AS Economics Microeconomics Key Terms

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  • Created by: Richard98
  • Created on: 02-05-17 12:21
Ad valorem tax
A tax levied on a commodity set as a percentage of the selling price
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Adverse selection
A situation in which a person at risk is more likely to take out insurance
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Allocative efficiency
Achieved when consumer satisfaction is maximised
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Asymmetric information
A situation in which some participants in a market have better information about market conditions than others
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Average total cost (ATC)
Total cost divided by the quantity produced
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Buffer stock
A scheme intended to stabilise the price of a commodity by buying excess supply in periods when supply is high, and selling when supply is low
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Capitalism
A system of production in which there is private ownership of productive resources, and individuals are free to pursue their objectives with minimal interference from government
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Centrally planned economy
Decisions on resource allocation are guided by the state
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Ceteris paribus
A Latin phrase meaning 'other things being equal'; it is used in economics when we focus on changes in one variable while holding other influences constant
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Comarative static analysis
Examines the effect on equilibrium of a change in the external conditions affecting a market
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Competitive demand
Demand for goods that are in competition with each other
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Competitive market
A market in which individual firms cannot influence the price of the good or service they are selling, because of competition from other firms
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Competitive supply
A situation in which a firm can use its factors of production to produce alternative products
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Complements
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 for the other good to fail
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Composite demand
Demand for a good that has multiple uses
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Composite supply
Where a product produced by a firm serves more than one market
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Consumer surplus
The value that consumers gain from consuming a good or service over and above the price paid
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Consumption externality
An externality that affects the consumption side of a makret which may be either positive or negative
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Cost efficiency
The appropriate combination of inputs of facotrs of production, given the relative prices of those factors
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Cross elasticity of demand
A measure of the sensitivity of quantity demanded of a good or service to change in the price of some other good or service.
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Demand
The 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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Demand curve
A graph showing how much of a good will be demanded by consumers at any given price
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Demerit good
A good that brings less benefit to consumers than they expect, such that too much will be consumed by individuals in a free market
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Derived demand
Demand for a factor of production or a good which derives not from the factor or the good itself, but from the goods it produces
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Division of labour
A process whereby the production procedure is broken down into a sequence of stages, and workers are assigned to particular stages
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Economic efficiency
A situation in which both productive efficiency and allocative efficiency have been reached
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Economic growth
An expansion in the productive capacity of the economy
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Economies of scale
Occurs for a firm when an increase in the scale of production leads to production at lower long-run average cost
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Elasticity
A measure of the sensitivity of one variable to changes in another variable
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Excess burden of a sales tax
The deadweight loss to society following the imposition of a sales tax
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External cost
A cost that is associated with an individual's (a firm or household's) production or other economic activities, which is borne by a third party
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Externality
A cost or a benefit that is external to a market transaction, and is thus not reflected in market prices
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Factors of production
resources used in the production process, inputs into production, including labour, captial, land and entrepreneurship
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Firm
An organisation that brings together factors of production in order to produce output
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Fixed costs
Costs incurred by a firm that do not vary with the level of output
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Free market economy
One in which resource allocation is guided by market forces without intervention by the state
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Free-rider problem
When an individual cnnot be excluded from consuming a good, and thus has no incentive to pay for its provision
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Government failure
A misallocation of resources arising from government intervention
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Gross domestic product (GDP)
A measure of the economic activity carried out in an economy during a period
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Incidence of a tax
The way in which the burden of paying a sales tax is divided between buyers and sellers
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Income elasticity of demand (YED)
A measure of the sensitivity of quantity demanded to a change in consumer incomes
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Indirect tax
A tax levied on expenditure on goods or services
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Inferior good
One where the quantity demanded decreases in response to an increase in consumer incomes
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Internalising an externality
An attempt to deal with an externality by ringing an external cost or benefit into the price system
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Invisible hand
Term used by Adam Smith to describe the way in which resources are allocated in a market economy
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Joint demand
Demand for goods which are interdependent, such that they are demanded together
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Joint supply
Where a firm produces more than one product together
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Law of demand
A law that states that there is an inverse relationship between quantity demanded and the price of a good or service ceteris paribus
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Macroeconomics
The study of the interrelationships between economic variables at an aggregate level
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Marginal cost (MC)
The coset of producing an additional unit of output
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Marginal social benefit (MSB)
The additional benefit that society gains from consuming an extra unit of good
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Marginal social cost (MSC)
The cost to socity of producing an extra unit of good
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Market
A set of arrangements that allows transactions to take place
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Market economy
Market forces are allowed to guide the allocation of resources within a society
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Market equilibrium
A situation that occurs in a market when the price is such that the quantity that consumers wish to buy is exactly balanced by the quantity that firms wish to supply
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Market failure
A situation in which the free market mechanism does not lead to an optimal allocation of resources
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Merit good
A good that brings unanticipated benefits to consumers, such that society believes it will be underconsumed in a free market
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Microeconomics
The study of economic decisions taken by individual economic agents, including households and firms
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Minimum wage
A system designed to protect the low paid by setting a minimum wage rate that employers are permitted to offer workers
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Mixed economy
Resources are allocated partly through price signals and partly on the basis of direction by government
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Model
A simplified representation of reality used to provide insight into economic decisions and events
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Moral Hazard
A situation in which a person who has taken out insurance is prone to taking more risk
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Normal good
One where the quantity demanded increases in response to an increase in consumer incomes
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Normative statement
A statement involving a value judgement that is about what ought to be
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Opportunity cost
In decision making, hte value of the next best alternative forgone
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Pareto optimum
An allocation of resources is said to be a Pareto optimum if no reallocation of resources can make an individual better off without making some other individual worse off
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Positive statement
A statement about what is, i.e. about facts
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Price elasticity of demand (PED)
A measure of the sensitivity of quantity demanded to a change in the price of a good or service. It is measured as % change in quantity demand / % change in price
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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
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Private cost
A cost incurred by an individual (firm or consumer) as part of its production or other economic activities
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Private good
A good that once consumed by on person, cannot be consumed by somebody else; such a good has excludability and is rivalrous
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Producer surplus
The difference between the price received by firms for a good or service and the price at which they would have been prepared to supply that good or service
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Production externality
An externality that affects the production side of a market, which may be either positive or negative
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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
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Productive efficiency
Attained when a firm operates at minimum average total cost, choosing an appropriate combination of inputs (cost efficiency) and producing the maximum output possible from those inputs (technical efficiency)
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Prohibition
An attempt to prevent the consumption of a demerit good by declaring it illegal
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Public good
A good that is non-exclusive and non-rivalrous, consumers cannot be excluded from consuming the good, and consumption by one person does not affect the amount of good available for others to consume
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Resource allocation
The way in which a society's productive assets are used amongst their alternative uses
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Scarcity
A situation that arises because people have unlimited wants in the face of limited resources
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Specific tax
A tax of a fixed amount imposed on purchases of a commodity
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Subsidy
A grant given by the government to producers to encourage production of a good or service
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substitutes
Two goods are said to be substitutes if consumers regard them as alternatives, so that the demand for one good is likely to rise if the price of the other good rises
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Sunk costs
Costs incurred by a firm that cannot be recovered if the firm ceases trading
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Superior good
One for which the income elasticity of demand is positive, and greater than 1, such that as income rises, consumers spend proportionally more on the good
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Supply curve
A graph showing the quantity supplied at any given price
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Technical efficiency
Attaining the maximum possible output from a given set of inputs
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Total cost (TC)
The sum of all costs that are incurred in producing a given level of output
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Unemployment
Results when people seeking work at the going wage cannot find a job
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Variable costs
Costs that vary with the level of output
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Other cards in this set

Card 2

Front

Adverse selection

Back

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

Card 3

Front

Allocative efficiency

Back

Preview of the front of card 3

Card 4

Front

Asymmetric information

Back

Preview of the front of card 4

Card 5

Front

Average total cost (ATC)

Back

Preview of the front of card 5
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