Definitions

HideShow resource information
Microeconomics
the study of how households & firms make decisions & how they interact in markets
1 of 78
The basic economic problem
how scarce resources are allocated between infinite wants and needs
2 of 78
Economic goods
goods which are scarce because their use has an opportunity cost e.g oil
3 of 78
Free goods
goods which are unlimited in supply & have no opportunity cost e.g sunlight
4 of 78
Scarcity
when people have unlimited wants in the face of limited resources
5 of 78
Factors of production
resources used as inputs in the production process including labour, land, capital & entrepenuership
6 of 78
Opportunity cost
the value of the next best alternative foregone
7 of 78
Free market economy
the allocation of resources is left to the price mechanism without government intervention
8 of 78
Mixed economy
resources are allocated partly through price mechanism and partly by government intervention
9 of 78
Sustainable development
development which meets the needs of the present without compromising the ability of future generations to meet their own needs
10 of 78
Non-renewable resources
natural resources which cannot be replaced when used up e.g oil
11 of 78
Renewable resources
natural resources that when used up can be replaces e.g fish and forest
12 of 78
Production Possibility Frontier
a curve which shows the maximum combination of two goods an economy can produce when all its resources are fully employed
13 of 78
Economic growth
genuine economic growth is an expansion in productive capacity of the economy (PPF shift to the right)
14 of 78
Capital Goods
goods that are used to produce other goods or services e.g machinery
15 of 78
Consumer goods
products used up in consumption e.g clothing, food, fridges
16 of 78
Specialisation
when individuals or economies in the production of one product
17 of 78
Division of labour
production is broken down into different tasks and workers are assigned to each task
18 of 78
Labour productivity
output per worker, or output per hour worked
19 of 78
Positive statements
a statement based on fact and can be tested as true or false
20 of 78
Normative statements
a statement based on a value judgement about what ought to be
21 of 78
Normal good
one where QD rises in response to an increase in consumer incomes. They have positive income elasticity of demand.
22 of 78
Inferior good
one where QD decreases in response to an increase in consumer incomes e.g public transport. Has negative income elasticity of demandd
23 of 78
Luxury good
one where as income rises consumers spend proportionally more on the good ie. income elasticity of demand is greater than 1
24 of 78
Substitutes
goods which are similar and one can be consumed instead of the other. Positive XED
25 of 78
Complements
goods which are used together such that a rise in the price of one will lead to a fall in demand for another. Positive XED
26 of 78
PED
measure of the responsiveness of QD following a change in price of a good or service
27 of 78
YED
measure of the responsiveness of QD following a change in consumer incomes
28 of 78
XED
measure of the responsiveness of QD of a good or service to the change in price of another good
29 of 78
PES
measure of the responsiveness of QS following a change in price of a good or service
30 of 78
Real income
income after the effect of inflation has been taken out
31 of 78
Indirect taxes
tax on the expenditure on a good or service
32 of 78
Ad Valorem tax
tax set as a percentage on the price of a good
33 of 78
Specific tax
a fixed charge imposed per unit of a product (a flat rate tax)
34 of 78
Subsidy
a grant to firms to encourage an increase in production or reduction in price
35 of 78
Consumer tax
the amount of tax paid by the consumer
36 of 78
Producer tax
the amount of tax paid by the producer
37 of 78
Consumer subsidy
the amount of the subsidy that consumers gain
38 of 78
Producer subsidy
the amount of the subsidy that producers gain
39 of 78
Total revenue
Price x Quantity sold
40 of 78
Percentage change
difference/original x 100
41 of 78
Consumer surplus
the difference between the price one is prepared to pay and the actual market price
42 of 78
Producer surplus
the difference between the price a firm is willing to sell a good for and the actual market price
43 of 78
Price mechanism
where the forces of demand and supply determine the allocation of resources
44 of 78
Excess supply (surplus)
where the QS exceeds the QD at the current price
45 of 78
Excess demand (shortage)
where the QD exceeds the QS at the current price
46 of 78
Derived demand
demand for product X is strongly linked to demand for product Y
47 of 78
Joint supply
an increase in demand or decrease in supply for one good leads to an increase in demand or decreased supply of another e.g beef and leather
48 of 78
Composite demand
where a good is demanded for more than one use e.g increase in demand for horse meat means decrease supply for horse riding
49 of 78
NMW
legal minimum hourly rate of pay per hour below which employers are not allowed to pay
50 of 78
Market failure
occurs where the price mechanism fails to allocate resources efficiently
51 of 78
Unstable commodity markets
where commodity markets are characterised by fluctuating prices which makes it difficult to plan for future investment
52 of 78
Minimum price schemes
a floor price is set by a government agency and the agency purchases any surpluses at this price
53 of 78
Buffer stock scheme
where and agency sells from its stockpile in times of poor harvest and buys up stock in times of good harvest in order to reduce price fluctuations
54 of 78
Tradable pollution permits
an allowance on the amount of pollution firms may emit which can be bought and sold on the open market
55 of 78
Renewable energy certificates
scheme where firms that generate renewable energy are given certificates that they can sell to firms generating carbon emissions
56 of 78
Carbon offsetting
schemes that enable producers or consumers to offset their carbon emissions by paying for the removal of carbon emissions elsewhere
57 of 78
Extension of property rights
where the government allocates legal control or ownership of resources and the uses to which those resources can be put.
58 of 78
Regulation
where the government sets minimum standards or direct controls to correct market failure e.g minimum age for the purchase of alcohol
59 of 78
Government failure
where government intervenes to correct market failure but makes it worse and leads to a net welfare loss
60 of 78
Public good
has characteristics of non-rivalry and non-excludability e.g street lighting
61 of 78
Private good
has characteristics of rivalry and excludability e.g an apple
62 of 78
Free rider problem
once a good is provided it is possible for people to consume a good without paying for it. Little incentive for producers to supply large quantities
63 of 78
Imperfect information
where consumers and producers have unequal market information on which to base their decisions; leads to misallocation of resources
64 of 78
Geographical labour immobility
the inability of labour to move from one area to another to take available work
65 of 78
Occupational labour immobility
the inability of labour to change occupations to take available work
66 of 78
Externalities
affects on third parties not involved in the transaction
67 of 78
External costs
costs external to an exchange or negative third party effects e.g pollution
68 of 78
External benefits
benefits external to an exchange or positive third party effects
69 of 78
Private costs
costs internal to an exchange e.g production costs, rent
70 of 78
Private benefits
benefits internal to an exchange e.g consumer utility, profit
71 of 78
Social costs
costs that incorporate both private and external costs
72 of 78
Social benefits
benefits that incorporate both private and external benefits
73 of 78
Welfare loss
the excess of social cost over social benefit for a given quantity
74 of 78
Welfare gain
the excess of social benefit over social costs for a given quantity
75 of 78
Social optimum level of output
where the marginal social benefit (MSB) equal the marginal social cost (MSC)
76 of 78
Merit goods
goods which tend to be under-consumed if left to the free market e.g vaccinations, fresh fruit and veg
77 of 78
Demerit goods
goods which tend to be over-consumed if left to the free market e.g cigarettes and alcohol
78 of 78

Other cards in this set

Card 2

Front

how scarce resources are allocated between infinite wants and needs

Back

The basic economic problem

Card 3

Front

goods which are scarce because their use has an opportunity cost e.g oil

Back

Preview of the back of card 3

Card 4

Front

goods which are unlimited in supply & have no opportunity cost e.g sunlight

Back

Preview of the back of card 4

Card 5

Front

when people have unlimited wants in the face of limited resources

Back

Preview of the back of card 5
View more cards

Comments

No comments have yet been made

Similar Economics resources:

See all Economics resources »See all Competitive markets resources »