AS - Microeconomics key terms

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  • Created by: Ellie
  • Created on: 19-02-14 10:08
Economics
The allocation of scarce resources to infinite wants
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Microeconomics
Decisions that affect individuals and companies
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Macroeconomics
Decisions that affect the economy as a whole
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Needs
Something that is essential to survive
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Wants
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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Land
All natural resources of the earth
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Labour
All the human, mental and physical effort that goes into production
8 of 90
Capital
All the equipment, machinery and buildings that are used in production.
9 of 90
Enterprise
The skills needed to organise other resources
10 of 90
Opportunity cost
The next best alternative foregone
11 of 90
The economic problem
What will be produced? How will it be produced? and Who will get whats produced?
12 of 90
Command economy
Government owns the means of economy e.g North Korea
13 of 90
Market economy
Resources are allocated by the price mechanism
14 of 90
Mixed economy
A mix of command and market economy e.g the UK
15 of 90
Joint demand
Where demand for one product causes demand for another product e.g. phone and phone case
16 of 90
Composite demand
Goods that can be used as alternatives for other goods e.g. chicken and beef
17 of 90
Complementary goods
Goods used in conjunction with each other e.g. tennis rackets and balls
18 of 90
Price inelastic demand
When prices fall demand increases by a smaller amount
19 of 90
Perfectly elastic demand
A fall in price leads to an infinite level of demand
20 of 90
Perfectly inelastic demand
When price changes and theres no effect on demand
21 of 90
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
24 of 90
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
29 of 90
Consumer Surplus
The difference between the price a consumer is willing to pay and the price they actually pay
30 of 90
Producer surplus
Is the difference between what producers are willing and able to supply a good for and the price they actually receive.
31 of 90
Veblen good
Consumers believe a rise in price means a rise in quality e.g perfume
32 of 90
Public bad
Public goods are set to avoid public bads e.g rubbish collection to avoid fly tipping
33 of 90
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
36 of 90
Partial market failure
Where the market functions but produces the wrong amount of goods
37 of 90
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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Subsidy
Money given by the government to encourage production of a good or service, this means prices can be lower
45 of 90
Externality
A cost or benefit from economic activity felt by a person who is not directly involved
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Laissez-faire
Aterm to describe markets free from government intervention
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Monopoly
A market where there is only one firm - they generally produce a low output at a high price.
48 of 90
Negative externalites
Costs imposed on a third party not involved in the consumption or production of a godo
49 of 90
Bufferstock
An intervention system that aims to limit the fluctuations of the price of a commodity
50 of 90
Contraction in supply
When the amount offered for sale is reduced because the price level has fallen
51 of 90
Contraction in demand
Falls in the quantity demanded caused by rises in price
52 of 90
Demand
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
54 of 90
Disequilibrium
A situation in the market when supply does not equal demand
55 of 90
Disposable Income
Income available to house holds after the payment of income tax and national insurance contribution
56 of 90
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
58 of 90
Economic goods
Goods that are scarce and therefore have an opportunity cost
59 of 90
Equilibrium
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
61 of 90
Excess supply
When supply at a particular price is greater than demand - this signals to producers to lower prices
62 of 90
Externalities
Costs or benefits that spill over to third parties external to a market transaction
63 of 90
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
65 of 90
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
66 of 90
Income
A flow of earnings to a factor of production over a period of time e.g wages/salaries
67 of 90
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
74 of 90
Market supply
The sum of all individual firms supply curves at each given price
75 of 90
Minimum price
A price floor below which the price of a good or service is not allowed to decrease
76 of 90
Maximum price
A price ceiling above which the price of a good/service is not allowed to increase
77 of 90
Merit good
A good that would be under consumed in a free market as individuals do not fully perceive the benefit obtained from consumption
78 of 90
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
80 of 90
Positive externality
A positive spillover effect to third parties of a market transaction
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Production
The process that converts factor inputs into outputs of goods and services
82 of 90
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
83 of 90
Productivity
A measure of efficiency in workers and other factors of production
84 of 90
Profit
When total income or total revenue for a firm is greater than total costs
85 of 90
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
86 of 90
Real interest rate
The money rate of interest minus the rate of inflation
87 of 90
Specialisation
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
88 of 90
Supply
The amount offered for sale at each given price level
89 of 90
Unemployment
Those without a job but who are seeking work at current wage rates
90 of 90

Other cards in this set

Card 2

Front

Decisions that affect individuals and companies

Back

Microeconomics

Card 3

Front

Decisions that affect the economy as a whole

Back

Preview of the back of card 3

Card 4

Front

Something that is essential to survive

Back

Preview of the back of card 4

Card 5

Front

Something we would like but is not essential for survival

Back

Preview of the back of card 5
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