Microeconomics Booklet 1 Flashcards
What is the basic economics problem?
Unlimited needs and want but limited resources available.
What is a utility?
Benefit from consuming a good or service.
Why don’t people maximise utility?
1) Information failure - lack of information.
2) Affordability - may not be affordable.
3) Altruism - Acting out of concern for others.
What is a positive statement?
One based on fact, can be tested.
What is a normative statement?
Involves value judgement, cannot be tested.
What is a free-market economy?
Resources allocated through markets.
What is a mixed economy?
Markets allocate some resources, whilst the government also allocate some.
What is a planned economy?
Government allocate resources.
What are the factors of production?
1) Capital - man-made aid to production.
2) Enterprise - someone taking a risk.
3) Land - natural resources.
4) Labour - physical/ mental effort from workers.
What is a durable good?
A good that can be re-used.
What is a non-durable good?
Can only be used once.
What does a production possibility frontier show?
All the possible combinations of 2 types of output an economy can produce.
What does it mean if the points are on the curve?
They are productively efficient.
What is trade-off?
A situation where an improvement in one variable leads to a deterioration of another.
What is opportunity cost?
The benefits of the next best alternative foregone.
What does it mean if a point is inside the production productivity frontier?
It is productively inefficient. This is because the resources are not achieving the maximum use of productivity.
How do you calculate productivity?
Total output per time period divided by number of units of factor of production.
How do you work out average cost?
Total cost divided by number of units of output.
What is technical efficiency?
That the maximum possible amount of output is being produced for a given level of inputs.
What is allocative efficiency?
The economy is producing the combination of output that maximises consumer welfare.
What is pareto efficiency?
A situation where nobody can be made better off without someone else being made worse off.
What is statically efficient and dynamically efficient?
If a firm or economy is becoming more efficient over time.
What is X-inefficiency?
Markets that are uncompetitive, dominant firms lack the incentive to minimise their cost because they have the ability to increase prices.
What is meant by division of labour?
Production is divided into a number of different stages and workers only do one of the tasks.
Drawbacks of division of labour?
1) Environmental damage
2) Unemployment
3) Boredom
4) Mental health
What is productivity?
The amount of output produced per unit of an input.
What is a rational utility-maximiser?
Someone who acts rationally to maximise their own welfare.
