Micro Economics Definitions

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  • Created by: Simone
  • Created on: 15-03-14 10:10
Economic Problem
how to allocate scarce resources among alternative uses
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Scarcity
when the finite resources available are insufficient to meet out unlimited wants
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Opportunity Cost
the next best alternative foregone
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PPC
shows the maximum quantity of TWO goods that can be produced in a time period given all resources are fully and efficiently employed
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Specialisation
the concentration of workers, firms or economies on the production of a narrow range of goods and services. Output can be maximized where there is specialization and exchange
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Market
any place where buyers and sellers meet to exchange or trade products
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Competitive Market
A market made up of many buyers and sellers
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Consumer Surplus
the extra amount a consumer is willing to pay for a product above the price that is actually paid (i.e. the market price)
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Producer Surplus
the difference between the market price which producers receive and the price at which they are prepared to supply
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Price Elasticity of Demand
measures the responsiveness of quantity demanded to a change in the price of a product
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Price Elasticity of Income
measures the responsiveness of quantity demanded to changes in consumer incomes
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Cross Elasticity of Demand
measures the responsiveness of quantity demanded for one product in relation to a change in the price of another
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Price Elasticity of Supply
measures the responsiveness of quantity supplied to a change in the price of a product
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Externality
these arise if a third party (someone not directly involved) is affected by the decisions and actions of others (producers and consumers)
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Positive Externality
When third parties benefit from the spill over effects of production or consumption for which they do not pay
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Negative Externality
production or consumption imposes costs on third parties who receive no compensation
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Information Failure
a lack of information resulting in consumers and producers making decisions that does not maximise welfare
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Demerit Good
as a result of information failure they are generally over-produced and consumed and are more harmful than actually realised
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Merit Good
as a result of information failure they are generally under-produced and consumed but are better for people than realised
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Public Goods
a good which is non-excludable and non-rival
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Non-Excludable
individuals cannot be excluded from their consumption - once provided for one consumer it is impossible to stop others from benefiting (free riders)
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Non-Rival
consumption by one person does not affect the consumption of others
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Allocative Efficiency
when resources are being used to produce those items most valued by society
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When is allocative efficiency achieved?
quantity supplied must equal quantity demanded - market must function in the equilibrium position
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Productive Efficiency
production is achieved at the lowest price
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Demand
the quantity of a product that consumers are willing and able to buy at various prices per period of time, all else being equal
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Supply
the quantity of a product producers are willing and able to provide at different market prices over a period of time
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Other cards in this set

Card 2

Front

when the finite resources available are insufficient to meet out unlimited wants

Back

Scarcity

Card 3

Front

the next best alternative foregone

Back

Preview of the back of card 3

Card 4

Front

shows the maximum quantity of TWO goods that can be produced in a time period given all resources are fully and efficiently employed

Back

Preview of the back of card 4

Card 5

Front

the concentration of workers, firms or economies on the production of a narrow range of goods and services. Output can be maximized where there is specialization and exchange

Back

Preview of the back of card 5
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