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Economics > microeconomics definitions > Flashcards

microeconomics definitions Flashcards

1
Q

Allocative efficiency

A

: When economic resources are utilised to produce the combination of
goods and services that maximise economic welfare

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2
Q

Allocative price function

A

Prices allocate resources away from markets with excess supply
to markets with excess demand

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3
Q

Capital

A

Producer goods

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4
Q

Capital/producer goods

A

: Goods used in the production of other goods

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5
Q

Ceteris paribus

A

All other things being held constant

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6
Q

Choice

A

Selecting one of multiple alternatives when deciding how to allocate scarce
resources

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7
Q

Consumer good

A

Goods consumed by households & individuals, used to satisfy needs and
wants

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8
Q

Economic welfare

A

The economic satisfaction/wellbeing of individuals/households/groups in
an economy

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9
Q

Enterprise

A

The ability to utilise factors of production effectively

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10
Q

Factors of production

A

: Inputs of the production process, such as land, labour, capital and
enterprise

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11
Q

Finite resource

A

Non-renewable resource that becomes increasingly scarce.

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12
Q

Fundamental economic problem

A

: Deciding how to best allocate scarce resources to
maximise overall economic welfare

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13
Q

Imperfect information

A

When individuals lack the information to make the best decision

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14
Q

Incentive price function

A

Prices create incentives for people to adjust their economic transactions

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15
Q

Infrastructure

A

Facilities required for an economy to function

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16
Q

Labour

A

Workers with human capital

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17
Q

Land

A

Natural physical materials, as well as space for fixed capital

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18
Q

Need

A

Something necessary for human survival, e.g. food, shelter

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19
Q

Normative statement

A

Statements including value judgements, that cannot be easily
proved/disproved

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20
Q

Opportunity cost

A

Loss of other alternatives due to selecting one of a set of options.

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21
Q

Pareto efficiency

A

: State of resource allocation, where in order to make an economic agent
better off, another agent is made worse off

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22
Q

Positive statement

A

Statements including facts, that can easily be proved/disproved.

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23
Q

Production possibility frontier

A

A curve displaying the various possible combinations of two
products that can be produced with finite resources

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24
Q

Rationing price function

A

Prices rise to ration demand for goods

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25
Q

Renewable resource

A

Restorable resource that can be replenished

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26
Q

Scarcity

A

Resulting from the concept of infinite wants and needs, yet limited resources.

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27
Q

Signalling price function

A

Prices provide information to sellers and buyers, influencing
economic decisions

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28
Q

Trade

A

Buying and selling of goods and services

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29
Q

Value judgements

A

Statements that are subjective and based on opinion rather than factual
evidence

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30
Q

Want

A

Something desirable, yet not necessary for human survival

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31
Q

Bilateral monopoly

A

Market in which there is a single seller and a single buyer

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32
Q

Human capital

A

The economic value of an individual’s skills, experience, training, etc.

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33
Q

Labour exploitation

A

Employers benefiting from treating employees unfairly

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34
Q

Marginal physical product (MPP):

A

Additional output each unit of labour can produce.

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35
Q

Marginal productivity theory

A

Theory stating demand for labour is derived from MRP

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36
Q

Marginal revenue productivity (MRP):

A

Additional revenue derived per extra unit of labour.

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37
Q

Monopsony power

A

The ability to set prices based on bargaining power.

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38
Q

National minimum wage (NMW)

A

The legal minimum hourly wage set by the government.
This is age dependent.

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39
Q

Negative discrimination:

A

When employers undervalue the marginal revenue productivity of
a worker.

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40
Q

Positive discrimination

A

When employers overvalue the marginal revenue productivity of a
worker

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41
Q

Trade union

A

Organisation within or outside a firm campaigning for the rights of the workers.

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42
Q

Trade union wage gap

A

The difference in wages between those in a trade union and those
not in a trade union; an indicator of trade union power.

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43
Q

Wage differentials

A

: Differences in wages of different groups of workers, or workers in the
same occupation

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44
Q

Wage discrimination

A

Paying an employee lower wages because of their race, gender,
religion, disability, sexual orientation or some other ‘protected characteristic’

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45
Q

Anti-competitive behaviour

A

Business strategies employed to deliberately limit
contestability within markets

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46
Q

Artificial barrier to entry

A

Barriers to market entry that are man-made, i.e., non-natural.

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47
Q

Break even

A

The same as normal profit

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48
Q

Cartel

A

Formed by groups of producers when they illegally decide to collude and not
compete

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49
Q

Collective bargaining

A

When the members of a union act as a unit to increase bargaining
power when negotiating with employers

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50
Q

Collusion

A

Illegal cooperation between multiple firms, forming a cartel..

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51
Q

Concentrated market

A

: A market with very few (in its most extreme cases, 1) firms.

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52
Q

Concentration ratio

A

The total market share of the leading firms in an industry; these firms’
output as a percentage of total output.

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53
Q

Consumer surplus

A

Difference between the prices consumers are willing to pay and the
prices they actually pay

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54
Q

Contestability

A

Ease with which competitors can enter a market

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55
Q

Deadweight loss

A

Loss of social welfare derived from economic activity

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56
Q

Demerger

A

When a firm sells parts of its business to create separate smaller firms

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57
Q

Divorce of ownership and control

A

The process in which owners become increasingly
separated from those managing the business

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58
Q

Duopoly

A

Any market that is dominated by two organisations

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59
Q

Duopsony

A

Two major buyers of a good or service in a market

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60
Q

Dynamic efficiency

A

Improvements to efficiency in the long run, brought about by
investment into research and development

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61
Q

Entry barrier

A

Make it impossible/more difficult for firms to enter a market

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62
Q

Exit barrier:

A

Make it impossible/more difficult for firms to exit a market

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63
Q

Game theory

A

Where there are two or more interacting decision makers and different
(groups of) decisions lead to differing outcomes

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64
Q

Hit and run

A

Firms enter a market, make supernormal profits, then leave; possible due to
low barriers to entry and exit

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65
Q

Imperfect competition

A

Any market structure between the extremes of perfect competition
and a pure monopoly

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66
Q

Innovation

A

Improving upon an existing product or process

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67
Q

Interdependence

A

Where the actions of one firm influence the actions of other firms in the
market

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68
Q

Invention

A

Creation of a new product or process

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69
Q

Kinked demand curve

A

Assumes a business may face a dual demand curve for its product
based on the oligopoly market structure

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70
Q

Limit pricing

A

Lowering the price of a good or service to around average cost, creating an
artificial barrier to entry

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71
Q

Market share maximisation

A

When a firm maximises their percentage share of the market
in which it sells its product.

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72
Q

Market structure

A

The characteristics of a market.

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73
Q

Merger

A

Multiple firms uniting to form one larger firm

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74
Q

Monopoly

A

Market with only one supplier/ one dominant supplier

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75
Q

Monopoly power

A

The ability of a firm to be a price maker rather than a price taker; the
ability to set prices

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76
Q

Monopsony

A

Market with only one consumer/ one dominant consumer

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77
Q

Natural barrier to entry

A

Barriers to market entry that are not man-made.

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78
Q

Natural monopoly

A

When the ideal number of firms in an industry is 1

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79
Q

Oligopoly

A

Market dominated by a few firms.

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80
Q

Patent

A

Government legislation protecting a firm’s right to be the sole producer of a good

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81
Q

Predatory pricing

A

Temporarily lowering a good’s price below average cost, creating an
artificial barrier to entry

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82
Q

Price competition

A

Reducing the price of a product, thus stripping demand from
competitors

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83
Q

Price discrimination

A

When a firm charges different prices to different groups of consumers
for the same good

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84
Q

Price leadership

A

The dominant firm in the market sets the price and less dominant firms
alter their prices accordingly

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85
Q

Price maker

A

A firm with monopoly power; the ability to set prices.

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86
Q

Price taker

A

A firm that passively accepts the market price, set by forces beyond the firm’s
control

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87
Q

Price war

A

Where multiple firms cut prices, each firm trying to undercut its competitors and
gain market demand

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88
Q

Principal-agent problem

A

Where those in control of a firm (agents), act in their own best
interest, rather than that of the owners (principals)

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89
Q

Producer surplus

A

Difference between the prices producers are willing to accept and the
prices they actually accept

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90
Q

Product differentiation

A

Differences between multiple similar goods and services

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91
Q

Profit maximisation

A

Occurs where the positive difference between total revenue and total
costs is at its highest

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92
Q

Pure monopoly

A

Only one firm in a market

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93
Q

Sales maximisation

A

When sales revenue is at its highest

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94
Q

Satisficing

A

Due to conflicts of interests, managers often run films to make the minimum
level of acceptable profit (as specified by owners)

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95
Q

Shareholder

A

Economic agents concerned on the growth of the firm for monetary reasons

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96
Q

Stakeholder

A

Economic agents concerned on the growth of the firm for not necessarily
monetary reasons

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97
Q

Static efficiency

A

Efficiency in the short run

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98
Q

Takeover

A

When a firm buys another firm, with the latter becoming a part of the former

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99
Q

Ad valorem taxes

A

Taxes that are a percentage of price

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100
Q

Asymmetric information

A

When one party knows more or has better information than the
other party in a transaction e.g a patient and doctor

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101
Q

Competition and Markets Authority (CMA)

A

Government department in the UK that aims
to reduce anti-competitive strategies

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102
Q

Competition policy

A

Government intervention that reduces monopoly power and introduces
competition to reduce consumer exploitation

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103
Q

Complete market failure

A

Occurs when there is a missing market

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104
Q

Consumption externality

A

An externality (which may be positive or negative) generated
through consumption of a good or service

105
Q

Demerit good

A

: Goods where the social costs in consumption exceed the private costs in
consumption

106
Q

Department for Business, Innovation and Skills (BIS)

A

An organisation that aims to
enhance UK industry performance

107
Q

Deregulate

A

To reduce the amount an industry is regulated

108
Q

Economic welfare

A

: Quality of life of a population

109
Q

EU directories

A

Set of checks that EU members must pass, ensuring all members have
similar or the same legislation

110
Q

EU regulations

A

Set of laws all EU members must comply with

111
Q

Externality

A

External effects imposed on society derived from the production or consumption
of a good or service

112
Q

Free rider problem

A

Once a public good is produced, there is no way to control who
benefits from it

113
Q

Geographical immobility of labour

A

Occurs where workers find it difficult to relocate to
places where jobs exist e.g housing costs

114
Q

Government failure

A

Where government intervention leads to a lessening of economic
welfare and a misallocation of resources

115
Q

Government intervention

A

When a government actively intervenes and affects market
operation

116
Q

Immobility of factors of production

A

: When it is hard for factors of production to move
across different areas within the economy

117
Q

Immobility of labour

A

The inability of labour to move from one occupation to another. There
are two main types, geographical and occupational

118
Q

Imperfect information

A

When an economic agent does not hold all the necessary
information to make an informed decision about a product

119
Q

Incentive

A

Something that motivates an agent in the economy

120
Q

Income Inequality

A

Differences in size of earnings between households/individuals

121
Q

Market distortions

A

Where interference in a market affects behaviour and prices/output

122
Q

Market economy

A

Where output and prices are determined by the workings of supply and
demand

123
Q

Market failure

A

Occurs when the market mechanism leads to a misallocation of resources.

124
Q

Merit good

A

Goods where the social costs in consumption deceed the private costs in
consumption

125
Q

Misallocation of resources

A

Resources are not distributed optimally

126
Q

Nationalise

A

To convert from private ownership to public (government) ownership

127
Q

Negative externality

A

Negative external effects imposed on society derived from the
production or consumption of a good or service

128
Q

Non-excludable

A

A good or service where you are unable to prevent non-paying consumers
from benefiting or using the good

129
Q

Non-rival

A

Where one person’s consumption of a good or service does not decrease the
amount available for consumption by another consumer

130
Q

Occupational immobility of labour

A

Occurs where workers find it difficult to transfer
between different occupations due to a lack of transferable skills

131
Q

Outsourcing

A

When a private sector firm bids to offer a public service

132
Q

Partial market failure

A

Occurs when the market is producing a good or service, but at the
wrong quantity or price

133
Q

Penalties

A

Fines or other forms of punishment that make producing output less profitable

134
Q

Positive externality

A

Positive external effects imposed on society derived from the
production or consumption of a good or service

135
Q

Price ceiling

A

A price above which trade is illegal

136
Q

Price controls

A

Government controls on prices e.g maximum or minimum prices

137
Q

Price floor

A

A price below which trade is illegal

138
Q

Price mechanism

A

The way in which prices are determined through forces of supply and
demand

139
Q

Private benefit

A

Benefits incurred to the individual through consumption or production

140
Q

Private cost

A

Costs incurred to the individual through consumption or production

141
Q

Private good

A

An excludable, rival good

142
Q

Privatise

A

To convert from public (government) ownership to private ownership

143
Q

Production externality

A

An externality (which may be positive or negative) generated
through production of a good or service

144
Q

Productivity gap

A

Difference between productivity of UK labour and other countries’ labour

145
Q

Productivity gap

A

Difference between productivity of UK labour and other countries’ labour

146
Q

Property right

A

Legal ownership of a resource.

147
Q

Public good

A

A non-excludable, non-rival good

148
Q

Public sector

A

The part of the government financed by and controlled by the government

149
Q

Quasi-public good

A

A good that is not fully non-rival and/or not fully non-excludable

150
Q

Rationing

A

Limiting the amount or quantity of a good

151
Q

Regulation

A

Imposing policies, rules, laws, constraints, etc.

152
Q

Regulatory capture

A

Regulatory bodies become dominated by the industries in which they
were regulating, leading to a decrease in economic welfare

153
Q

Resource misallocation

A

When resources are allocated in a way that doesn’t maximise
economic welfare

154
Q

Signalling

A

Where a change in the price of goods or services that show that supply or
demand should be adjusted

155
Q

Social benefits

A

The sum of private benefits and external benefits

156
Q

Social cost

A

The sum of private costs and external costs

157
Q

Specific taxes

A

Taxes that are a set price per unit

158
Q

State provision

A

Where the government provides a good or service

159
Q

Subsidy

A

Payment made by the government (or other authority) to incentivise production of
a good

160
Q

Tax

A

Compulsory levy imposed by the government to de-incentivise production of a good

161
Q

Unintended consequences

A

When the actions of people or a government have
consequences that were not anticipated

162
Q

Vouchers

A

Allowances to utilise goods or services at a discount rate

163
Q

Absolute poverty

A

When a person doesn’t have enough income to fulfil basic needs

164
Q

Distribution of income and wealth

A

The way in which total income and wealth are divided
among the population of the economy

165
Q

Earnings trap

A

Situations where the more an individual earns, the less they are entitled to,
making it hard to escape poverty

166
Q

Equity

A

Fairness, justness. Involves value judgements

167
Q

Fiscal drag

A

As wages rise, a higher proportion of income is paid in tax

168
Q

Gini coefficient

A

Measures income or wealth inequality; maximum inequality is 1.

169
Q

Horizontal equity

A

People in identical circumstances are treated equally

170
Q

Hysteresis

A

Effects that persist even after the initial causes giving rise to the effects are
removed

171
Q

Inequity

A

Unfairness, unjustness. Involves value judgements

172
Q

Kuznets hypothesis

A

Theory that as an economy grows, inequality is initially increased,
then decreased

173
Q

Lorenz curve

A

Can be used to illustrate and measure distributive inequalities

174
Q

Means tested benefits

A

Entitlement to certain benefits depends on whether the income or
wealth of an individual is below a certain level

175
Q

Poverty trap

A

Where a rise in income leads to a decrease in eligibility in benefits, forcing
individuals deeper into poverty.

176
Q

Vertical equity

A

People in different circumstances are treated unequally yet fairly

177
Q

Automation

A

Automatic control; the process by which machines control other machines

178
Q

Average cost

A

Total production cost divided by total output (cost per unit of output)

179
Q

Average revenue

A

Total revenue divided by total output (revenue per unit of output)

180
Q

Capital productivity

A

Output per unit of capital

181
Q

Constant returns to scale

A

When output increases by an equal proportion the increase in
inputs

182
Q

Decreasing returns to scale

A

When output increases by a smaller proportion than the
increase in inputs

183
Q

Diseconomies of scale

A

When long-run average costs rise as output rises

184
Q

Division of labour

A

Different workers performing different tasks in a good’s/services’
production, specialising to an extent

185
Q

Economies of scope

A

When it is cheaper to make a range of products

186
Q

Economy of scale

A

When long-run average costs fall as output rises

187
Q

External economy of scale

A

Firms saving resulting from growth of the industry a firm is part
of

188
Q

Fixed cost

A

Costs of production that do not vary with output, only in the short run

189
Q

Increasing returns to scale

A

When output increases by a larger proportion than the
increase in inputs

190
Q

Internal economy of scale

A

Firms saving resulting from growth of the firm itself

191
Q

Labour productivity

A

Output per worker

192
Q

Law of diminishing returns

A

sloped demand curve

193
Q

Long run

A

Time period in which none of the factors of production are fixed, and all can be
varied

194
Q

Long-run average cost

A

Long-run total cost per unit of output

195
Q

Long-run production

A

When a firm changes the scale of all factors of production

196
Q

Mechanisation

A

When a firm transfers from becoming more labour intensive to becoming
more capital intensive

197
Q

Minimum efficient scale (MES)

A

The lowest level of output at which average costs are
minimised. Dependent on the market structure as well as barriers to entry

198
Q

Normal profit

A

Total revenue equals total costs; the minimum profit required to keep a firm
operating in an industry

199
Q

Operating costs

A

Same as variable costs

200
Q

Overheads

A

Same as fixed costs

201
Q

Production

A

A set of processes that converts inputs into outputs

202
Q

Productive efficiency

A

Minimised average total cost

203
Q

Productivity

A

Output per unit of input

204
Q

Profit

A

Total revenue subtract total costs

205
Q

Rate of return

A

Income received from an investment

206
Q

Returns to scale

A

The scale by which a firm’s output changes as the scale of all inputs are
altered

207
Q

Short run

A

Time period in which at least one of the factors of production are fixed and cannot
be varied

208
Q

Specialisation

A

A worker only performing a specific task or a small range of tasks

209
Q

Sunk cost

A

Non-recoverable costs of entering a market

210
Q

Supernormal (abnormal) profit

A

Any level of profit over and above normal profit

211
Q

Technical economy of scale

A

Cost saving through changing the production process

212
Q

Total cost

A

Total fixed cost added to total variable cost

213
Q

Total revenue

A

Price of each good, multiplied by quantity sold

214
Q

Variable cost

A

Costs incurred when paying for the variable factors of production

215
Q

X-inefficiency

A

When a firm lacks the incentive to control costs. This causes the average
cost of production to be higher than necessary

216
Q

Competing supply

A

When resources can be used to produce one good OR another good,
not both

217
Q

Competitive markets

A

A market with large numbers of buyers and sellers, with low barriers
to entry and exit

218
Q

Complementary goods

A

Goods in joint demand; these goods are often bought together, e.g.
printers and ink cartridges

219
Q

Composite demand

A

Demand for a multi-purpose good

220
Q

Condition of demand

A

A determinant of demand other than the good’s price, that sets the
position of the good’s demand curve

221
Q

Condition of supply

A

A determinant of supply other than the good’s price, that sets the
position of the good’s supply curve

222
Q

Customer sovereignty

A

Consumers can collectively govern production in a market via
exercising spending power. Strongest in perfectly competitive markets

223
Q

Cross elasticity of demand (XED)

A

Measures the responsiveness of a good’s demand to a
change in the price of a different good

224
Q

Demand

A

The quantity of a good or service that a consumer is willing and able to buy at a
given price, at a given time

225
Q

Derived demand

A

Demand for a good that is the input of another good

226
Q

Disequilibrium

A

Excess supply or demand in a market

227
Q

Effective demand

A

Desire for a good or service that is backed by the ability to pay for said
good or service

228
Q

Elasticity

A

The proportionate responsiveness of a second variable to a change in a first
variable

229
Q

Equilibrium

A

No excess supply or demand in a market; a state of balance between opposing forces.

230
Q

Equilibrium price

A

The price where planned demand matches planned supply

231
Q

Excess demand

A

When consumers want to buy more than producers are willing to sell;
occurs below equilibrium price

232
Q

Excess supply

A

When producers want to sell more than consumers are willing to buy;
occurs above equilibrium price

233
Q

Exchange

A

Trading objects of value, utilising media of exchange e.g. money.

234
Q

Income elasticity of demand (YED)

A

Measures the responsiveness of a good’s demand to
a change in the incomes of consumers

235
Q

Inferior good

A

A good for which demand rises as incomes fall

236
Q

Joint supply

A

When one good is produced, another good is also produced from the same
raw materials

237
Q

Normal good

A

A good for which demand rises as incomes rise

238
Q

Normal good

A

A good for which demand rises as incomes rise

239
Q

Price elasticity of supply

A

Measures the responsiveness of a good’s supply to a change in
price

240
Q

Producer sovereignty

A

Producers determine what is produced and the prices charged.

241
Q

Substitute good

A

A good in competing demand; a good that can be used in place of another
similar good

242
Q

Supply

A

The quantity of a good or service that a producer is willing and able to sell at a given
price, at a given time

243
Q

Altruism

A

The selfless and disinterested concern towards the wellbeing of others

244
Q

Anchoring bias

A

Individuals tend to rely on the first piece of information they are given

245
Q

Asymmetric information

A

When one party (buyers or sellers) has more information than the
other in an economic transaction

246
Q

Availability bias

A

Individuals base the likeliness of future events occurring on past events

247
Q

Behavioural economics

A

Branch of economics that incorporates psychological insights to
understand human economic decision making

248
Q

Bounded rationality

A

Individuals’ inability to make rational economic decision making due to
imperfect information, time constraints and limited mental processing ability

249
Q

Bounded self control

A

Individuals’ inability to make rational economic decision making due
to inability to control themselves

250
Q

Choice architecture

A

A framework illustrating the effects of presenting choices in different
ways

251
Q

Economic man (Homo economicus)

A

A hypothetical person who behaves in exact
accordance with their rational self-interest

252
Q

Heuristics

A

Rules of thumb

253
Q

Hyperbolic discounting

A

Individuals tend to base the value of rewards on the amount of
time taken to acquire the reward (longer waits, less valuable)

254
Q

Perfect information

A

When both buyers and sellers have full knowledge of goods and
services in a market

255
Q

Risk aversion

A

Individuals tend to value losses more than commensurate gains

256
Q

Symmetric information

A

: Where consumers and producers have sufficient information to
make rational decisions

257
Q

Utility

A

Benefit, wellbeing, welfare or satisfaction gained from consumption of a good or
service.

258
Q

Utility maximisation

A

When consumers aim to make their personal welfare as high as
possible.

Economics (38 decks)

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