MICRO ECONOMICS KEY TERMS

?
Allocative Efficiency
occurs when the available economic resources are used to produce the combination of goods and services that best matches people's tastes and preferences.
1 of 142
Allocative function of prices
Changing relative prices allocate scarce resources away from markets exhibiting excess supply and into markets in which there is excess demnd.
2 of 142
Artificial barrier to entry
a barrier to market entry which is man-made.
3 of 142
Average cost
total cost of production divided by output
4 of 142
average revenue
total revenue divided by output; in a single-product firm, average revenue equals the price of the product.
5 of 142
capital good
a good which is used in the production of other goods (also known as producer good)
6 of 142
Capital productivity
output per unit of capital
7 of 142
Choice
choosing between alternatives when making a decision on how to use scarce resources.
8 of 142
Collusion
co-operation between firms, for example to fix prices. Some forms of collusion may be in the public interest, for example joint research and labour training schemes.
9 of 142
Competing supply
when raw materials are used to produce one good they cannot be used to produce another good.
10 of 142
Competitive market
A market in which the large number of buyers and sellers possess good market information and can easily enter or leave the market. A competitive firm is one in which firms strive to outdo their rivals, it does not need to meet perf. comp. conditions
11 of 142
Complementary Good
A good in joint demand, or is demanded at the same time as another good.
12 of 142
Composite demand
demand for a good which has more than one use
13 of 142
Concentrated Market
A market containing very few firms, in the extreme one firm
14 of 142
conccentration ratio
a ratio which indicates the total market share of a number of leading firms in a market, or the output of these firms as a percentage of total market output.
15 of 142
condition of demand
a determinant of demand, other than the good's own price, that fixes the position of the demand curve.
16 of 142
conditions of supply
determinants of supply, other than the good's own price, that fix the position of the supply curve.
17 of 142
consumer good
a good which is consumed by individuals or households to satisfy their needs or wants.
18 of 142
consumer sovereignty
through excersing their spending power, consumers collectively determine what is produced in a market. Consumer sovereignty is strongest in a perfectly competitive market.
19 of 142
consumption externality
an externality [which may be positive or negative] generated in the course of consuming a good or service.
20 of 142
cross-elasticity of demand
measure the extent to which the demand for a good changes in response to a change in price of another good; calculated by % change in Q demanded in good a, divided by, % change in price of good B
21 of 142
decrease in demand
a leftward shift of the demand curve
22 of 142
decrease in supply
a leftward shift of the supply curve
23 of 142
demand
the quantity of a good or service that consumers are willing and able to buy at given prices in a given period of time. For economists, demand is always effective demands.
24 of 142
Demerit good
a good, such as tobacco, for which the social costs of consumption exceed the private costs. Value judgements are involved in deciding that a good is a demerit good.
25 of 142
Derived demand
demand for a good which is an input into the production of another good
26 of 142
diseconomy of scale
as output increases, long-run average cost rises
27 of 142
disequilibrium
a situation in a market when there is excess supply or excess demand
28 of 142
distribution of income and wealth
the way in which income and wealth is divided among the population
29 of 142
division of labour
this concept goes hand in hand with specialisation. Different workers perform different tasks in the course of producing a good or service.
30 of 142
economic growth
the increase in the potential level of real output the economy can produce over a period of time
31 of 142
economic welfare
the economic well-being of an individual, a group within society, or an economy
32 of 142
economy of scale
as output increases, long-run average cost falls
33 of 142
effective demand
the desire for a good or service backed up by the ability to pay
34 of 142
elasticity
the proportionate responsiveness of a second variable to an initial proportionate change in the first variable
35 of 142
entry barrier
makes it difficult or impossible for new firms to enter a market
36 of 142
equilibrium
a state of rest or balance between opposing forces
37 of 142
equilibrium price
the price at which planned demand for a good or service exactly equals planned supply
38 of 142
equity
fairness or justness
39 of 142
excess demand
when consumers wish ti buy more than firms wish to sell, wth the price below the equilibrium price
40 of 142
excess supply
when firms wish to sell more than consumers wish to buy, with the price above the equilibrium price
41 of 142
exchange
to five something in return for something else recieved. moeny is a medium of echange
42 of 142
exit barrier
makes it difficult or impossible for firms to leave a market
43 of 142
external economy of scale
cost saving resulting from the growth of theindustry or market of which the firm is a part
44 of 142
externality
a public good, in the case of an external benefit, or a public bad, in the case of an external cost, that is 'dumped' on third parties outside the market.
45 of 142
factors of production
inputs into the production process, such as land, capital, labour and enterprise.
46 of 142
finite resource
A resource, like oil which is scarce and runs out as it is used. also known as a non-renewable resource.
47 of 142
fixed cost
cost of production, which in the short run, does not change with output.
48 of 142
full employment
when all who are able and willing to work are employed.
49 of 142
fundamental economic problem
how best to make decisions about the allocation of scarce resources among competing uses so as to improve and maximise human happiness and welfare.
50 of 142
geographical immobility of labour
occurs when workers find it difficult or impossible to move to jobs in other parts of the country or in other countries for reasons such a higher housing costs in locations where jobs exist.
51 of 142
government failure
occurs when government intervention reduces economic welfare, leading to an allocation of resources which s worse than a free-market outcome.
52 of 142
immobility of labour
the inability of labour to move from one job to another, either for occupational reasons [e.g. the need for training] or for geographical reasons [e.g. the cost of moving to another part of the country]
53 of 142
imperfect competition
any market structure lying between the extremes of perfect competition and pure monopoly.
54 of 142
incentive function of prices
prices create incentives for people to alter their economic behaviour for example, a higher price creates an incentive for firms to supply more of a good or service.
55 of 142
income elasticity of demand
measures the extent to which the demand for a good changes in response to a change in income. It is calculated by the % change in quantity demanded of the good divided by the % change in income.
56 of 142
increase in demand
A rightward shift of the demand curve
57 of 142
Increase in supply
A rightward shift of the supply curve
58 of 142
inequity
unfairness or unjustness
59 of 142
inferior good
a good for which demand decreases as income rises and demand increases as income falls
60 of 142
information problem
occurs when people make the wrong decisions because they dont possess or ignore relevant information. Very often they are myopic [short-sighted] about the future.
61 of 142
informative advertising
provides consumers and producers with useful information about goods or services
62 of 142
innovation
converts the results of invention into marketable products or services
63 of 142
internal economy of scale
cost saving resulting from the growth of the firm itself
64 of 142
invention
creates new ideas for products or processes
65 of 142
joint supply
when one good is produced, another good is also produced from the same raw materials.
66 of 142
labour productivity
output per worker
67 of 142
limit pricing
reducing the price of a good to just above average cost to deter the entry of new firms into the market. Prices are set at levels which are likely to make it unprofitable for potential entrants who might consider coming into the market.
68 of 142
long run
the time period in which no factors of production are fixed and in which all factors of production can be varied.
69 of 142
long-run average cost
long-run total cost divided by output
70 of 142
long-run production
occurs when a firm changes the scale of all the factors of production
71 of 142
market demand
the quantity of a good or service that all the consumers in a market are willing and able to buy at different market prices.
72 of 142
market disequilibrium
exists at any price other than the equilibrium price. When the market is in disequilibrium, either excess demand or excess supply exists in the market.
73 of 142
market equilibrium
When planned demand meets planned supply in the market
74 of 142
market failure
when the market mechanism leads to a misallocation of resources in the economy, either completely failing to provide a good or service or providing the wrong quantity
75 of 142
market share maximisation
occurs when a firm maximises its percentage share of the market and the ways in which they behave
76 of 142
market supply
the quantity of a good or service that all firms plan to sell at given prices in a given period of time
77 of 142
merit good
a good, such as healthcare, which when consumed leads to benefits which other people enjoy/good where the long-term benefit of consumption exceeds the short-term benefit enjoyed by the person consuming it. Value judgements decide if a good is merit.
78 of 142
missing market
A situation in which there is no market because the functions of prices have broken down.
79 of 142
monopoly power
the power of a firm to act as a price maker rather than a price taker.
80 of 142
natural barrier to entry
a barrier to market which is not man-made.
81 of 142
natural monopoly
(i) when a country or firm has complete control of a natural resource (ii) when there is only room in a market for one firm benefiting from economies of scale to the full
82 of 142
need
something that is not necessary to human survival, such as food, clothing, warmth or shelter
83 of 142
negative externality
(same as external cost) occurs when the consumption or production of a good causes costs to a third party, where the social cost is greater than the private cost.
84 of 142
normal good
a good for which demand increases as income rises and demand decreases as income falls.
85 of 142
normative statement
a statement that includes a value judgement and cannot be refuted just by looking at evidence
86 of 142
occupational immobility of labour
occurs when workers find it difficult or impossible to move between jobs because they lack or cannot develop the skills required for the new jobs
87 of 142
oligopoly
a market dominated by few firms
88 of 142
opportunity cost
the cost of giving up the next best alternative
89 of 142
patent
a strategic or man-made barrier to market entry caused by government legislation protecting the right of a firm to be the sole producer of a patented good, unless the firm grants royalties for other firms to produce the good.
90 of 142
perfect competition
a market which displays the 6 conditions of: (1)# of buyers/sellers (2)perfect market information (3)ability to buy/sell at market ruling price (4) inability of B/S to influence market price (5)homogeneous product (6) no long run barriers enter/exit
91 of 142
persuasive advertising
attempts to persuade potential customers that a good or service possesses desirable characteristics that make it worth buying
92 of 142
positive externality
(same as external benefit)occurs when the consumption or production of a good causes benefit to a third party, where the social benefit is greater than the private benefit
93 of 142
positive statement
a statement of fact that can be scientifically tested to see if it is correct or incorrect
94 of 142
predatory pricing
temporarily reducing the price of a good to below average cost to drive smaller firms out of the market.
95 of 142
price ceiling
a price above which it is illegal to trade. Price ceilings, or maximum legal prices, can distort markets by creating excess demand
96 of 142
price competition
reducing the price of a good or service to gain sales by making it more attractive to customers
97 of 142
price elasticity of supply
measures the extent to which the supply of a good changes in response to a change in price of that good
98 of 142
price elasticity of demand
measures the extent to which the demand for a good changes in response to a change in price of that good.
99 of 142
price floor
a price below which it is illegal to trade. Price floors, or minimum legal prices, can distort market by creating excess supply
100 of 142
price taker
a firm which passively accepts the ruling market price set by market conditions outside of its control
101 of 142
price maker
a firm possessing the power to set the price within the market
102 of 142
private good
a good, such as an orange, that is excludable and rival.
103 of 142
producer sovereignty
producers or firms in a market determine what is produced and what prices are charged
104 of 142
product differentiation
making a product different from other products through product design, the method of producing the product, or through its functionality
105 of 142
production
a process, or set of processes, that converts input into outputs of goods
106 of 142
production externality
an externality [which may be positive or negative] generated in the course of producing a good or service
107 of 142
production possibility frontier
a curve depicting the various combinations of two products [ortypes of products] that can be produced when all the available resources are fully and efficiently employed
108 of 142
productive efficiency
for the economy as a whole occurs when it is impossible to produce more of one good without producing less of another. For a firm this occurs when the average total cost is minimised
109 of 142
productivity gap
the difference between labour productivity in the UK and in other developed countries
110 of 142
productivity
output per unit of input in a given time frame
111 of 142
profit
the difference between total sales revenue and total costs of production
112 of 142
profit maximisation
occurs when a firms total sales revenue is furthest above total cost of production
113 of 142
public good
a good, such as a radio programme, that is non-rival and non-excludable
114 of 142
pure monopoly
where there is only one firm in a market
115 of 142
quantity setter
a form chooses the quantity of a good to sell, rather than its price. In monopoly, the market demand curve then dictates the maximum price that can be charged if the firm is to successfully sell its chosen quantity
116 of 142
quasi-public good
a good which is not fully non-rival/ or where it is possible to exclude people from consuming the product
117 of 142
rationing function of prices
rising prices ration demand for a product
118 of 142
regulation
involves the imposition of rules, controls and constraints, which restrict freedom of economic action in the market place
119 of 142
renewable resource
a resource, such as timber, that with careful management can be renewed as it is used
120 of 142
resource allocation
the process through which the available factors of production are assigned to produces different goods/services e.g. how many of the societys economic resources are devoted to supplying products such as food, cars, healthcare and defence
121 of 142
resource misallocation
when resources are allocated in a way which does not maximise economic welfare
122 of 142
sales maximisation
occurs when sales revenue is maximised
123 of 142
saturation advertising
through flooding the market with information and persuasion about a firms product, this functions as a man-made barrier to market entry by making it difficult for smaller firms to compete
124 of 142
scarcity
results from the fact that people have unlimited wants but resources ti meet these wants are limited. In essence, people would like to consume more goods and services than the economy is able to provide with its limited resources
125 of 142
short run
the time period in which at least one factor of production is fixed and cannot be varied
126 of 142
short-run production
occurs when a firm adds variable factors of production to fixed factos of production
127 of 142
signalling function of prices
prices provide information to buyers and sellers
128 of 142
social benefit
the total benefit of an activity, including the extrenal benefit as well as the privcate benefit. social benefit= private benefit+external benefit
129 of 142
social cost
the total cost of an activity, including the external cost as well as the private cost. Social cost= private cost+external cost
130 of 142
specialisation
a worker only performing one taask or a narrow range of tasks. Also, different frims specialising in producing different goods and services
131 of 142
Subsidy
a payment made by government or another authority, usually to producers, for each unit of the subsidised good that they can produce. consumers can also be subsidised e.g. buss passes that allow children to travel for free or at a reduced price
132 of 142
substitute good
a good in competing demand, namely a good which can be used in place of another good
133 of 142
supply
the quantity of a good or service that firms are willing and able to sell at given prices and in a given time period
134 of 142
tax
a compulsory levy imposed by the government to pay for its activities. Taxes can also be used to achieve other objectives, such as reduced consumption of demerit goods
135 of 142
technical economy of scale
a cost saving generate through changes to the productive processes as the scale of production and level of output increase
136 of 142
total cost
the whole cost (fixed cost+variable cost) of producing a particular level of output
137 of 142
total revenue
the money a firm recieves from selling its output, calculated by multiplying the price by the quantity sold
138 of 142
trade
the buying and selling of goods/services
139 of 142
unemployment
when not all those willing and able to work are employed
140 of 142
variable cost
cost of production which changes with the amount that is produced, even in the short run
141 of 142
want
something that is desirable, such as fashion clothing, but is not necessary for human survival
142 of 142

Other cards in this set

Card 2

Front

Changing relative prices allocate scarce resources away from markets exhibiting excess supply and into markets in which there is excess demnd.

Back

Allocative function of prices

Card 3

Front

a barrier to market entry which is man-made.

Back

Preview of the back of card 3

Card 4

Front

total cost of production divided by output

Back

Preview of the back of card 4

Card 5

Front

total revenue divided by output; in a single-product firm, average revenue equals the price of the product.

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 ALL resources »