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A Level Economics > Microeconomics Key Words > Flashcards

Microeconomics Key Words Flashcards

1
Q

Abnormal profit

A

Profits above normal profits

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2
Q

Allocative efficiency

A

Achieved when society is producing the appropriate amount of goods and services relative to consumer preferences

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3
Q

Arbitrage

A

A process by which prices in two market segments will be equalised as a result of purchase and resale by market participants

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4
Q

Average cost

A

Total cost divided by the quantity produced; sometimes known as unit cost

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5
Q

Average revenue

A

The revenue received by a firm per unit of output; it is total revenue divided by the quantity sold

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6
Q

Barrier to entry

A

A characteristics of a market that prevents new firms from readily joining the market

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7
Q

Budget line

A

Shows the boundary of an individual’s consumption set, given the amount available to spend and the prices of the goods

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8
Q

Cartel

A

An agreement between firms on price and output with the intention of maximising joint profits

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9
Q

Competition policy

A

An area of economic policy designed to promote competition within markets to encourage efficiency and protect consumer interests

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10
Q

Conglomerate merger

A

A merger between two firms operating in different markets

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11
Q

Constant returns to scale

A

Found when long run average costs remains constant with an increase in output - in other words, when output and costs rise at the same rate

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12
Q

Contestable market

A

A market in which the existing firm makes only normal profit as it cannot set price higher than average cost without attracting entry, owing to the absence of barriers to entry and sunk costs

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13
Q

Corporate social responsibility

A

Actions that firms take in order to demonstrate its commitment to behaving in the public interest

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14
Q

Dependency ratio

A

The ratio of those aged 15 and under and 65 and above to the working population

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15
Q

Derived demand

A

D mans for a good not for its own sake, but for what it produces

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16
Q

Discount

A

A process where by the future valuation of a cost or benefit it reduced (discounted) in order to provide an estimate of its present value

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17
Q

Discrimination

A

A situation in a labour market where some people receive lower wages that cannot be explained by economic factors

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18
Q

Diseconomies of scale

A

Occur for a firm when an increase in the scale of production leads to higher long run average costs

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19
Q

Dominant strategy

A

A situation in game theory where a player’s best strategy is independent of those chosen by others

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20
Q

Dynamic efficiency

A

A view of efficiency that takes into account the effect of innovation and technical progress on productive and allocative efficiency in the long run

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21
Q

Economic rent

A

A payment received by a factor of production over and above what would be needed to keep it in its present use

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22
Q

Economically active

A

Active in the labour force, including employed, the self-employed and the unemployed

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23
Q

Economies of scale

A

Occur for a firm when an increase in the scale of production leads to production at lower long run average costs

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24
Q

Economies of scope

A

Economies arising when average costs fall as a firm increases output across a range of different products

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25
Q

Environmental Kuznets curve

A

A relationship between economic growth and environmental degradation, under which environmental degradation at first increases as an economy expands, but then may improve at higher average income levels

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26
Q

Equi-marginal principle

A

A consumer does best in utility terms by consuming at the point where the ratio of marginal utilities from two goods is equal to the ratio of their prices

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27
Q

External economies of scale

A

Economies of scale that arise fro. The expansion of the industry in which a firm is operating

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28
Q

Externality

A

A cost or benefit that is external to the market transaction, borne (or enjoyed) by a third party, and not reflected in market prices

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29
Q

Firm

A

An organisation that brings together factors of production in order to produce output

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30
Q

Fixed costs

A

Costs that do not vary with the level of output

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31
Q

Game theory

A

A method of modelling the strategic interaction between firms in an oligopoly

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32
Q

Horizontal merger

A

A merger between two firms at the same stage of production in the same industry

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33
Q

Human capital

A

The stock of skills and expertise that contributes to a worker’s productivity

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34
Q

Hypothecation

A

In the context of the transport sector, the principle that revenue raised from taxing transport should be used to improve the transport system

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35
Q

ILO unemployment rate

A

Measure of the percentage of the workforce who are without jobs but are available for work, willing to work and looking for work

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36
Q

Income effect

A

Reflects the way that a change in the price of goods affects purchasing power

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37
Q

Informal labour market

A

Economic activity that is not registered or recorded and so is not part of the formal labour market

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38
Q

Internal economies of scale

A

Economies of scale that arise from the expansion of a firm

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39
Q

Internalising an externality

A

An attempt to deal with an externality by bringing an external cost or benefit into the price system

40
Q

Labour productivity

A

A measure of output per worker, or output per hour worked

41
Q

Law of diminishing marginal utility

A

States that the more units of a good that are consumer, the lower the utility for consuming those additional units

42
Q

Law of diminishing returns

A

States that if a firm increases its inputs of one factor of production while holding inputs of the other factors fixed, eventually the firm will get diminishing marginal returns from the variable factor

43
Q

Living wage

A

An estimate of how much income households need to afford an acceptable standard of living

44
Q

Long run

A

The period over which the firm is able to vary the inputs of all its factors of production

45
Q

Marginal cost

A

The cost of producing an additional unit of output

46
Q

Marginal physical product of labour

A

The additional quantity of output produced by an additional unit of labour input

47
Q

Marginal principle

A

The idea that economic agents may take decisions by considering the effect of small changes from the existing situation

48
Q

Marginal productivity theory

A

A theory which argues that the demand for labour depends upon balancing the revenue that a firm gains from employing an additional unit of labour against the marginal cost of that unit of labour

49
Q

Marginal revenue

A

The additional revenue received by the firm if it sells an additional unit of output

50
Q

Marginal revenue product of labour

A

The additional revenue received by a firm as it increases output by using an additional unit of labour input, i.e. The marginal physical product of labour multiplied by the marginal revenue received by the firm

51
Q

Marginal utility

A

The additional utility gained from consuming an extra unit of a good or service

52
Q

Market structure

A

The market environment within which firms operate

53
Q

Minimum efficient scale

A

The level of output at which long run average cost stops falling as output increases

54
Q

Minimum wage

A

Legislation under which firms are not allowed to pay a wage below some threshold level set by the government

55
Q

Multinational corporation

A

A firm that conducts its operations in a number of countries

56
Q

Nash equilibrium

A

A situation occurring within game theory when each player’s chosen strategy maximises payoffs given the other player’s choice, so no player had an incentive to alter behaviour

57
Q

Natural monopoly

A

Monopoly that arises in an industry in which there are such substantial economies of scale that only one firm is viable

58
Q

Net present value

A

The estimated value in the current time period of the discounted future net benefit of a project

59
Q

N-firm concentration ratio

A

A measure of the market share of the largest n firms in an industry

60
Q

NIMBY syndrome

A

“Not In My Back Yard” syndrome occurs when people are happy to support the construction of unsightly or unsocial facilities, so long as it is not in their back yard

61
Q

Non-pecuniary benefits

A

Benefits offered to workers by firms that are not financial in nature

62
Q

Non-renewable resource

A

A resource that cannot be renewed once supply is exhausted

63
Q

Normal profit

A

The return needed for a firm to stay in a market in the long run

64
Q

Participation rate

A

The percentage of the population in a given age group who are economically active

65
Q

First degree price discrimination

A

A situation arising in a market whereby a monopoly firm is able to charge each consumer a different price

66
Q

Predatory pricing

A

An anti-competitive strategy in which a firm sets price below average variable costs in an attempt to force a rival or rivals out of the market and achieve market dominance

67
Q

Price taker

A

A firm that must accept whatever price is set in the market as a whole

68
Q

Principal-agent problem

A

Arises from conflict between the objectives of the principals and their agents who take decisions on their behalf

69
Q

Product differentiation

A

A strategy adopted by firms that marks their product as being different from their competitors

70
Q

Productive efficiency

A

When a firm operates at minimum average cost, choosing an appropriate combination of inputs and producing the maximum output possible from those inputs

71
Q

Real earnings

A

The level of earnings adjusted for the price level; the rate of change of real earnings is thus the rate of change of earnings adjusted for inflation

72
Q

Relevant market

A

A market to be investigated under competition law, defined in such a way that no major substitutes are omitted but no no substitutes are included

73
Q

Renewable resource

A

A resource that can replenish itself over time

74
Q

Replacement ratio

A

The ratio of unemployment benefits to the wage that a claimant could receive in employment

75
Q

Satisficing

A

Behaviour under which the managers of firms aim to produce satisfactory results for the firm rather than trying to maximise them

76
Q

Shadow price

A

An estimate of the monetary value of an item hat does not carry a market price

77
Q

Short run

A

The period over which a firm is free to vary its input of on factor of production but faces fixed inputs of the other factors of production

78
Q

Social cost benefit analysis

A

A process evaluating the worth of a project by comparing its costs and benefits, including both direct and indirect social costs and benefits

79
Q

Static efficiency

A

Efficiency at a particular point in time

80
Q

Substitution effect

A

Reflects the way that a change in the price of a good affects relative prices

81
Q

Sunk costs

A

Costs incurred by a firm that cannot be reconverted if the firm ceases trading

82
Q

Sustainable development

A

Development that meets the needs of the present without compromising the ability of future generations to meet their own needs

83
Q

Tacit collusion

A

A situation occurring when firms refrain from competing on price, but without communication or formal agreement between them

84
Q

Total cost

A

The sum of all costs that are incurred in producing a given level of output

85
Q

Total factor productivity

A

The average productivity of all factors, measured as the total output divided by the total amount of inputs used

86
Q

Total revenue

A

The revenue received by a firm from its sales of a good or service; it is the quantity sold, multiplied by the price

87
Q

Trade union

A

An organisation of workers that negotiates with employers on behalf of its members

88
Q

Transfer earnings

A

The minimum payment required to keep a factor of production in its present use

89
Q

Unemployment trap

A

A situation in which people choose to be unemployed because the level of unemployment benefits is high relative to the wage available in low paid occupations

90
Q

Unit labour costs

A

Wages, salaries and other costs of using labour, divided by output per worker

91
Q

Utility

A

The satisfaction received from consuming a good or service

92
Q

Variable costs

A

Costs that vary with the level of output

93
Q

Vertical merger

A

A merger between two firms in the same industry, but at different stages of the production process

94
Q

Workforce

A

People who are economically active, either employed or unemployed

95
Q

Working population

A

People between the ages of 16 and 64

96
Q

X-inefficiency

A

Occurs when a firm is not operating at minimum cost, perhaps because of organisational slack

A Level Economics (12 decks)

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