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Micro Economics > year 12 definitions > Flashcards

year 12 definitions Flashcards

(85 cards)

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1
Q

Ad Valorem Tax

A

A tax levied on a commodity set as a percentage of selling price

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2
Q

Adverse Selection

A

A situation in which a person at risk is more likely to take out insurance

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3
Q

Allocative Efficiency

A

Achieved when consumer satisfaction is maximised

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4
Q

Asymmetric Information

A

A situation in which some participants in a market have better information about the market than others

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5
Q

Average Total Cost

A

Total cost divided by quantity produced

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6
Q

Buffer Stock

A

A scheme intended to stabilise the price of a commodity by buying excess supply in periods when supply is high, and selling this stock when supply is low

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7
Q

Capitalism

A

A system of production in which there is private ownership of productive resources, and individuals are free to pursue their objectives with minimal government interference

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8
Q

Centrally Planned Economy

A

Decisions on resource allocation are guided by the state

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9
Q

Ceteris Paribus

A

A Latin phrase meaning ‘other things being equal’. It is used in economics when we focus on change in one variable while holding other influences constant

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10
Q

Comparative Static Analysis

A

Examines the effect on equilibrium of a change in the external conditions affecting a market

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11
Q

Competitive Demand

A

Demand for goods that are in competition with each other

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12
Q

Competitive Market

A

A market in which individual firms cannot influence the price they are selling because of competition from other firms

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13
Q

Competitive Supply

A

A situation in which a firm can use its factors of production to produce alternative products

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14
Q

Complements

A

Two goods are said to be complements if people tend to consume them jointly, so that an increase in the price of one good causes the demand of the other good to fall

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15
Q

Composite Demand

A

Demand for a good that has multiple uses

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16
Q

Composite Supply

A

Where a product produced by a firm serves multiple markets

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17
Q

Consumer Surplus

A

The value that consumers gain from consuming a good or service over and above the price paid

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18
Q

Consumption Externality

A

An externality that affects the consumption side of a market which may be either positive or negative

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19
Q

Cost Efficiency

A

Appropriate combination of inputs of factors of production, given relative prices of those factors

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20
Q

Cross elasticity of demand (XED)

A

measure of sensitivity of quantity demanded on one good/service to a change in price of another
%change in quanity demanded good A divided by %change price of good A

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21
Q

Demand

A

Quantity of a good or service that consumers are willing and able to buy at any possible price in a given period

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22
Q

Demand Curve

A

A graph showing how much of a good or service will be demanded by consumers at a given price

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23
Q

Demerit good

A

A good that brings less benefit to consumers than they expect, such that too much will be consumed by individuals in a given market

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24
Q

Derived Demand

A

Demand for a factor of production or a good which derives not from the factor or the good itself but from the good it produces

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25
Division of Labour
A process whereby the production procedure is broken down into a sequence of stages, and workers are assigned to particular stages
26
Economic Efficiency
A situation in which both productive efficiency and allocative efficiency have been reached
27
Economic Growth
An expansion in productive capacity of the economy
28
Externality
A cost or benefit that is external to market transaction, and thus not reflected in market prices
29
Factors of Production
Resources used in the production process; inputs into production, including labour, capital, land and entrepreneurship
30
Firm
An organisation that bring together factors of production in order to produce output
31
Fixed Costs
Costs incurred by a firm that do not vary with output level
32
Free Market Economy
One in which resource allocation is guided by market forces, without intervention from the state
33
Free-rider problem
When an individual cannot be excluded from consuming a good and thus has no incentive to pay for its provision
34
Government Failure
A misallocation of resources arising from government intervention
35
Gross Domestic Product
A measure of economic activity carried out in an economy during a period
36
Incidence of Tax
The way in which the burden of paying a sales tax is divided between buyers and sellers
37
Income elasticity of demand (YED)
measure of the sensitivity of quantity demanded to a change in consumers income %change quantity demanded divided by %change real income
38
Indirect Tax
A tax levied on expenditure on goods and services (as opposed to a direct tax which is charged directly to an individual based on income)
39
Inferior Good
one where the quantity demanded decreases in response to an increase in consumer income
40
Internalising an economy
an attempt to deal with an externality by bringing an external cost or benefit into the price system
41
Invisible Hand
Term used by Adam Smith to describe the way resources are allocated in a market economy
42
Joint Demand
Demand for goods which are interdependent, such that they are demanded together
43
Joint supply
Where a firm produces more than one product together
44
Law of Demand
A law that states there is an inverse relationship between quantity demanded and the price of a good or service, ceteris paribus
45
Macroeconomics
The study of the interrelationship between economic variables at an aggregate (economy wide) level
46
Marginal Cost
The cost of producing an additional unit of output
47
Marginal Social Benefit
The additional benefit that society gains from consuming an extra unit of a good
48
Marginal Social Cost
The additional cost to society of producing an extra unit of a good
49
Market
A set of arrangements that allow transactions to take place
50
Market economy
Market forces are allowed to guide the allocation of resources within an economy
51
Market equilibrium
A situation that occurs in a market where the price is such that quantity that consumers wish to buy is exactly balanced by the quantity firms wish to sell
52
Market failure
A situation in which the free market mechanism does not lead to optimal allocation of resources. eg there is a divergence between marginal social cost and marginal social benefit
53
Merit good
A good that brings unanticipated benefits to consumers, such that it will be under consumed in a free market
54
Microeconomics
The study of economic decisions taken by individual economic agents such as households and firms
55
Minimum wages
A system designed to protect the low paid by setting a minimum wage that employers are permitted to offer
56
Mixed economy
Resources are allocated partly through price signals and partly through government direction
57
Model
A simplified representation of reality used to provide insight into economic decisions and events
58
Moral hazard
A situation in which a person who has taken out insurance is prone to taking more risk
59
Normal good
One where the quantity demanded increases in response to an increase in consumer income
60
Normative statement
A statement involving a value judgement that is about what ought to be
61
Opportunity cost
In decision making, the value of next best alternative forgone
62
Pareto Optimum
An allocation of resources is said to be pareto optimum if no reallocation of resources can make an individual better off without making other individuals worse off
63
Positive statement
A statement that is about what is, facts
64
Price elasticity of demand (PED)
A measure of the sensitivity of quantity demanded to a change in the price of a good or service %change in quantity demanded divided by %change in price
65
Price elasticity of supply (PES)
A measure of the sensitivity of quantity supplied of a good or service to a change in the price of that good or service %change in quantity supplied divided by %change in price
66
Private cost
A cost incurred by an individual (firm or consumer) as part of its production or other economic activities
67
Private good
A good that, once consumed by one person, cannot be consumed by somebody else. Such a good has excludability and is rivalrous
68
Producer surplus
The difference in the price received by firms and the price at which they would be willing to supply
69
Production externality
An externality that affects the production side of a market, which may be either positive or negative
70
Production possibility curve
A curve showing the maximum combinations of goods or services that can be produced in a set period of time given available resources
71
Productive efficiency
Attained when a firm operates at minimum average total cost, choosing an appropriate combination of inputs (cost efficiency) and producing maximum possible output from those inputs (technical efficiency_
72
Prohibition
An attempt to prevent the consumption of a demerit good by declaring it illegal
73
Public good
A good that is non-exclusive and non-rivalrous. Consumers cannot be excluded from consuming the good and consumption by one person doesn't effect the amount available for others to consume
74
Resource Allocation
The way in which a society's productive assets are used amongst their alternative uses
75
Scarcity
A situation that arises because people have unlimted wants in the face of limited resources
76
Specific tax
A tax of a fixed amount imposed on the purchase of a commodity
77
Subsidy
A grant given by the government to producers to encourage production of a good or service
78
Substitutes
Two goods are said to be substitutes if consumers regard them as alternatives, so the demand for one is likely to rise if the price of the other rises.
79
Sunk costs
Costs incurred by a firm that cannot be retrieved if the firm ceases trading
80
Superior good
One for which the income elasticity of demand is positive, and greater than 1. So that as income rises, consumers spend proportionally more on the good
81
Supply curve
A graph showing the quantity supplied at any given price
82
Technical efficiency
Attaining the maximum possible output from a given set of inputs
83
Total cost
The sum of all costs that are incurred in producing a given level of output
84
Unemployment
When people seeking work at the going wage cannot find a job
85
Variable costs
Costs that vary with level of output

Micro Economics (2 decks)

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