Microeconomics

?
  • Created by: Yemi
  • Created on: 29-09-16 19:11
Marginal Principle
The idea that economic agents may take decisions by considering the effect of small changes from the existing situation. Economic agents take decisions that allow them to do the best to achieve objectives
1 of 44
Rational Decision Making
A decision that allows an economic agent to maximise their objectives by setting the marginal benefit of an action equal to its marginal cost (MB=MC)
2 of 44
Utility
The satisfaction gained from consuming a good or service
3 of 44
Marginal Utility
The additional utility gained from consuming an extra unit of a good or service
4 of 44
The Law of Diminishing Marginal Utility
States that the more units of a good that are consumed, the lower the utility from consuming those additional units
5 of 44
Equi-marginal Principle
States that a consumer does best in utility terms by consuming at the point where the ratio of marginal utlilites from two goods is equal to the ratio of their prices
6 of 44
Budget Line
Shows the boundary of an individuals consumptio set,given the amount available to spend and the prices of the goods
7 of 44
Income Effect
Reflects the way that a change in price of good affects purchasing power
8 of 44
Substitution Effect
Reflects the way that a change in price of a good affects relative prices
9 of 44
Behavioral Economics
A branch of economics that builds on the psychology of human beahviour in decision making
10 of 44
Firm
An organisation that brings together the factors of production in order to produce output
11 of 44
Short-run
The period over which a firm is free to vary its input of one factor of production (labour). but faces fixed inputs of the other factors of production
12 of 44
Long-run
The period over which a firm is able to vary the inputs of all its factors of production
13 of 44
Fixed Costs
Costs that are independant of output produced
14 of 44
Variable Costs
Costs that are directly related to the level of output produced
15 of 44
Total Cost
Fixed costs + Variable costs
16 of 44
Average Cost
The unit cost of production(Total cost/Total output)
17 of 44
Marginal Cost
The change in total cost when one more unit of output is produced
18 of 44
Average total cost (ATC)
Average fixed cost (AFC) + Average variable cost (AVC)
19 of 44
Law of Diminishing Marginal Returns
If one input of production is increased while other inputs are held fixed, a point will eventually be reached at which additions of the input yield progressively smaller or diminishing increase in output
20 of 44
Economies of Scale
The benefits gained through producing on a larger scale
21 of 44
Diseconomies of Scale
The causes of an increase in long-run average costs beyond the point of minimum efficient scale
22 of 44
Minimum Efficient Scale
Lowest level of output where long-run average cost is minimised
23 of 44
Internal Economies of Scale
Lowers a firms unit costs because the firm is growing
24 of 44
External Economies of Scale
Lowers a firms unit costs because the industry is growing
25 of 44
Managerial Economies of Scale
Savings in the long-run average costs due to the specialisation of management
26 of 44
Technical Economies of Scale
Increased capacity or a technological development that results in lower long-run average costs
27 of 44
Purchasing Economies of Scale
Reduced unit costs due to bulk buying of inputs into a business
28 of 44
Financial Economies of Scale
The cost savings that large firms ma receive when borrowing money
29 of 44
Coordination Issues
Problems arising from layers of management/tiers in decision making, hindering change
30 of 44
Communication Issues
Costs incurred in making managers aware of what is going on
31 of 44
Alienation of The Workforce
Workers feel unimportant and relations with employees may become more strained
32 of 44
Revenue
The income generated from selling goods and services
33 of 44
Average Revenue
Price per unit = Total revenue/Quantity
34 of 44
Marginal Revenue
The addition to total revenue from selling one additional unit of output
35 of 44
Total Revenue
Price per unit x Quantity
36 of 44
Price Makers
Each firm can control their prices, which can have an effect on their total revenue
37 of 44
Accounting Profit
The difference between revenue and explicit costs
38 of 44
Economic (supernatural/supernormal) Profit
Profit that is more than normal profit
39 of 44
Normal Profit
The level of profit that keeps a firm in a particular activity
40 of 44
Profit Maximisation
Where a firm selects the level of output and price to gain the most profit possible by producing where MC=MR
41 of 44
Short-Run Shut Down Condition
States that a firm should stay open in the short-run whenever price>marginal cost
42 of 44
Principle-Agent Problem
Arises fromconflict between the objectives of the principals and their agents who make decisions on their behalf
43 of 44
Sales Maximisation
An objective that involves the maximisation of the volume of sales
44 of 44

Other cards in this set

Card 2

Front

A decision that allows an economic agent to maximise their objectives by setting the marginal benefit of an action equal to its marginal cost (MB=MC)

Back

Rational Decision Making

Card 3

Front

The satisfaction gained from consuming a good or service

Back

Preview of the back of card 3

Card 4

Front

The additional utility gained from consuming an extra unit of a good or service

Back

Preview of the back of card 4

Card 5

Front

States that the more units of a good that are consumed, the lower the utility from consuming those additional units

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 Key words resources »