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Micro Economics > The Role Of Markets > Flashcards

The Role Of Markets Flashcards

1
Q

Specialisation

A

the concentration by a worker, firm, region, or whole economy on a narrow range of goods and services.

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2
Q

Division of labour

A

the specialisation of labour where the production process is broken down into separate tasks

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3
Q

barter

A

to trade goods directly rather than through the medium of money

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4
Q

money as a medium as exchange

A

allows goods to be traded without the need of a barter system

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5
Q

demand

A

the quantity of a good or service that consumers are willing and able to buy at a given price in a given time

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6
Q

normal goods

A

those which people will demand more if their real income increases. e.g. dvd ‘s

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7
Q

inferior goods

A

those which people demand less if their real income increases. e.g. cheap clothing

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8
Q

substitute goods

A

those which are alternatives to each other

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9
Q

complementary goods

A

goods that are often used together

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10
Q

derived demand

A

the demand for a good or factor of production used in making another good or service.

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11
Q

composite demand

A

the changes in demand could lead to changes in supply

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12
Q

consumer surplus

A

the difference between the price that consumers pay and the price that they are willing to pay (its the are between the equilibrium price and demand curve on a demand and supply graph)

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13
Q

producer surplus

A

the difference between the price a firm receives and the price they are willing to sell it at.

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14
Q

ceteris paribus

A

latin phrase meaning ‘all other things remaining equal’.

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15
Q

elasticity

A

involves examining how responsive demand (or supply) is to a change in another variable such as price or income.

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16
Q

price elasticity of demand - PED

A

measures the change in demand followed by a change in price.

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17
Q

PED FORMULA

A

% change in qty demanded / % change in price

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18
Q

income elasticity of demand - YED

A

measures the change in demand followed by a change in income

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19
Q

YED FORMULA

A

% change in qty demanded / % change in income

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20
Q

cross price elasticity of demand - XED

A

measures the responsiveness of demand of good A to a change in price of good B

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21
Q

XED FORMULA

A

% change in qty demanded of good A / % change in price of good B

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22
Q

price elasticity of supply - PES

A

measures the responsiveness of supply to a change in price

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23
Q

PES FORMULA

A

% change in qty supplied / % change in price

24
Q

market failure

A

occurs when there is an inefficient allocation of resources in a free market.

25
Q

positive externality

A

goods/services which benefit a third party e.g. less congestion from cycling

26
Q

negative externality

A

goods/services which impose a cost on a third party e.g. cancer from passive smoking

27
Q

merit good

A

people underestimate the benefit of the good e.g. education. it benefits society as a whole

28
Q

demerit goods

A

people underestimate the costs of the good e.g. smoking

29
Q

information failure

A

where there is a lack of information to make an informed choice so consumers make inefficient decisions

30
Q

asymmetric information

A

when information is shared unequally between parties

31
Q

moral hazard

A

a situation where an economic actor has an incentive to increase its exposure to risk because it does not bear the full cost of that risk

32
Q

marginal social cost

A

the additional cost to society as a whole resulting from the production of an additional unit of a product

33
Q

marginal social benefit

A

the additional benefit to society as a whole resulting from the production of an additional unit of a product.

34
Q

marginal external cost

A

the cost to a third party from the consumption/production of one additional unit of a product

35
Q

marginal private cost

A

the extra cost of producing one additional unit to the producer

36
Q

marginal private benefit

A

the additional benefit that a consumer receives from consuming one additional unit of a good or a service.

37
Q

price elastic values

A

greater than 1

38
Q

unitary value

A

1

39
Q

price inelastic value

A

PED < 1

40
Q

tradable permits

A

where the government gives firms a permit which allows them to produce a certain amount of carbon emissions each year

41
Q

government intervention

A

when governments intervene in the workings of the market mechanism (effecting supply & demand) in order to correct market failure

42
Q

taxation

A

a fee charged (levied) by the government on a product, income or activity

43
Q

direct taxes

A

taken directly from the income or profits of a person/firm and cannot be avoided

44
Q

indirect taxes

A

a tax levied on goods and services

45
Q

polluters pay principle

A

when the ‘polluter’ explicitly pays for the amount of damage/pollution caused e.g. green tax

46
Q

subsidy

A

a payment, usually from government to encourage production or consumption

47
Q

direct provision

A

governments can supply goods directly to consumers free of charge. they either produce the goods or services themselves or buy in services from the private sector.

48
Q

regulation

A

the government might choose to allow the private sector to provide a good/service but the government will monitor/check/audit/regulate that industry. they might force consumers to purchase a merit goods or producers to provide a merit good.

49
Q

regulation

A

rules which need to be adhered to

50
Q

standard

A

minimum levels that need to be achieves and are monitored

51
Q

legal control

A

enforcement by the government

52
Q

buffer stock

A

schemes that seek to stabilise the market price of agricultural products by buying up supplies when harvests are plentiful and selling stocks onto the market when supplies are low

53
Q

minimum prices

A

a price floor for a market - suppliers cannot sell the product legally at a lower price.

54
Q

maximum prices

A

the government or an industry regulator can set a maximum price to prevent the market price from rising above a certain level.

55
Q

government failure

A

occurs when a policy intervention leads to a deepening of a market failure or even worse a new failure may arise

56
Q
A

Micro Economics (2 decks)

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