Microeconomics Key Words Year 2 Flashcards
Abnormal Profit.
Profit over and above normal profit. Also known as supernormal profit and-above normal profit.
Absolute Poverty.
A condition characterised by severe deprivation of basic human needs. Not only dependent on income but also on access to services.
Adverse Selection.
A situation in which people who buy insurance often have a better idea of the risks they face than the insurer. People who know they face large risks are more likely to buy insurance than people who face small risks.
Allocative Efficiency.
Occurs when it is impossible to improve overall economic welfare by reallocating resources between markets. In the whole economy, price must equal marginal cost (P=MC) in every market.
Altruism.
Concern for the welfare of others.
Anchoring.
A cognitive bias describing the human tendency when making decisions to rely too heavily on the first piece of information offered.
Artificial Barriers.
Barriers erected by the firms themselves, such as high levels of advertising expenditure or predatory pricing.
Asymmetric Information.
When one party to a market transaction possesses less information relevant to the exchange than the other.
Automation.
Automatic control where machines operate other machines.
Availability Bias.
Occurs when individuals make judgements about the likelihood of future events according to how easy it is to recall examples of similar events.
Average Cost of Labour.
Total wage costs divided by the number of employees.
Average Fixed Cost.
The total cost of the fixed factors of production divided by the number of units produced. (AFC=TFC/Q)
Average Returns of Labour.
Total output divided by the total number of workers employed.
Average Revenue.
Total revenue divided by output.
Average Total Cost.
Total cost of producing a particular level of output, divided by the size of output; often called average cost:ATC=AFC+AVC
Average Variable Cost.
The total cost of the variable factors of production divided by the number of units produced. (AFC=TvC/Q)
Behavioural Economics.
A method of economic analysis that applies psychological insights into human behaviour to explain how individuals make choices and decisions.
Bounded Rationality.
When making decisions, an individual’s rationality is limited by the information they have, the limitations of their minds, and the finite amount of time available in which to make decisions.
Bounded Self-Control.
Limited self-control in which individuals lack the self-control to act in what they see as their self-interest.
Cartel.
A collusive agreement by firms, usually to fix prices. But sometimes to restrict output and deter the entry of new firms.
Choice Architecture.
A framework setting out different ways in which choices can be presented to consumers, and the impact of that presentation on consumer decision.
Cognitive Bias.
A mistake in reasoning or in some other mental thought process occurring as a result of, for example, using rules-of-thumb or holding onto one’s preferences and beliefs, regardless of contrary information.
Collective Bargaining.
A process by which wage rates and other conditions of work are negotiated and agreed upon by a union or unions with an employer or employers.
Competition and Markets Authority.
Government agency responsible for advising on and implementing UK competition policy.
Competition Policy.
The part of the government’s microeconomic policy and industrial policy which aims to make goods markets more competitive. It comprises policy toward monopoly, mergers and restrictive trading practices.
Complete Market Failure.
A market fails to function at all and a ‘missing market’ results.
Concentration Ratio.
Measures the market share (percentage of the total market) of the biggest firms in the market. For example, a five-firm concentration measures the aggregate market share of the largest five firms.
Condition Of Demand.
A determinant of demand, other than the good’s own price, that fixes the position of the demand curve. A change in one or more of the conditions of demand leads to a shift of demand.
Constant Returns To Scale.
When the scale of all the factors of production employed increases, output increases at the same rate.
Consumer Surplus.
A measure of the economic welfare enjoyed by consumers: surplus utility received over and above the price paid for a good.
Consumption Externality.
When consumption of a good or a service imposes external costs or benefits on third parties outside of the market without these being reflected in market prices..
Contestable MArket.
A market in which the potential exists for new firms to enter the market. A perfectly contestable market has no entry or exit barriers and no sunk costs, and both incumbent firms and new entrants have access to the same level of technology.
Contraction Of Demand.
An adjustment or movement up a demand curve following an increase in the good’s price.
Contractualistaion.
Services which were previously provided by the public sector, such as road cleaning or refuse collection, are put to private sector tender and then provided by private sector firms.
Creative Destruction.
Capitalism evolving and renewing itself over time through new technologies and innovations replacing older technologies and innovations.
Deadweight Loss.
The name given to the loss of economic welfare when the maximum attainable level of total welfare is not achieved.
Decrease In Demand.
A leftward shift of the demand curve.
Decreasing Returns To Scale.
When the scale of all the factors of production employed increases, output increases at a slower rate.
Default Choice.
An option that is selected automatically unless an alternative is specified.
Demerit Good.
A good for which the private benefits of consumption are greater than the social benefits and for which the long-term private benefits are less than the short-term benefits.
Deregulation.
The removal of previously imposed regulations.
Derived Demand.
Demand for a good or factor of production, not wanted for its own sake, which is a consequence of the demand for something else.
Diseconomy Of Scale.
As output increases, long-run average cost rises.
Distribution Of Income.
How income is divided between rich and poor, or between different groups in society, e.g. on a regional, age or gender basis.
Distribution Of Wealth.
How wealth is divided between rich and poor, or between different groups in society, e.g. on a regional, age or gender basis.
Divorce Of Ownership From Control.
The owners and those who manage the firm are different groups with different objectives.
Duopoly.
Two firms only in a market.
Dynamic Efficiency.
Occurs in the long run, leading to the development of new products and more efficient processes that improve productive efficiency.
Economic Sanctions.
Restrictions imposed by regulations and/or laws that restrict an individual’s freedom to behave in certain ways. Breaking a sanction can lead to punishment.
Economy Of Scale.
As output increases, long-run average cost falls.
Elasticity Of Demand For Labour.
Proportionate change in demand for labour following a change in the wage rate.
Elasticity Of Supply Of Labour.
Proportionate change in the supply of labour following a change in the wage rate.
Entry Barriers.
Obstacles that make it difficult for a new firm to enter the market.
Equality.
Means that everyone is treated exactly the same. A completely equal distribution of income means that everybody has the same income.
Equity.
Means that everybody is treated fairly.
Exit Barriers.
Obstacles that make it difficult for an established firm to leave the market.
Extension Of Demand.
An adjustment or movement down a demand curve following a fall in the good’s price.
External Diseconomy Of Scale.
An increase in the long-run average costs of production resulting from the growth of the market or industry of which the firm is a part.
External Economy Of Scale.
A fall in the long-run average costs of production resulting from the growth of the market or industry of which the firm is a part.
Externality.
Occurs when production or consumption of goods or services imposes external costs or benefits on third parties outside of the market without these being reflected in market prices. When an externality is generated, there is a divergence between private and social costs and benefits.
Fairness.
The quality of being impartial, just, or free of favouritism. It can mean treating everyone the same. Fairness involves treating people equally, sharing with others, giving others respect and time, and not taking advantage of them.
Firm.
A productive organisation which sells its output of goods or services commercially.
Framing.
How something is presented (the ‘frame’) influences the choices people make.
Free-Rider Problem.
Occurs when non-excludability leads to a situation in which not enough customers choose to pay for a good, preferring instead to free ride, with the result that the incentive to provide the good through the market disappears and a missing market may result. (A free rider is someone who benefits without paying).
Geographical Immobility Of Labour.
When workers are unwilling or unable to move from one area to another in search of work.
Gini Coefficient.
Measures the extent to which the distribution of income or wealth among individuals or households within an economy deviates from a perfectly equal distribution.
Government Failure.
Occurs when government intervention in the economy makes the allocation of resources worse. The intervention may be ineffective, wasteful and/or damaging.
Hit And Run Competition.
Occurs when a new entrant can ‘hit’ the market, make profits and then ‘run’, given that there are no or low barriers to exit.
