Sophie Marshall
Flashcards by , created over 5 years ago

A Levels Economics (Microeconomics) Flashcards on Definitions, created by Sophie Marshall on 03/24/2014.

Sophie Marshall
Created by Sophie Marshall over 5 years ago
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Question Answer
Profit When total income or revenue for a firm is greater than total costs
Opportunity cost The next best alternative foregone when an economic decision is made
Economic goods Goods that are scarce and therefore have an opportunity cost
Free goods Goods that have no opportunity cost, for example air
Factor market The market for the factors of production that make others goods and services such as labour or raw materials
Renewable resources Resources that are able to be replenished over time, whereas non-renewables such as oil and gas are likely to run out
Free market economy One in which there is very limited government involvement in providing goods and services. Main role is to ensure the rules are fair
PPB Indicates the maximum possible output that can be achieved given a fixed set of resources and technology in a particular time period
Productive efficiency When a firm operates at a minimum average total cost, producing the maximum possible output from inputs into the production process
Allocative efficiency When it is not possible to produce more of one good without making less of another
Productivity A measure of efficiency, measuring the ratio of inputs to outputs; the most common measure is labour productivity, which is the output per worker
Human capital The skills, abilities, motivation and knowledge of labour. Improvements in human capital can raise productivity and can shift the PPB to the right
Division of labour Breaking the production process down into a sequence of tasks, with workers assigned to particular tasks
Specialisation The production of a limited range of goods by an individual factor of production or firm or country, in cooperation with others so that together a complete range of goods is produced
Value judgements Statements or opinions expressed that are not testable or cannot be verified and depend very much on the views of the individual and the values they hold
Normative statements Opinions that require value judgements to be made
Positive statements Statements that can be tested against real world data
Demand The amount that consumers are willing and able to buy at each given price level
Effective demand Demand supported by the ability to pay for a good or service
Market demand Total demand in a market for a good, the sum of all individuals' demand, at each given price level
Contractions in demand Falls in the quantity demanded caused by rises in prices
Extensions in demand Increases in demand caused by changes (falls) in price
Normal goods Goods or services that will see an increase in demand when income rises
Inferior goods Goods or services that will see demand fall when income rises
Complementary products Goods that are consumed together, for example bread and butter, or DVDs and DVD players
Composite demand A good that is demanded for more than one purpose so that an increase in demand for one purpose reduces the available supply for the other, typically leading to higher prices, e.g. milk used in butter and cheese
Supply The amount offered for sale at each given price level
Planned supply The amount producers plan to produce at each given price
Actual supply The amount that producers in fact produce. This may differ from planned supply for a variety of reasons such as breakdowns in production, staff absences, etc.
Market supply The sum of all individual firm's supply curves at each given price
Extension in supply When there is an increase in supply because the market price has risen
Contraction in supply When the amount offered for sale is reduced because the price level has fallen
Joint supply When the production of one good also results in the production of the other
Equilibrium The price at which demand is equal to supply and there is no tendency for change
Disequilibrium A situation within the market where supply does not equal demand
Excess supply When supply at a particular price is greater than demand; this should signal to producers to lower prices
Market-clearing price The price at which all goods that are supplied will be demanded
Excess demand When demand is greater than supply at a given price
Maximum price A price ceiling above which the price of a good or service is not allowed to increase
Minimum price A price floor below which the price of a good or service is not allowed to decrease
Price elasticity of demand The responsiveness of demand to a change in the price level. The formula is % Δ Qd/% Δ price
Subsidies Payments by government to producers to encourage production of goods or services
Incidence of tax The proportion of tax that is passed onto the consumer (when demand is price inelastic incidence tax tends to be high)
Price elasticity of supply The responsiveness of supply to a change in the price level. The formula is % Δ Qs/% Δ price
Income elasticity of demand The proportion to which demand changes when there is a change in income
Normal goods Goods or services that will see an increase in demand when incomes rise
Inferior goods Goods or services that will see demand fall when income rises
Substitutes Goods that can be used as alternatives to another good, for example bus and rail services or Mars Bars and Snickers
Commodity A good that is traded, but usually refers to raw materials or semi-manufactured goods. Often they are homogeneous goods
Investment good A product that will increase in value over time
Sustainable An activity carried out today that does not stop future generations maximising their welfare
Market failure Where the market fails to produce what consumers require at the lowest possible cost
Government failure When government intervention to correct market failure does not improve the allocation of resources or leads to a worsening of the situation. The costs of government intervention may exceed the benefits
Buffer stocks An intervention system that aims to limit the fluctuations of the price of a commodity
Inflationary pressure Occurrences that are likely to lead to increased prices
Negative externalities Costs imposed on a third party not involved with the consumption or production of the good
Production The process that converts factor inputs into outputs of goods and services
Fixed costs Costs of production that do not vary as output changes
Variable costs Costs of production that vary with output
Economies of scale Where an increase in the scale of production leads to reductions in average total costs for firms
Diseconomies of scale Where an increase in the scale of production leads to increases in average total costs for firms
Competition A market situation in which there are a large number of buyers and sellers
Externalities Costs or benefits that spill over to third parties external to a market transaction
Marginal private cost The cost to an individual or firm of an economic transaction
Marginal external cost The spillover cost to third parties of an economic transaction
Marginal social cost The full cost to society of an economic transaction, including private and external costs
Marginal private benefit The benefit to an individual or firm of an economic transaction
Marginal external benefit The spillover benefit to third parties of an economic transaction
Positive externality A positive spillover effect to third parties of a market transaction
Marginal social benefit The full benefit to society of an economic transaction, including private and external benefits
Ex ante A term that refers to future events
Ex post A term that refers to after the event
Merit good A good that would be under-consumed in a free market, as individuals do not fully perceive the benefits obtained from consumption
Failure of information Where economic agents do not properly perceive the benefits or disadvantages of a transaction
Partial market failure Where the free market provides a product but with a misallocation of resources
Demerit good A good that would be over-consumed in a free market, as it brings less overall benefit to consumers than they realise
Public good A good that possesses the characteristics of non-excludability and non-rivalry in consumption
Free-rider problem Where some consumers benefit from other consumers purchasing a good, particularly in the case of public goods
Quasi-public good A good that has some of the qualities of a public good but does not fully possess the two required characteristics of non-rivalry and non-excludability
Private good A good that is both excludable and rival in consumption
Complete market failure Where the free market fails to provide a product at all, i.e. the case of public goods
Occupational immobility As patterns of demand and employment change, many workers may find it difficult to easily secure new jobs, since they may lack the necessary skills
Geographical immobility Where workers find it difficult to move to where employment opportunities may be, due to family ties and differences in housing costs
Income A flow of earnings to a factor of production over a period of time, e.g. wages or salaries
Wealth A stock of owned assets, e.g. housing property or a portfolio of shares
Indirect tax A tax on spending
Pollution permit A permit sold to firms by the government, allowing them to pollute up to a certain limit
Law of unintended consequences When the actions of consumers, producers and governments have effects that are unanticipated
Inflation A persistent increase in the level of prices