ECONOMIC MICRO DEFINITIONS

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  • Created by: Ella
  • Created on: 20-03-13 18:41
What is Asymmetric Information?
Where one party in an economic relationship has more information than another; e.g. doctors and patients.
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Definition of Buffer Stock Scheme?
A scheme that buys surplus produce in periods of abundance and sells stock in periods of shortage, in order to stabilise the market price.
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Definition of Ceteris Peribus?
An assumption that all other factors are held constant.
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What are Complement goods?
A pair of goods that are consumed together; i.e. a negative cross-price elasticity of demand.
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Definition of Consumer Surplus?
The difference between the total value consumers place on the units consumed of a good or service and the payment required to purchase that quantity consumed (represented by the area below the demand curve and above the price line).
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Definition of Cross elasticity of Demand?
Measures the responsiveness of demand to a change in the price of a related good or service.
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Definition of an externality?
The costs or benefits of a transaction that are not incurred or received by the producers or consumers but instead by third parties; i.e. the spillover effects of an economic activity.
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Definition of external benefits?
The difference between social and private benefits; i.e. those received by third parties.
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What is the definition of external costs?
The difference between social and private costs; i.e. those incurred by third parties.
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What is a free-rider?
People who use public goods but don’t pay for them.
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Definition of Free market economy?
An economy which tackles the basic economic problem, the co-existence of infinite wants and finite resources, predominately through the price mechanism.
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Income elasticity of demand?
Measures the responsiveness of demand to a change in income.
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Definition of Indirect Tax?
A tax on expenditure paid by the supplier not the consumer.
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Inferior Good?
A good whose demand falls when income increases i.e. a negative income elasticity of demand. This relationship may arise as consumers buy more desirable alternatives as their income rises.
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Definition of long run?
The period of time over which the quantity of all factors of production can be changed.
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Market Failure?
Occurs when a market produces a misallocation of resources.
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Normal Good?
A good whose demand increases when income increases; i.e. a positive income elasticity of demand.
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Normative Statement?
It is a statement that contains a value judgement; i.e. what ought to be.
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Opportunity cost?
The value of the next best thing foregone.
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Positive Statement?
It is a statement that asserts a fact about the world; i.e. what is, was or will be.
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What is a PPF?
A production possibility frontier is the boundary between attainable and unattainable output combinations, given a finite quantity of productive resources. Movement along the frontier implies an opportunity cost in terms of the output of one good for
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Price ceiling?
A maximum price set by a regulator above which suppliers cannot sell; i.e. rent controls for low-cost housing.
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Price elasticity of demand?
Measures the responsiveness of demand to a change in price.
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Price elasticity of supply?
Measures the responsiveness of supply to a change in price.
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Price floor?
A minimum price set by a regulator below which buyers cannot purchase; i.e. the national minimum wage.
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Price mechanism?
An economic system which allocates resources using prices to transmit information, provide incentives and distribute rewards.
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Producer surplus?
The difference between the total revenue producers receive for selling a good or service and the opportunity cost of remaining in that market (represented by the area above the supply curve and below the price line).
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Public Goods?
Goods and services that, once produced, can be consumed by everyone in society: they exhibit non-rivalry and non-excludability.
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Rationing function?
The price mechanism allocates scarce resources to those buyers who are prepared to pay a high enough price.
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Short run?
The period of time over which the quantity of some factor of production is fixed.
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Signaling function?
Prices help to determine where and how resources should be allocated e.g. if prices increase, this suggests more resources should be allocated to the market.
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What is a subsidy?
A per-unit payment made by the government to producers which they will receive in addition to the market price.
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Substitute goods?
A pair of goods which are considered to be alternatives to each other by consumers; i.e. a positive cross-price elasticity of demand.
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Other cards in this set

Card 2

Front

Definition of Buffer Stock Scheme?

Back

A scheme that buys surplus produce in periods of abundance and sells stock in periods of shortage, in order to stabilise the market price.

Card 3

Front

Definition of Ceteris Peribus?

Back

Preview of the front of card 3

Card 4

Front

What are Complement goods?

Back

Preview of the front of card 4

Card 5

Front

Definition of Consumer Surplus?

Back

Preview of the front of card 5
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Comments

Ibrahim Basar

Thanks, helped a lot.

davidsalter

33 flash cards with definitions of the main terms needed for unit one.

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