Micro definitions

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  • Created by: Emma
  • Created on: 20-04-14 22:45
Microeconomics
Study of behaviour of small economic units, such as individual consumers/households = analyses their decisions, factors affecting those decisions and how effects others
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Normative economics
Part=shows value
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Positive economics
Part=shows descriptions and explanations.
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Economy
State of a country/region in terms of production + consumption of g/s + the supply of money
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Market
Arrangement=brings buyer into contact with sellers. Consists of free market, command, mixed
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Basic economic problem
Where resources are scarce in relation to our desires
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Infinite wants
NO end to our desire for things that=not necessarily for survival but gives us utility
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Scarcity
When things are scarce in relation to our desires
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FOPs
Resource inputs that=available in an economy for product of g/s
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Necessity
g/s=required to live
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Land
Natural resources; anything you can take/grow on land. e.g.oil
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Labour
Human resources; skills, quality+qualification of workers
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Capital
Equipment, etc; used to produce other g/s
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Enterprise
organise other 3 FOPs=risktaker
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Specialisation
Individual/firm/country focuses on producing all/part of a particular g/s
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Opportunity cost
Cost of consuming a g/s, but expressed in terms of the next best alternative foregone
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PPF
Shows max possible combination of 2 goods=could be produced by an economy if all resources=used efficiently
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Pareto efficient
Where it is impossible to make someone bette roof without making someone else worse off
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Productive efficiency
Achieved when g/s=produced by the least cost combo of resources-max production given resources available
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Price
Amount of money=paid for a given amount of a particular g/s
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Demand
Quantity of a product that consumers are willing and able to purchase at any given price over a certain period of time
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Income effect
Change in income results in change in consumption
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Substitution effect
Change in price if good A leads to a change in demand of good B
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Consumer surplus
Difference between what consumer is willing+able to pay for a product and what they actually pay
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Producer surplus
Difference between price producer is willing+able to supply at and what they actually supply it at
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Substitutes
Competing good
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Complements
Goods where there=joint demand
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Normal good
As income increases so does your demand for some goods, e.g. clothes
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Inferior good
As income increases so does your demand for some goods, e.g. telco value
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Supply
Quantity of a g/s that producers are willing and able to supply at any given price over a certain period of time
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Tax
Compulsory payment to state revenue, imposed by gov, on income, profit, cost of some goods, services, transactions
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Subsidy
Payment, usually from gov, to encourage production or consumption of a product
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Equilibrium
Where demand=supply
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Elasticity
extent to which buyers+sellers respond to a change in market conditions
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PES
Responsiveness to change qd in relation to change in price. %∆qd / %∆p
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YED
Responsiveness to change in qd in relation to change in income. %∆qd / %∆y
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XED
Responsiveness to change in qd of one good in relation to price of another. %∆qd goodA / %∆p good B
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PES
Responsiveness to change qs in relation to change in price. %∆qs / %∆p
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Perfectly elastic
Where any change in qd will not effect price
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Perfectly inelastic
Where any change in price will not effect demand
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Allocative efficiency
When resources are used to make the g/s the citizens want given their costs of production=max their utility (satisfaction/benefit)
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Market failure
Where market mechanism fails to result in the best/most efficient outcome=economic efficiency (allocative+productive efficiency)
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Negative externality
When 3rd party is negatively effected by a decision made by someone else. In this case private costs=only part of the total social costs
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Positive externality
When 3rd party is positively effected by a decision made by someone else. In this case private benefits=only part of the total social benefits
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Private benefit/cost
Benefits directly received by those taking a particular action/ Costs incurred by those taking a particular action
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External benefit/cost
Benefits received to a 3rd party as a consequence of a decision maker/ Costs received to a 3rd party as a consequence of a decision maker
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Social benefit/ cost
Total benefits of a particular action/ total costs of a particular action
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Merit good
One that if left to free market it would be under consumed or provided. Good=has benefits, but we don't realise the full vale of these
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Demerit good
One that if left to free market would be over consumed. Good=costs, but we don't realise the true negative value
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Information failure
Lack of info results in consumers+producers making decisions=don't max welfare
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Public good
One that if left to free market=not be provided at all, been though lots of benefits. 2 characteristics=non-excludabe+non-rival
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Free-rider problem
Many consumers=hold of paying for a g/s, in hope someone else will pay for it=still receive benefits
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Quasi-public good
Goods that have same characteristics as public good, but excludable and rival
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State provision
Gov can supply g/s directly to consumers free of charge=free at the point of use, e.g. primary education, visits to doctors
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Tradable pollution permits
Permit=allows owner to emit a amount of pollution and if unused or only partially used, can be sold to another pollution
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Other cards in this set

Card 2

Front

Part=shows value

Back

Normative economics

Card 3

Front

Part=shows descriptions and explanations.

Back

Preview of the back of card 3

Card 4

Front

State of a country/region in terms of production + consumption of g/s + the supply of money

Back

Preview of the back of card 4

Card 5

Front

Arrangement=brings buyer into contact with sellers. Consists of free market, command, mixed

Back

Preview of the back of card 5
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