

A

<p>tax levied per unit</p>

91
Q

Subsidy

A

A grant given by government to firms to encourage production of a good or service

92
Q

Allocative or economic efficiency

A

occurs when resources are distributed in such a way as to maximise consumer welfare

93
Q

Allocative efficiency on a graph

A

P = MC = AR

94
Q

Dynamic efficiency

A

Occurs when resources are allocated efficiently over time

95
Q

Market failure

A

When resources are inefficiently allocated due to imperfections in the working of the market mechanism

96
Q

Static efficiency

A

Occurs when resources are allocated efficiently at a point in time

97
Q

Technical efficiency

A

Achieved when a given quantity of output is produced with the minimum number of inputs (required for productive efficiency)

98
Q

Productive efficiency

A

Achieved when production is achieved at lowest average cost (MC = AC)

99
Q

Positive consumption externality

A

When the social benefits of consumption are higher than the private benefits of consumption

100
Q

Deadweight loss

A

Net welfare loss from not producing the socially optimal quantity

101
Q

Externality

A

The difference between social costs and benefits and private costs and benefits

102
Q

Marginal social and private costs or benefits

A

The social and private costs or benefits of the last unit either produced or consumed

103
Q

Negative externality

A

The spillover costs inflicted on third parties not party to the transaction which are not reflected in the market price and which are not compensated

104
Q

Positive externality

A

The spillover benefit enjoyed by third parties not party to the transaction and for which they have not had to pay

105
Q

Private cost or benefit

A

The cost or benefit of an activity to an individual economic unit (e.g. individual or firm)

106
Q

Production externalities

A

When the social costs of production differ from the private costs of production

107
Q

Social cost or benefit

A

The cost or benefit of an activity to society as a whole

108
Q

Free rider

A

A person or organisation which receives benefits which other have paid for without making any contribution themselves

109
Q

Merit good

A

A good which is underprovided and underconsumed by the market mechanism

110
Q

Demerit good

A

A good which is overprovided and overconsumed by the market mechanism

111
Q

Private good

A

A good which possesses the characteristics of rivalry and excludability

112
Q

Public good (pure)

A

A good which possesses the characteristics of non-rivalry; non-excludability; and non-rejectability

113
Q

Rivalry

A

Once consumed the good cannot be consumed by any one else

114
Q

Excludability

A

It is possible to prevent someone else from consuming the good

115
Q

Non-excludability

A

One provided, it is impossible to prevent any economic agent from consuming the good

116
Q

Non-rejectability

A

One provided, it is impossible for any economic agent not to consume the good

117
Q

Non-rivalry/non-diminishability

A

Consumption by one economic agent does not reduce the amount available for consumption by others

118
Q

Quasi-public good

A

A good which may not perfectly possess the characteristics of being non-excludable and non-rival (e.f. motorways)

119
Q

Principal-agent problem

A

Occurs when the goals of the principals, those standing to gain or lose from a decisions, are different from agents, those making decisions on behalf of the principals

120
Q

Symmetric information

A

Where buyers and sellers have access to the same information

121
Q

Asymmetric information

A

Where buyers and sellers have different amounts of information

122
Q

Buffer stock scheme

A

A scheme whereby an organization buys and sells in the open market so as to maintain a minimum price in the market for a product

123
Q

National minimum wage

A

A floor below which wages cannot legally fall

124
Q

Tradable permit

A

A legal right to pollute a fixed amount which can be bought and sold between firms

125
Q

Government failure

A

Occurs when government intervention leads to a net welfare loss compared to the free market solution

126
Q

Optimal tax (aka Pigouvian tax)

A

A tax equal to marginal external cost, aiming to ‘internalise the externality’

127
Q

Public choice theory

A

Theory about how and why public spending and taxation decisions are made

128
Q

Working/circulating capital

A

Resources that are in the production system waiting to be transformed into goods or other materials before being finally sold to consumers

129
Q

Capital goods

A

Goods that are used in the production of other goods

130
Q

Private sector

A

The part of the economy owned by individuals, companies and charities

131
Q

Public sector

A

The part of the economy where production is organised by the state of the government

132
Q

Sub-market

A

A market which is a distinct and identifiable part of a larger market

133
Q

Disutility

A

Negative utility or satisfaction or benefit derived from consuming a good or a set of goods

134
Q

Economic welfare

A

The level of well-being or prosperity or living standards of an individual or group of individuals

135
Q

Neo-classical theory

A

A theory of economic which typically starts with the assumption that economic agents will maximise their benefits and act rationally, and which develops how resources will be allocated in markets and at what price through the forces of demand and supply

136
Q

Conditions of demand

A

Factors other than price which lead to changes in demand and are associated with shifts in the demand curve

137
Q

Contraction of demand

A

When quantity demanded for a good falls because its price rises (shown by a movement up the demand curve)

138
Q

Extension of demand

A

When quantity demanded for a good increases because its price falls (shown by movement down the demand curve)

139
Q

Law of diminishing marginal utility

A

The value or utility that individual consumers gain from the last product consumed falls the greater the number consumed

140
Q

Arc price elasticity of demand

A

The price elasticity of demand between two points on the demand curve

141
Q

Point price elasticity of demand

A

The price elasticity of demand at a point on the demand curve measuring an infinitely small change in price

142
Q

Total expenditure

A

Quantity bought times the average price of the product

143
Q

Total revenue

A

Quantity sold times the average price of product

144
Q

Conditions of supply

A

Factors other than price which lead to changes in supply and are associated with shifts in the supply curve

145
Q

Individual supply curve

A

The supply curve of an individual producer

146
Q

Long run

A

The period of time when all factor inputs can be varied but the state of technology remains constant

147
Q

Market supply curve

A

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)

148
Q

Supply

A

The quantity of goods that suppliers are willing to sell at any given price over a period of time

149
Q

Elasticity of demand for labour

A

The responsiveness of the quantity demanded of labour to changes in the price of labour, the wage rate

150
Q

Marginal physical product

A

The physical addition to output of an extra unit of variable factor of production

151
Q

Marginal revenue product

A

The value of the physical addition to output of an extra unit of a variable factor of production

152
Q

Total physical product

A

The total output of a given quantity of factors of production

153
Q

Unit labour cost

A

The cost of employing labour per unit of output or production

154
Q

Activity or participation rates

A

The percentage or proportion of any given population in the labour force

155
Q

Economically active

A

The number of workers in the workforce who are in a job or are unemployed

156
Q

Net migration

A

Immigration minus emigration

157
Q

Population of working age

A

Size of the population aged between the school leaving age and the state retirement age

158
Q

Workforce or labour force or working population

A

Those economically active and therefore in work or seeking work

159
Q

Workforce jobs

A

The number of workers in employment (excludes the unemployed)

160
Q

Bilateral monopoly

A

When a single buyer faces a single seller in a market

161
Q

Collective bargaining

A

When trade unions bargain with employers on behalf of their members

162
Q

Individual bargaining

A

When an individual worker bargains with an individual employer over pay and conditions of work

163
Q

Productivity bargaining

A

When pay negotiations take place centres on increases in labour productivity and how they should be rewarded in higher pay

164
Q

Complete market failure

A

When a market fails to supply any of a good which is demanded, creating a missing market

165
Q

Missing market

A

A market where the market mechanism fails to supply any of a good

166
Q

Partial market failure

A

When a market for a good exists but there is overproduction or underproduction of the good

167
Q

Imperfect information

A

When buyers and sellers or both lack information to make an informed decision to make an informed decision

168
Q

Information failure

A

When buyers or sellers or both don’t have information that is available to make a decision

169
Q

Moral hazard

A

When an economic agent makes a decision in their own interest knowing that there are potential adverse risks, and that if problems result, the cost will be partly borne by other economic agents

170
Q

Transfer earnings

A

The minimum income a worker needs in order to supply their labour

171
Q

Economic rent

A

The extra income a worker receives – above the minimum level they need in order to work (income earned from a factor of production which is greater than the minimum necessary to bring the factor of production into operation)

172
Q

Which factors shift the demand curve?

A

1) Price of related goods or services (i.e. substitutes and compliments)
2) Income of the buyer
3) Tastes or preferences of the buyer
4) The expectation of the buyer (especially about future prices)

173
Q

Prospect Theory

A

1) Faced with a risky choice leading to gains, individuals are risk-averse, preferring solutions that lead to a lower expected utility but with a higher certainty (concave value function) but when faced with a risky choice leading to losses, individuals are risk-seeking, preferring solutions that lead to a lower expected utility as long as it has the potential to avoid losses (convex value function)
2) People attribute excessive weight to events with low probabilities and insufficient weight to events with high probability

174
Q

Who developed the Prospect Theory?

A

Daniel Kahneman

175
Q

Who developed the concept of bounded rationality?

A

Herbert Simon

176
Q

Selective rationality

A

People sometimes choose not to take into account all the information available

177
Q

Who developed the concept of selective rationality?

A

Harvey Leibenstein

Economics A-Level (10 decks)

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