Microeconomics (theme 1) Flashcards
Ad valorem tax
An indirect tax imposed on a good.
Asymmetric information
When one party has more information that the other, leading to marker failure.
Capital
Goods which can be used in the production process
Capital goods
Goods produced in order to aid production of consumer goods.
Ceteris Paribus
All things factors held constant.
Command economy
All factors of production are allocated by the system.
Complementary goods
Negative XED: if good B becomes more expensive, demand for good A falls.
Consumer goods
Goods bought and demanded by households and individuals
Consumer surplus
The difference between the price the consumer is willing to pay and the price they actually pay.
Cross elasticity of demand (XED)
%change in QD of A/%change in P of B.
The responsiveness of demand for one good (A) to a change in price of another good (B).
Demand
The quantity of goods that consumer are able and willing to buy at a given price at a given moment.
Diminishing marginal utility
The extra benefit gained from consumption of a goods generally declined as extra units are consumed: Why the demand curve is downward sloping.
Division of labour
When labour becomes specialised during the production process so do a specific talk in cooperation with other workers.
Economics problem
Wants are unlimited but resources are finite so choices have to be made.
Efficieny
When recourse are allocated optimally , so every consumer benefits and waste is minimised.
Enterprise
The ability to combine the three factor of production
Equilibrium price/quantity
Where demand=supply so there are no more marker forced bring about change to price or quantity demanded.
Excess demand
When price is set too low so demand is greater than supply
Excess supply
When price is set too high so supply is greater than demand.
Externalities
The cost or benefit a third party received from an economic activity inside the price mechanism.
Free market
An economy where the market mechanism allocated recourses.
Free rider principle
People who do not pay for a public good still receive benefits from it so the private sector will under-provide the good as they cannot make a profit.
Government failure
When government intervention leads to a net welfare loss in society.
Habitual Beauvoir
When the consumers are in the habit of making certain decisions.
Incidence of tax
Taxes on expenditure which increase production costs and lead to a fall in supply.
Inferior goods YED<0
Goods which see a fall in demand when price increases.
Information gap
When an economic agent lacks the information needed to make an informed decision.
Information provision
When the government intervenes to provide information to correct failure.
Labour
Human capital
Land
Natural resources such as oil, coil, wheat and physical space.
Luxury goods
An increase in income chases an even bigger increase in demand. YED>1
Market failure
When the free market fails to allocate refocuses efficiently.
Market forces
Forces in free markets which act to reduce prices when there is excess supply and increase then when there is excess demand.
Maximum price
A price which a firm cannot charge above.
Minimum price
A price which a firm cannot charge below
Mixed economy
Both the free market mechanism and the government allocate resources.
Positive statement
A hypothesis which can be proven or tested by evidence.
Negative externalities of production
Where the social costs of production a good are great than the private costs of producing a good.
Non-excludable
Someone cannot be prevented from using the good.
Non-renewable resources
Resource which cannot be readily replenished or replaced at a level equal to consumption.
Non rivalry
One persons use of the goods does not prevent. Some one else from using it.
Normal goods
Demand increase as income increase YED>0.
Normative statement
Subjective statements based on value judgements and opinions, cannot be proven.
Opportunity cost
The benefit given up of the next best alternative.
Perfectly price elastic good.
PED/PES=infinity. Qd/Qs does not change when price changes.
Perfectly price Inelastic good
PED/PES=0. Qd/Qs does not change when price changes.
Positive externalities of consumption
Where the social benefits of consuming a good are larger that the private benefits of consuming that good.
PPF
Depicts the maximum production potential of an economy using a combination.
Price elasticity of demand (PED)
The responsiveness of demand to a change in price %change in QD
Price elasticity of supply (PES)
The responsiveness of supply to a change a price.
%change in QD/%change in P.
Price mechanism
The system of resource allocation based on the free market movement of prices.
Private cost/benefit
The cost/benefit to the individual participating in the economics activity.
Private goods
Goods that are rivalry and excludable
Producer surplus
The difference between the price the producer is willing to charge and price they actually charge.
Public goods
Good that are non-excludable and non-rivalrous
Rationally
Decision-making that leads to economics agents maximising their utility
Regulation
Laws to address market failure and promote competition between firms
Relatively price Elastic good
When PED/PES>-1.
Demand/supply is relativity responsive to a change in price so a small change in price leads to a large change in Qd/Qs.
Relative price inelastic good
PED/PES>1. Demand/supply is relatively unresponsive to a change in price so a large change in price leads to a large change in QD/QS.
Renewable resources
Resources which can be replenished.
Scarcity
The shortage or rescues in relation to the quantity of human wants
Social cost/benefit
The cost/benefit to society as a whole during economic activity
Social optimum position
Where social costs equals socials benefits.
Social science
The study of societies and human behaviour
Specialisation
The production of limited goods by a company/country/individual, meaning they have to trade with other
Specific tax
A tax imposed on a good where the value of the tax is dependent on the quantity that is bought
State provision of goods
The government provides public goods or merit goods which are underprovided in the free market
Subsidy
A grant from the government to a producer to increase supply of a good.
Substitutes
If B good becomes more expensive, demand for good A rises.
Supply
The ability and willingness to provide a particular good/service at a given price at a given moment in time.
Symmetric information
Where buyers and sellers both have access to the same information
Trade pollution permits
Licences which allow business to pollute up to a certain amount. Business are allowed to sell and buy permits which means there may be inferior road rudder the amount they pollute.
Unitary price elastic good
When PED/PES=1. A change in price leads to a change in output by the same proportion
Utility
The satisfaction derived from consuming a good.
Weakness at computation
When consumers are bad at working out future benefits/costs.
