PLR Microeconomics Flashcards
What is microeconomics
The study of the behaviour of individuals or groups within an economy, typically within a market context
What is the basic economic problem
How to allocate scarce resources between competing uses in conditions in which there are limited resources and unlimited wants and needs.
What are economic goods
Goods which are scarce because their use has an opportunity cost
What are free goods
Goods which are unlimited in supply, they have no opportunity cost
What is opportunity cost (trade offs)
The cost of giving up the next best alternative
What is the PPF Curve
A curve that shows the maximum potential level of output of one good given a level of output for all other goods in the economy
What is division of labour
production is broken down in different tasks, Specialisation by workers e.g., (Designed by Apple in California, assembled in china, e.g., design, hardware, software, marketing etc)
What is a market
a voluntary meeting of buyers and sellers with the exchange of goods and services taking place
What is meant by utility
The satisfaction derived from consuming a good or service
What is welfare
The well-being of an economic agent or group of economic agents
What is ceteris paribus
The assumption that all other variables remain the same
What is a normative statement
a statement that includes a value judgement, normative statements cant be scientifically tested as everyone has different opinions. (includes ought, should, better worse)
what is a command or planned economy
An economic system where government allocate economic resources to firms and other productive enterprises (gov almost owns everything)(socialist/communist)
What is a free-market economy
An economic system which resolves the basic economic problem through the price mechanism (good and services are purchased through supply and demand)
What is a mixed economy
An economy where both the free-market mechanism and the government planning process allocate resources.
What is demand/ effective demand
the quantity of a good or service that consumers are willing and able to buy at given prices in a given period of time
What is consumer surplus
The difference between how much buyers are prepared to pay for a good and what they actually pay
what is producer surplus
the difference between how much sellers are prepared to sell a good for and how much supply they actually have
what is supply
the quantity of goods that suppliers are willing and able to sell at any given price over a period of time
What is excess demand
when the demand is greater than the supply
What is excess supply
when the supply is greater than the demand
what is Joint Supply
when one good is produced, another good is also produced from the same raw materials perhaps as a by product e.g., lamb and wool
what is joint demand
Joint demand = complementary goods
e.g., printer and printer ink
what is composite demand
demand for a good which has more than one use (an increase in demand for one use of the good reduces the supply for another use of the good) e.g., milk can be used to make cheese, yogurt, butter etc.
what is derived demand
Demand for a good or factor of production used in making another good, e.g., increase in demand for fencing will lead to an increased derived demand for wood
What is a substitute
A good which can replace another good to satisfy a want
what is an inferior good
a good where demand falls as income increases and vice versa (has a negative yed) e.g., when income increases demand for public transport decreases and demand for private transport increases.
what is a normal good
a good where demand increases as income increases and demand decreases as income falls
what is market failure
occurs when the price mechanism causes inefficient allocation of resources, either completely failing to provide a good or service or providing the wrong quantity
what is a subsidy
a grant provided by the government, to encourage suppliers to increase production of a good or service, leading to a fall in its price
what is a positive externality
when the production/ consumption of a good causes a benefit to the third party
what is a negative externality
external cost that occurs when the production/ consumption of a good causes a cost to the third party
what is a free rider
someone who benefits without paying due to non-excludability (e.g., fare dodging for train rides, open access wifi, playing football in a park for free even though they didn’t pay for it)
what is complete market failure
happens where, unless the good/service is provided outside the mechanism, there wouldn’t be a market for it, there is a missing market (e.g., a country’s military services)
This means that the government need to intervene to provide it
what is partial market failure
happens when the private sector may partially provide it at the wrong price or quantity, there is a missing market. (e.g., Private healthcare vs NHS)
what is a missing market
a situation which there is no market because the functions of prices have broken down e.g., when goods are provided too cheaply or in a monopoly the good may be too expensive.
what is a private good
a good that is excludable and rival, (the consumption by one person results in the good not being available for consumption by another) e.g., a chocolate bar
what is a (pure) public good
a good that is non-excludable and non-rival (the consumption by one person does not reduce the amount available for another, all individuals benefit of suffer whether they wish to or not)
e.g., streetlights, tv programmes, roads, firework displays etc.
what is a quasi-public good (non-pure public good)
a good which is not fully non-rival and/ or where it is possible to exclude people from consuming the product (e.g., congestion tolls, roads are free to use, but congestion tolls exclude some people who (don’t) have to pay, congestion creates rivalry as there’s limited no. of people who can benefit from the road at any one time)
what is a merit good
a good with positive externalities (people underestimate their benefits e.g., education, healthcare, libraries etc)
what is a demerit good
a good which has negative externalities (people underestimate their costs, e.g., cigarettes, alcohol, drugs etc,)
what is symmetric information
where buyers and sellers have the access to the same information
what is asymmetric information
where buyers and sellers have access to different amounts of information
what is government failure
this occurs if government intervention leads to a net welfare loss
what is rational behaviour
is when individuals make decisions that will provide them with highest amount of personal utility e.g., picking a movie to watch
what is inter-temporal choice/ choice over time
economic term to describe how current decisions affect what options become available in the future (either getting or job or going to university - choice between income now and income in the future)
what is a capital good
goods/ fixed assets which are used in the production of other goods e.g., tools, machinery, vehicles
what is a consumer good
good that are bought directly by consumers e.g., clothes, food
what is a durable consumer good
goods that last a long time e.g., fridge, bike, microwave
what is a non-durable consumer good
good that last a short time e.g., food
what moves the ppf curve
improved technology, increased resources e.g., no. of workers which increases total possible output of the economy increases (economic growth),
what are the condition of supply
costs of production improvements in technology climate/weather indirect taxes e.g., VAT, exercise duties subsidies
what is government intervention
is a regulatory action taken by governments that interfere with decisions made by individuals, groups and organisation about social and economic matters.
