MicroEconomics Definitions

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  • Created by: tomtom11
  • Created on: 09-05-16 11:20
Opportunity Cost
The value of the next-best alternative forgone.
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Economic Growth
An expansion in the productive capacity of the economy.
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Division of Labour
A process whereby the production procedure is broken down into a sequence of stages, and workers are assigned to particular stages.
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Derived demand
Demand for a factor of production or a good which derives not from the factor or the good itself, but from the goods it produces.
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Joint demand (think complimentary goods)
Demand for goods which are interdependent, such that they are demanded together.
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Composite demand
Demand for a good that has multiple uses.
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Competitive demand
Demand for goods that are in competition with each other.
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Normal good
One where the quantity demanded increases in response to an increase in consumer incomes.
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Inferior good
One where the quantity demanded decreases in response to an increase in consumer incomes.
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Substitutes
Two goods are said to be substitutes if consumers regard them as alternatives, so that the demand for one good is likely to rise if the price of the other good rises.
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Complements
Two goods are said to be complements if people tend to consume them jointly, so that an increase in the price of one good causes the demand for the other good to fall.
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Marginal Social Benefit (MSB)
The additional benefit that society gains from consuming an extra unit of a good.
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Consumer surplus
The value that consumers gain from consuming a good or service over and above the price is paid.
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Competitive supply
A situation in which a firm can use its factors of production to produce alternative products.
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Joint supply
Where a firm produces more than one product together.
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Composite supply
Where a product produced by a firm serves more than one market.
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Producer surplus
The difference between the price received by firms for a good or service and the price at which they would have been prepared to supply that good or service.
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Marginal cost
The cost of producing an additional unit of output.
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Comparative static analysis
Examines the effect on equilibrium of a change in the external conditions affecting a market.
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Price Elasticity of Demand (PED)
A measure of the sensitivity of quantity demanded to a change in the price of a good or service.
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Income Elasticity of Demand (YED)
A measure of the sensitivity of quantity demanded to a change in consumer incomes.
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Cross Elasticity of Demand (XED)
A measure of the sensitivity of quantity demanded of a good or service to a change in the price of some other good or service.
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Price Elasticity of Supply (PES)
A measure of the sensitivity of quantity supplied of a good or service to a change in the price of that good or service.
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Productive Efficiency
When a firm operates at minimum average total cost, choosing an appropriate combination of inputs (cost efficiency) and producing the maximum output possible from those inputs (technical efficiency).
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Allocative Efficiency
When consumer satisfaction is maximised.
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Economic Efficiency
When both productive and allocative efficiency have been reached.
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Total Cost (TC)
The sum of all costs that are incurred in producing a given level of output.
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Average Total Cost (ATC)
Total cost divided by the quantity produced.
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Marginal Cost (MC)
The cost of producing an additional unit of output.
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Fixed Costs
Costs incurred by a firm that do not vary with the level of output.
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Sunk Costs
Costs incurred by a firm that cannot be recovered if the firm ceases trading.
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Variable costs
Costs that vary with the level of output.
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Economies of Scale
Occurs for a firm when an increase in the scale of production leads to production at lower long-run average costs.
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Internal Economies of Scale
Economies of scale that arise from the expansion of a firm.
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External Economies of Scale
Economies of scale that arise from the expansion of the industry in which a firm is operating.
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Internal Diseconomies of Scale
Diseconomies of scale that arise from the expansion of a firm.
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External Diseconomies of Scale
Diseconomies of scale that arise from the expansion of the industry in which a firm is operating.
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Technical Efficiency
Attaining the maximum possible output from a given set of inputs.
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Cost Efficiency
The appropriate combination of inputs of factors of production, given the relative prices of those factors.
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Marginal Social Cost (MSC)
The cost to society of producing an extra unit of a good.
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Marginal Social Benefit (MSB)
The additional benefit that society gains from consuming an extra unit of a good.
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Externality
A cost or a benefit that is external to a market transaction, and is thus not reflected in market prices.
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Private cost
A cost incurred by an individual (firm/consumer) as part of its production or other economic activities.
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External cost
A cost that is associated with a individual's (a firm or household's) production or other economic activities, which is borne by a third party.
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Free-rider problem
When an individual cannot be excluded from consuming a good, and thus has no incentive to pay for its provision.
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Merit Good
A good that brings unanticipated benefits to consumers, such that society believes it will be underconsumed in a free market.
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Demerit Good
A good that brings less benefit to consumers than they expect, such that too much will be consumed by individuals in a free market.
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Asymmetric information
A situation in which some participants in a market have better information about market conditions than others.
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Adverse selection
A situation in which a person at risk is more likely to take out insurance.
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Moral hazard
A situation in which a person who has taken out insurance is prone to more risk.
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Incidence of a tax
A way in which the burden of paying a sales tax is divided between buyers and sellers. (depends heavily on elasticity)
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Excess burden of a sales tax
The deadweight welfare loss following the imposition of a sales tax.
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Buffer stock
A scheme intended to stabilise the price of a commodity by buying excess supply in periods when supply is high, and selling when supply is low.
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Prohibition
An attempt to prevent the consumption of a demerit good by declaring it illegal.
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Other cards in this set

Card 2

Front

An expansion in the productive capacity of the economy.

Back

Economic Growth

Card 3

Front

A process whereby the production procedure is broken down into a sequence of stages, and workers are assigned to particular stages.

Back

Preview of the back of card 3

Card 4

Front

Demand for a factor of production or a good which derives not from the factor or the good itself, but from the goods it produces.

Back

Preview of the back of card 4

Card 5

Front

Demand for goods which are interdependent, such that they are demanded together.

Back

Preview of the back of card 5
View more cards

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