Microeconomics Key Words Year 1 Flashcards
Allocative Efficiency.
Occurs when the available economic resources are used to produce the combination of goods and services that best match peoples tastes and preferences.
Allocative Function of Prices.
Changing relative prices allocate scarce resources away from markets exhibiting excess supply and into markets.
Artificial Barrier to Entry.
A barrier to market entry which is man-made.
Average Cost.
Total cost divided by the number of units of the commodity produced.
Average Revenue.
Total revenue divided by output. Average revenue equals price of product in a single product firm.
Capital Good.
A good which is used in the production of other goods or services. Also known as a producer good.
Capital Productivity.
Output per unit of capital.
Choice.
Choosing between alternatives when making a decision on how to use scarce resources.
Collusion.
Co-operation between firms, for example, to fix prices. Some forms of collusion may be in the public interest, for example, joint research and labour training schemes.
Competing Supply.
When raw materials are used to produce one good they cannot be used to produce another good.
Competitive Market.
A market in which the large number of buyers and sellers possess good market information and can easily enter or leave the market. A competitive market is one in which firms strive to outdo their rivals, but it does not necessarily meet all the conditions of perfect competition.
Complementary Good.
A good in joint demand, or a good which is demanded at the same time as another good.
Composite Demand.
Demand for a good which has more than one use.
Concentrated Market.
A market containing very few firms, in the extreme only one firm.
Concentration Ratio.
A ratio which indicates the total market share of a number of leading firms in a market, or the output of these firms as a percentage of total market output.
Condition of Demand.
A determinant of demand, other than the good’s own price, that fixes the position of the demand curve.
Condition of Supply.
A determinant of supply, other than the good’s price, that fixes the position of the supply curve.
Consumer Good.
A good which is consumed by individuals or households to satisfy their needs or wants.
Consumer Sovereignty.
Through exercising their spending power, consumers collectively determine what is produced in a market. Consumer sovereignty is strongest in a perfectly competitive market.
Consumption Externality.
An externality (can be positive or negative) generated in the course of consuming a good or service
Cross-Elasticity of Demand.
Measures the extent to which the demand for the good changes in response to a change in the price of another good; it is calculated by dividing the percentage change in the price of another good.
Decrease in Demand.
A leftward shift of the demand curve.
Decrease in Supply.
A leftward shift of the supply curve.
Demand.
The quantity of a good or service that consumers are willing to buy at given prices in a given period of time.
Demerit Good.
A good, such as tobacco, for which the social costs of consumption exceed the private costs. Value judgements are involved in deciding that a good is a demerit good.
Derived Good.
Demand for a good which is an input into the production of another good.
Diseconomy of Scale.
As output increases, the long-run average cost rises.
Disequilibrium.
A situation in a market when there is excess supply or excess demand.
Distribution of Income and Wealth.
The way in which income and wealth are divided among the population.
Division of Labour.
Different workers perform different tasks in the course of producing a good or service.
Economic Growth.
The increase in the potential level of real output the economy can produce over a period of time.
Economic Welfare.
The economic well-being of an individual, group within society, or an economy.
Economy of Scale.
As output increases, long-run average cost falls.
Effective Demand.
The desire for a good or service backed by an ability to pay.
Elasticity.
The proportionate responsiveness of a second variable to an initial proportionate change in the first variable.
Entry Barrier.
Makes it difficult or impossible for new firms to enter a market
Equilibrium.
A state of rest or balance between opposing forces.
Equilibrium Price.
The price at which planned demand for a good or service exactly equals planned supply.
Equity.
Fairness or justness.
Excess Demand.
When consumers wish to buy more than firms wish to sell, with the price below the equilibrium price.
Excess Supply.
When firms wish to sell more than the consumers wish to buy, with the price above the equilibrium price.
Exchange.
To give something in return for something else received. Money is a medium of exchange.
Exit Barrier.
Makes it difficult or impossible for firms to leave a market.
External Economy of Scale.
Cost saving resulting from the growth of the industry or market of which the firm is a part.
Externality.
A public good, in the case of external benefit, or a public bad, in the case of external cost, that is put on third parties outside the market.
Factors of Production.
Inputs into the production process, such as land, labour, capital and enterprise.
Finite Resource.
A resource, such as oil, which is scarce and runs out as it is used.
Fixed Cost.
Cost of production which, in the short run, does not change with output.
Full Employment.
When all who are able and willing to work are employed.
Fundamental Economic Problem.
How best to make decisions about the allocation of scarce resources among competing uses so as to improve and maximise human happiness and welfare.
Geographical Immobility of Labour.
Occurs when workers find it difficult or impossible to move to jobs in other parts of the country or in other countries for reasons such as higher housing costs in locations where the jobs exist.
Government Failure.
Occurs when government intervention reduces economic welfare, leading to an allocation of resources that is worse than the free-market outcome.
Immobility of Labour.
The inability of labour to move from one job to another, either for occupational reasons or for geographical reasons.
Imperfect Competition.
Any market structure lying between the extremes of perfect competition and pure monopoly.
Incentive Function of Prices.
Prices create incentives for people to alter their economic behaviour; for example, a higher price creates an incentive for firms to supply more of a good or service.
Income Elasticity of Demand.
Measures the extent to which the demand for a good changes in response to a change in income. Calculated by dividing the % change in Q demanded by the % change in income.
Increase in Demand.
A rightward shift of the demand curve.
