tiny Flashcards
economics
the science that studies human behaviour as a relationship between needs and scarce resources which have alternative uses
microeconomics
the study of the behaviour of individual consumers and firms, and the determination of market P and Q of g&s and FoP
production possibility curve
show all max combo of g&s that can be produced by an econ in a given period of time when all resources are fully and efficiently utilised
ceteris paribus: state of tech is fixed
show potential output
scarcity
problem that arises when we want more than we have
opportunity cost
highest-valued option forgone
what to produce
choice of the types and quantities of g&s to produce
how to produce
choice of production methods
for whom to produce
who can enjoy how much of g&s
firms
the productive units in the econ that turn FoP into g&s
income
flow of earnings from using labour to produce g&s
wages and salaries are the factor reward to labour
circular flow
visualise and understand how a nation’s overall econ works and how the flow of money goes
injections
money flows pumped into the econ
leakages
money flows leaked out of the econ
investment
the expenditure by firms on capital to produce more g&s
ceteris paribus
keeping all other factors equal
primary commodities
raw materials that are produced in the primary sector
primary sector
extracts or harvests products directly from natural resources in order to produce raw materials or food
consumption
spending by households on consumer g&s over a period of time
factors of production
the 4 resources that allow an economy to produce its output: land, labour, capital and entrepreneurship
capital
the FoP that comes from investment in physical and human capital
human capital
skills, abilities, knowledge and good levels of health of labour
entrepreneurship
the FoP involving organising and risk-taking
recognising the possibility of gain from employing a combination of other FoPs in a specific way
labour
the human FoP
the physical and mental contribution of the existing work force to production
land
the physical FoP
consists of natural resources, some of which are renewable and some of which are non-renewable
taste
the subjective, individual preferences of consumers
demand
various planned Q a consumer is willing and able to buy at different possible P in a period of time, ceteris paribus
quantity demanded
Q of a g&s a consumer is willing & able to buy at a particular P
law of demand
when P increases, Qd decreases, vice versa, ceteris paribus
supply
various planned quantities a producer is willing & able to produce & supply to market at different possible price in a period of time, ceteris paribus
quantity supplied
Q of a g&s a producer is willing & able to produce and supply at a particular P
law of supply
when P increases, Qs increases, vice versa, ceteris paribus
market equilibrium
no tendency to change
Pe: Qs = Qd
Qe: Q at Pe
quantity transacted
actual Q bought & sold
substitutes
g&s that can replace each other to satisfy the same/similar need
complements
g&s that tend to be used together to satisfy a particular want
competitive supply
compete for use of same resources
producing one implies decrease in other
supply
joint supply
produced in same production process
not possible to produce more of one without producing more of other
inferior g&s
g&s where demand falls as income increases
more affordable substitutes for more expensive g&s
normal/superior g&s
g&s where demand increases as income increases
luxury g&s not deemed a necessity for living
supply shocks
sudden and unpredictable events that affect supply
can be beneficial/adverse
price mechanism
the process by which P increase or decrease as a result of changes in D and S
coordinates consumption and production decisions as an invisible hand
shortage
excess D
Qd»_space;> Qs
surplus
excess S
Qd «< Qs
market
where producers and consumers take place to exchange g&s
competitive market
a market with many individual and small sellers and buyers
no one in the market have the power to influence P of g&s
P affected by D and S
marginal benefit
extra benefit from consuming additional unit of good
downward-sloping bc consumers are willing to pay less for each additional unit
law of diminishing marginal return
MB decreases as consumers are willing to pay less for each additional unit
consumer surplus
pos diff between maximum amount willing to pay and amount actually paid
marginal cost
firms’ extra cost of producing additional unit of g&s
upward-sloping because each unit more costly than the last
producer surplus
positive difference between amount actually received and minimum amount willing to accept
social surplus
CS + PS
allocative efficiency
achieved when market allocates resources so no one can be better off without making someone else worse off
MB = MC
allocative inefficiency
MB > MC: underproduction
MB < MC: overproduction
welfare loss exist
welfare loss
loss of SS in society when resources are not allocated efficiently
price elasticity of demand
measures the responsiveness of Qd to a change in its P
% change in Qd/% change in P
price elasticity of supply
measures the responsiveness of Qs to a change in its P
% change in Qs/% change in P
perfectly elastic demand
an increase in the P of a g&s leads to a fall in the Qd of the g&s to zero
infinity
perfectly elastic supply
a fall in the P of a g&s leads to a fall in the Qs of the g&s to zero
infinity
perfectly inelastic demand
a change in the P of a g&s leads to no change in the Qd of the g&s
0
perfectly inelastic supply
a change in the P of a g&s leads to no change in the Qs of the g&s
0
income elasticity of demand
a measure of the responsiveness of the D for a g&s to a change in income
unitary elastic demand
a change in the P of a g&s leads to an equal and opposite proportional change in the Qd of the g&s
1
unitary elastic supply
a change in the P of a g&s leads to an equal proportional change in the Qs of the g&s
1
benefit/utility
satisfaction of a consumer from consuming a g&s
free market
P of g&s freely determined by D and S
government intervention
any action carried out by gov that affects market econ with the objective of impacting consumption and production decisions
total revenue
the aggregate revenue gained by a firm from the sale of a particular Q of output
P x Qt
price control
the setting of market P by gov so P are unable to adjust back to their problematic equilibrium level determined by D and S
price ceiling
legal maximum price set by the gov below the equilibrium price that producers can charge on a g&s
price floor
legal minimum price set by the government above the equilibrium price that producers should charge on a g&s
unit tax
a specific amount of tax is imposed on each unit of a g&s
indirect taxes
taxes on spending on g&s paid partly & indirectly by consumers but paid to gov by producers
suppliers can shift tax burden to consumers by ↑ P
subsidy
financial assistance from the government
market failure
failure of the market to allocate resources efficiently
socially-optimum outcome
no externalities
MPB = MPC and MSB = MSC
no difference between benefits to consumers and to society and costs to producers and to society
allocative efficiency achieved
externality
consumption or production that gives rise to pos or neg effects on others whose interests are not taken into consideration
negative externality
action exerts negative effects known as external cost on third parties but no compensation is paid
divergence between private and social cost
positive externality
action exerts positive effects known as external benefits on third parties but no payment received
divergence between private and social benefit
demerit good
g&s considered to be undesirable to consumers
over-provided by free market
negative externalities of consumption
external cost created by consumers in consumption process of g&s that result in negative effect on third parties
negative externalities of production
external cost created by producers in production process
merit good
g&s considered to be desirable by consumers
under-provided by free market
positive externalities of consumption
external benefit created by consumers in consumption process of g&s that result in positive effect on third parties
positive externalities of production
external benefit created by producers in production process
marginal private cost
cost to producers of producing 1 more unit of g&s
marginal social cost
cost to society of producing 1 more unit of g&s
marginal private benefit
benefit to consumers from consuming 1 more unit of g&s
marginal social benefit
benefit to society from consuming 1 more unit of g&s
private cost
cost borne by economic agents taking action
external cost
cost borne by other economic agents (non-decision makers)
social cost
cost borne by society as a whole
carbon tax
tax per unit of carbon emissions
tradable permits
policy involving permits to pollute issued to firms by the government
government regulation
used to limit consumption or production activities
education
used to persuade and inform consumers by raising awareness thru advertising and education
common access resources
resources that unowned by anyone
available for anyone to use without payment
sustainability
needs of the present are met without decreasing the ability of future generations to meet their own needs
rivalrous
one’s consumption of g&s reduce amount available for others
non-excludable
not possible to exclude people from using resource
used abundantly without restriction → resources overused, degraded and depleted
excludable
can prevent people from consuming the g&s once it has been produced
usually done by charging a price for the g&s
tragedy of commons
occurs in shared-resource system where individual users act independently according to own self-interest
public good
non-rivalrous & non-excludable in consumption
private good
rivalrous and excludable in consumption
impure public good
non-rivalrous and excludable in consumption
free-rider problem
once the g&s are produced, consumers who have not paid can still enjoy the benefits of public g&s
