year 1 micro definitions Flashcards
scarcity
a situation that arises due to unlimited wants in face of limited resources
economic goods
goods that are scarce - limited supply
free goods
goods that arent scarce - unlimited supply
poverty
a situation in which individuals lack the basic necessities of life
firm
an organization that produces output
household
person or people who engage in economic activity as a single entity
utility
the benefit derived from consumption of a good or service
positive statement
a factual statement
normative statement
a statement involving a value judgement about what ought to be
value judgement
a statement based on your opinion or belief instead of facts
factor of production
resources used in the production process
trade off
a situation in which the choice of one option requires the sacrifice of another
Opportunity cost
the value of the next best alternative forgone
production possibility curve
a curve showing the maximum combination of goods and services that can be produced in a arbitrary time period
capital goods
goods used as part of the production process
consumer goods
goods produced for consumption
resource allocation
the way in which a societys productive assets are deployed
market economy
a market structure where the invisible hand is allowed to allocate all of a societies resources
centrally planned economy
when the government allocates all of a societies resources
mixed economy
where a combination of market forces and government intervention allocate resources
capitalism
a system of production in which there is private ownership of productive resources and individuals are free to pursue their objectives with little government interference
invisible hand
a term used by adam smith to refer to how a market independently allocates resources in a market economy
specialisation
the process of concentrating on a task or skill to become better at it
division of labour
a process whereby production is broken down into several steps and workers are assigned to each stage
market
a set of arrangements that allow transactions to take place
barter system
an economy without money
money as a medium of exchange
the function of money that allows transactions to take place
labour productivity
output per worker per unit of time
marginal principle
the idea that economic decisions are made based on small changes from the existing
rational decision making
a decision that allows an economic agent to maximise their objective
utility
the benefit from consumption
marginal utility
the addition utility from consuming an extra unit of a good or service
the law of diminishing marginal utility
the more units of a good that are produced the lower the utility from consumption
state provision
when the government decides which goods or services to provide and spends money providing them
price control
a legal minimum or maximum price
price floor
a legal minimum price
price ceiling
a legal maximum price
cartel
an agreement between firms on output or price
merger
2 or more firms joining to become a larger firm
buffer stock
a scheme intended to stabilize the price of a commodity by buying excess supply in periods when supply is high and selling when supply is low
legislation
laws created by government to enforce regulations
regulation
rules created by government to control the activities of producers and consumers
prohibition
an attempt to prevent the consumption of a demerit good by making it illegal
information provision
when the government decides to educate the public to help consumers make better choices
pollution permit system
a system whereby firms can buy permits to pollute up to a certain level
polluter pays principle
an argument that states the the cost of pollution should be paid by the economic agent causing it
property rights
legal control or ownership of a good
contracting out
a situation whereby the public sector places activities in the hands of the private sector and pays for them
competitive tendering
a process by which the public sector asks the private sector to bid for contracts to provide a good or service
public private partnership
an arrangement by which a government service is funded and operated through the partnership of the government and private sector
private finance initiative
a funding arrangement where the private sector builds funds and operates an asset in exchange for an annual payment
individual demand
the demand for a good from a single household
market demand
the demand from the market as a whole
joint demand
a situation whereby demand for 1 product causes an increase in demand for another
competitive demand
where there are multiple products that a consumer could choose from
composite demand
where products have multiple uses - high demand for a product causes a decrease in demand for another
movement along the demand curve
when demand remains constant but there is a change in price
shift in the demand curve
when the factors affecting demand of a product change causing the demand curve to move
individual supply
the amount of a product that a single firm is willing and able to supply
market supply
the amount of a product that is supplied by the market as a whole
joint supply
a situation in which the supply of one good is proportional to the supply of another
consumer surplus
the difference between what a consumer pays and what they would be willing to pay
producer surplus
the difference between the price that the producer sets and the lowest price they are willing to sell it for
cetirus paribus
the assumption that all else remains equal
market equilibrium
the intersection of supply and demand
disequilibrium
a situation in which the market is producing at a point that isnt the intersection of supply and demand
elasticity
the extent to which a change in one variable will affect another variable
price elasticity of demand
the effect of price on demand
income elasticity of demand
the effect of income on demand
cross elasticity of demand
the effect of the price of one good on the demand for another
price elasticity of supply
the effect of price on supply
market failure
a situation in which the market allocates resources inefficiently
marginal social cost
the cost to society of producing an extra unit of a product
marginal social benefit
the benefit to society of producing an extra unit of a product
marginal external cost
the cost to 3rd parties of producing an extra unit of a product
marginal external benefit
the benefit to 3rd parties of producing an extra unit of a product
marginal private cost
the cost to the household/firm who are consuming/producing a product
Asymmetric information failure
When one part has access to information that the other doesnt
Moral hazard
A situation in which one party engages in risky behaviour because they know that another party will bear the consequences
Merit goods
good that are underconsumed because consumers dont understand their benefit
Demerit goods
goods that are overconsumed because consumers dont understand the dangers associated with them
Private goods
A good which can be consumed by a single person only
Public goods
Goods that are provided without profit to all members of a society, usually by government
Non rivalrous
Consumption from one person doesnt reduce the amount available for consumption by another person
Non excludability
Consumption from one person makes it impossible to exclude others from consumption
non rejectability
Once a good has been provided one cannot avoid consuming it
Quasi public good
A good that has some features of a public good but not all
Features of public goods
Non-rivalry
Non-excludability
Zero marginal cost of production
Non-rejectable
Free riders
Those who benefit from a good or service without paying for it
