Microeconomics Prices and resource allocation Flashcards
free market economy
one in which resource allocation is guided by market forces without intervention by the state
productivity efficiency
attained when a firm operates at minimum average total cost, choosing an appropriate combination of inputs (cost efficiency) and producing the maximum output possible from those inputs (technical efficiency)
allocative efficiency
achieved when consumer satisfaction is maximised
economic efficiency
a situation in which both productive efficiency and allocative efficiency have been reached
Pareto optimum
an allocation of resources is said to be a Pareto optimum if no reallocation of resources can make an individual better off without making some other individual worse off
total cost (TC)
the sum of all costs that are incurred in producing a given level of output
average total cost (ATC)
total cost divided by the quantity produced
marginal cost (MC)
the cost of producing an additional unit of output
fixed costs
costs incurred by a firm that do not vary with the level of output
sunk costs
costs incurred by a firm that cannot be recovered if the firm ceases trading
variable costs
costs that vary with the level of output
economies of scale
occur for a firm when an increase in the scale of production leads to production at lower long-run average cost
internal economies of scale
economies of scale that arise from the expansion of a firm
external economies of scale
economies of scale that arise from the expansion of the industry in which a firm is operating
internal diseconomies of scale
diseconomies of scale that arise from the expansion of a firm
