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Economics Definitions > Microeconomics and Intro > Flashcards

Microeconomics and Intro Flashcards

1
Q

Scarcity

A

Resources and factors of production are finite while human wants and needs are finite. There are not enough resources to produce everything that is necessary to satisfy human beings’ needs and wants completely.

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2
Q

Choice

A

An act of selecting between two or more possibilities; choice is necessary when scarcity requires decisions about how to use resources to meet needs and wants

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3
Q

Efficiency

A

Improved resource use; producing the same good with fewer resources

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4
Q

Equity

A

The concept of fairness or evenness

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5
Q

Economic well-being

A

Multidimensional concept: quality of life, with material, relational and subjective dimensions

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6
Q

Sustainability

A

The ability of the present generation to meet its needs without compromising the ability of future generations to meet their own needs

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7
Q

Change

A

The process or act of becoming different

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8
Q

Interdependence

A

When two or more individuals are mutually reliant on one another to survive or thrive

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9
Q

Intervention

A

When the government intervenes in the market to solve market failure

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10
Q

Resources/factors of production

A

All the inputs used to produce goods and services (machines, workers, space, materials)

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11
Q

Land

A

Land itself, everything that is under and above the land and everything that is found in and under the sea. Natural resources - eg minerals, oil reserves, natural gas, forests, rivers and lakes.

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12
Q

Labour

A

The human factor needed for production - physical and mental effort that people contribute to the production of goods and services.

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13
Q

Capital

A

Physical capital stock used to produce goods and services - manufactured resources (eg machines, factories, roads and tools), capital goods and investment goods

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14
Q

Entrepreneurship

A

Entrepreneur carries out the following tasks: starting up a business, employing and organising FOPs, risk taking
A special human skill - ability to develop new businesses by organising the 3 other factors of production to produce goods and services

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15
Q

Opportunity cost

A

The next best alternative that is given up when an economic division is made

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16
Q

PPC

A

Production possibility curve - a model that illustrates all the maximum possible combinations of producing 2 goods in an imaginary economy, using the resources and technology available to the economy at that point in time.

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17
Q

Free market economy

A

A rationing system where all economic decisions are taken by consumers and producers through the price mechanism without government intervention, and resources are privately owned by people and firms.

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18
Q

Centralised economy

A

A rationing system where all economic decisions are taken at the centre by the government. There is no private property; all resources are owned by the state. Also called ‘centrally planned economy’.

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19
Q

Utility

A

A measure of satisfaction of usefulness a consumer received when they consume a product

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20
Q

Primary commodities

A

A commodity is a primary good, and is an important input to production. Oil, iron ore and timber are all examples of commodities.

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21
Q

Manufactured goods

A

Human-made goods that have been produced from raw materials transformed through a production process.

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22
Q

Microeconomics

A

The area of economics that studies the behaviour of individual economic agents, such as households, firms, industries and the government, and how they make economic decisions

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23
Q

Demand

A

The quantity of a good or service that consumers are willing and able to purchase at various prices during a specific time period, ceteris paribus.

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24
Q

Complements

A

Goods that are usually consumed together (joint demand), such that one good has little use without the other (eg tennis ball and racket)

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25
Q

Substitutes

A

Goods that have very similar characteristics and uses to consumers so that they switch between them easily

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26
Q

Supply

A

The quantity of goods and services that producers are willing and able to offer at various prices during a given time period, ceteris paribus.

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27
Q

Joint supply

A

When two or more goods are derived from the same product, so it isn’t feasible to produce more of one without producing more of the other. Typically a ‘main’ product and a by-product.

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28
Q

By-product

A

A secondary product made during the production of something else

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29
Q

Price gouging

A

Charging an abnormally high price for a good/service, usually to take advantage of extreme changes in demand that occur in exceptional situations (eg demand for food after natural disaster)

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30
Q

Dumping

A

When a firm exports their goods at a price below production cost or below price charged in the home market, often to get rid of surplus supply or gain foothold in a new market

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31
Q

Competitive supply

A

When the production of two goods use similar resources and processes. Producing more of one product means producing less of the other.

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32
Q

Economies of scale

A

A firm’s ability to produce with lower average costs when they grow in size

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33
Q

Equilibrium

A

A state at which the quantity demanded equals the quantity supplied, set at the equilibrium price, which results from the interaction between consumers and producers in markets where there are no surpluses or shortages and the market has cleared
The point where supply curve crosses demand curve

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34
Q

Disequilibrium

A

A state where quantity demanded does not exactly equal quantity supplied, due to changes in the external environment (non-price determinants)

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35
Q

Non-price determinants

A

All factors affecting demand/supply other than the price, causing the entire curve to shift

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36
Q

Shortage

A

Excess demand: when the quantity demanded is greater than the quantity supplied; occurs when the price in the market is below the equilibrium price

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37
Q

Surplus

A

Excess supply: when the quantity demanded is less than the quantity supplied; occurs when the price in the market is above the equilibrium price

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38
Q

Price mechanism

A

The way in which changes in price affect quantity demanded and quantity supplied, thus determining how scarce resources are allocated in an economy

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39
Q

Signal/signalling

A

A function of the price mechanism - info to consumers and producers about what should be consumed and produced (eg the price the good is sold at)

40
Q

Incentives

A

Where motivation is provided to consumers and producers to reallocate resources in a market (eg due to rise/fall in prices)

41
Q

Rationing

A

The controlled distribution of resources, to determine who can buy certain goods in a market (eg those who can pay, first come first served, etc)

42
Q

Community surplus

A

The sum of consumer and producer surplus - total benefit gained by society when the market is at equilibrium

43
Q

Producer surplus

A

The difference between the lowest price producers are willing and able to offer the good at and the actual price they receive for it. It is the extra benefit that producers receive from selling an amount of output at a higher price than the one at which they were prepared to sell it/
Triangle above supply curve, below equilibrium price

44
Q

Consumer surplus

A

The difference between the highest price consumers are willing and able to pay for a good and the actual price they pay; extra benefit they receive for paying lower than what they were prepared to
Triangle below demand curve, above equilibrium price

45
Q

Productive efficiency

A

Producing goods by using the fewest possible resources (lowest possible cost of production)

46
Q

Allocative efficiency

A

Producing the optimal combination of goods from society’s point of view; when resources are allocated in such a way that no one can be better off without making someone else worse off
Benefits to society are maximised

47
Q

Allocative inefficiency

A

A situation in which community surplus is not maximised

48
Q

Elasticity of demand

A

A measure of the responsiveness of the quantity demanded of a good/service to changes in one of the factors that determines it

49
Q

Price elasticity of demand (PED)

A

A measure of how much the quantity demanded of a good changes when there is a change in its own price
%ΔQd/%ΔP

50
Q

Income elasticity of demand (YED)

A

A measure of how much the quantity demanded of a good will change in response to a change in consumers’ income
%ΔQ/%ΔY
Can be both positive/negative - normal/inferior goods

51
Q

Normal good

A

Goods whose demand increases as people’s incomes increase

52
Q

Inferior good

A

Goods whose demand increases as people’s incomes decrease

53
Q

Price elasticity of supply

A

A measure of how much the quantity supplied of a good changes when there is a change in its own price
%ΔQs/%ΔP

54
Q

Relatively elastic

A

When the change in price/income leads to a very responsive change in quantity demanded/supplied

55
Q

Relatively inelastic

A

When a change in price of a good leads to a proportionally smaller change in quantity demanded/supplied

56
Q

Perfectly elastic

A

A situation where the percentage change in price would lead to an infinite change in quantity demanded/supplied (horizontal)

57
Q

Perfectly inelastic

A

When the quantity demanded/supplied is not responsive at all to changes in price (vertical line)

58
Q

Unitary elasticity

A

A situation where the percentage change in price leads to an equal change in quantity supplied/demanded

59
Q

Luxury good

A

A good or service whose quantity demanded changes a lot in response to a price change because consumers consider it non-essential

60
Q

Necessity

A

A good or service whose quantity demanded doesn’t change much in response to a price change because consumers consider it essential

61
Q

Government intervention

A

When the government interferes with the market forces that allocate resources in the economy

62
Q

Price controls

A

A form of government intervention - price floors and ceilings - that dictate the price at which a good can be sold in the market

63
Q

Price ceiling

A

A maximum price set by the government that is set below the equilibrium price to prevent producers from selling their product above it

64
Q

Price floor

A

A minimum price set by the government that are set above the equilibrium price to prevent producers from selling their product below it

65
Q

Black market

A

Can be a consequence of price ceilings and floors when there are people who are willing and able to pay higher prices that the legally set maximum price, or willing and able to sell at a lower price than the legally set minimum price

66
Q

Tax

A

Payments that have to be made to the government which is then uses to provide public and merit goods to society

67
Q

Indirect tax (excise tax)

A

Taxes that are not charged directly on people’s incomes or wealth, but are instead paid indirectly by consumers when they purchase a good (taxes are included in the price of the good)
Taxes that aim to discourage the consumption of particular goods (demerit)

68
Q

Specific tax

A

An indirect tax that is a fixed amount imposed on a good or service per unit sold

69
Q

Percentage/ad valorem tax

A

An indirect tax that is a fixed percentage changed on the selling price of the good. The amount of tax increases as the price of the good or service increases

70
Q

Subsidy

A

Per-unit payments that are used to lower production costs and increase the output of the market, granted by the government to a firm/industry

71
Q

Regulation

A

A regulatory body that exists to monitor or regular an industry

72
Q

Legislation

A

The laws set out by legislative bodies

73
Q

Market failure

A

When there is an inefficient allocation of resources resulting from the presence of externalities, MSB ≠ MSC

74
Q

Welfare/deadweight loss

A

The loss of community surplus that is the result of government intervention or market failure

75
Q

Negative externality of consumption

A

When the consumption of a good or service generates a negative effect on a third party or society, which has not been factored into the calculation when deciding to consume that good

76
Q

Positive externality of consumption

A

When the consumption of a good or service generates a positive effect on a third party or society, which has not been factored into the costs of consumption

77
Q

Negative externality of production

A

When the production of a good or service generates a negative effect on a third party or on society as a whole, which has not been factored into the costs of producing the good

78
Q

Positive externality of production

A

When the production of a good or service generates a positive effect on a third party or on society as a whole, which has not been factored into the costs of producing the good

79
Q

Marginal social cost

A

The extra cost to society of producing one more unit of output (both private and external costs)

80
Q

Marginal social benefit

A

The extra benefit/utility to society of consuming one more unit of output (both private and external benefits)

81
Q

Marginal private cost

A

The extra cost to a firm of producing one more unit of output (private costs)

82
Q

Marginal private benefit

A

The extra benefit/utility to an individual of consuming one more unit of output (private benefits)

83
Q

Pigouvian tax

A

Indirect taxes used to reduce the consumption of a demerit good, to resolve negative externalities

84
Q

Merit good

A

Goods that are beneficial to the individual and society as a whole, and are usually under-provided in a free market

85
Q

Demerit good

A

Goods that have negative effects when consumed and cause negative externalities of consumption

86
Q

Carbon tax

A

A method of reducing the level of CO2 emitted from burning fossil fuels; the level of tax varies according to the amount of carbon each fuel contains (fuel w/ more carbon are taxed at higher rates)

87
Q

Emissions trading/
cap and trade schemes

A

Imposing of a cap/limit on total amount of CO2 that producers can release into the atmosphere; permits are distributed to producers, which can be bought and sold in the market

88
Q

Common pool resources

A

Rivalrous but non-excludable (eg fish in the sea)

89
Q

Private good

A

Goods and services that are rivalrous and excludable

90
Q

Public good

A

Goods that are necessary and beneficial for society, but are both non-excludable and non-rivalrous, and are thus not provided by the free market. All public gods are merit goods.
Non-excludable: no individual can be excluded from consuming it (ie can’t make them pay)
Non-rivalrous: one individual’s consumption doesn’t prevent/limit another consumer from consuming it at the same time

91
Q

Free rider problem

A

When a non-excludable good will not be produced by the free market because no one is willing to pay for it, and they think someone else will pay for it

92
Q

Quasi-public good

A

Goods that only exhibit one of the two characteristics of public goods, either non-rivalry or non-excludability, but not both (club goods and common pool resources)

93
Q

Club good

A

Excludable but non-rivalrous (eg movie theatre, toll highway, netflix subscription)

94
Q

Exclusive

A

The condition that occurs when someone can be prevented from consuming a good or service

95
Q

Rivalrous

A

The condition that occurs when someone consuming a good or service prevents someone else from consuming the good or service at the same time

Economics Definitions (3 decks)

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