AS - Microeconomics key terms

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  • Created by: Ellie
  • Created on: 19-02-14 10:08
The allocation of scarce resources to infinite wants
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Decisions that affect individuals and companies
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Decisions that affect the economy as a whole
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Something that is essential to survive
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Something we would like but is not essential for survival
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Economic resources
Things at our disposal that can satisfy our wants and needs. They are Land, Labour, Capital and Enterprise.
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All natural resources of the earth
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All the human, mental and physical effort that goes into production
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All the equipment, machinery and buildings that are used in production.
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The skills needed to organise other resources
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Opportunity cost
The next best alternative foregone
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The economic problem
What will be produced? How will it be produced? and Who will get whats produced?
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Command economy
Government owns the means of economy e.g North Korea
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Market economy
Resources are allocated by the price mechanism
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Mixed economy
A mix of command and market economy e.g the UK
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Joint demand
Where demand for one product causes demand for another product e.g. phone and phone case
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Composite demand
Goods that can be used as alternatives for other goods e.g. chicken and beef
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Complementary goods
Goods used in conjunction with each other e.g. tennis rackets and balls
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Price inelastic demand
When prices fall demand increases by a smaller amount
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Perfectly elastic demand
A fall in price leads to an infinite level of demand
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Perfectly inelastic demand
When price changes and theres no effect on demand
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Price elasticity of demand
The responsiveness of demand to a change in price
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Inferior good
A good where demand falls as income rises e.g. margarine
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Normal good
A good where demand increases as incomes rise - made up of basic and superior goods
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Positive statement
An objective/factual statement that can be proven
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Normative statement
A statement of what ought to be/ an opinion - they can't be proven
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Basic good
Demand increases as incomes rise- the increase in demand is lower than the increase in income
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Superior/ Luxury good
Demand increases as income rises. The increase in demand is higher than the increase in income
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Unit tax
The same monetary tax regardless of the price of the product
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Consumer Surplus
The difference between the price a consumer is willing to pay and the price they actually pay
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Producer surplus
Is the difference between what producers are willing and able to supply a good for and the price they actually receive.
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Veblen good
Consumers believe a rise in price means a rise in quality e.g perfume
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Public bad
Public goods are set to avoid public bads e.g rubbish collection to avoid fly tipping
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Private goods
Goods that are excludable and diminishable
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Public goods
Goods which are non-excludable and non-rival
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Complete market failure
Where the market doesn't exist
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Partial market failure
Where the market functions but produces the wrong amount of goods
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Market failure
Where the market mechanism performs poorly it can fail inefficiently or inequitably
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Derived demand
Where the demand of a good/service comes from the demand of another good/service e.g transport
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Effective demand
A want/desire that is affordable to an individual
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The law of demand
The lower the price the greater the demand
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Peverse demand schedule
The higher the price the greater the demand
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Ad Velorem tax
When a tax is the same percentage regardless of the price
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Giffen goods
Found in poorer countries where an increase of price causes the good to replace other goods e.g. if the price of rice rose people would buy it instead of vegetables
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Money given by the government to encourage production of a good or service, this means prices can be lower
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A cost or benefit from economic activity felt by a person who is not directly involved
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Aterm to describe markets free from government intervention
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A market where there is only one firm - they generally produce a low output at a high price.
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Negative externalites
Costs imposed on a third party not involved in the consumption or production of a godo
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An intervention system that aims to limit the fluctuations of the price of a commodity
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Contraction in supply
When the amount offered for sale is reduced because the price level has fallen
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Contraction in demand
Falls in the quantity demanded caused by rises in price
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The amount that consumers are willing and able to pay at each given price level
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Demerit good
A good that would be over consumed in a free market as it brings less overall benefit to consumers than they realise
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A situation in the market when supply does not equal demand
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Disposable Income
Income available to house holds after the payment of income tax and national insurance contribution
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Division of Labour
Breaking the production process down into a sequence of tasks with workers assigned to particular tasks
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Economic growth
The capacity of the economy to produce more goods and services over time
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Economic goods
Goods that are scarce and therefore have an opportunity cost
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The price at which demand is equal to supply with no tendency to change
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Excess demand
When demand is greater than supply at a given price
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Excess supply
When supply at a particular price is greater than demand - this signals to producers to lower prices
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Costs or benefits that spill over to third parties external to a market transaction
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Free Goods
Goods that have no opportunity cost e.g air
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Free-rider problem
Where some consumers benefit from other consumers purchasing a good- particularly in public goods
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Government failure
When government intervention to correct market failure foes not improve the allocation of resources r leads to the situation worsening. The costs of government intervention exceeds the benefits
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A flow of earnings to a factor of production over a period of time e.g wages/salaries
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Joint supply
When the production of one good also results in the production of another
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External benefit
The spillover benefit to third parties of an economic transaction
69 of 90
External cost
The spillover cost to third parties of an economic transaction
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Private benefit
The benefit to an individual or firm of an economic decision
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Private cost
The cost to an individual or firm of an economic transaction
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Social benefit
The full benefit to society of an economic transaction including private and external costs
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Social cost
The full cost to society of an economic transaction including private and external costs
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Market supply
The sum of all individual firms supply curves at each given price
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Minimum price
A price floor below which the price of a good or service is not allowed to decrease
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Maximum price
A price ceiling above which the price of a good/service is not allowed to increase
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Merit good
A good that would be under consumed in a free market as individuals do not fully perceive the benefit obtained from consumption
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Occupational immobility
as patterns of demand and employment change many workers may find id difficult to easily secure new jobs as they may lack the skills needed
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Pollution permit
A permit sold to firms by the government allowing them to pollute up to a certain limit
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Positive externality
A positive spillover effect to third parties of a market transaction
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The process that converts factor inputs into outputs of goods and services
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Production possibility boundary
PPF/PPB - indicates the maximum possible output that can be achieved given a fixed set of resources and technology in a particular time period
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A measure of efficiency in workers and other factors of production
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When total income or total revenue for a firm is greater than total costs
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Quasi public goods
A good that has some qualities of a public good but doesn't fully posses the characteristics of non-rival and non-excludable
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Real interest rate
The money rate of interest minus the rate of inflation
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The production of a limited range of goods by an individual factor of production or firm or country in corporation with others so that together a complete range of goods is produced
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The amount offered for sale at each given price level
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Those without a job but who are seeking work at current wage rates
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Other cards in this set

Card 2


Decisions that affect individuals and companies



Card 3


Decisions that affect the economy as a whole


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Card 4


Something that is essential to survive


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Card 5


Something we would like but is not essential for survival


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