Microeconomic Definitions U1

tyrasirandula
Flashcards by tyrasirandula, updated more than 1 year ago
tyrasirandula
Created by tyrasirandula about 7 years ago
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All the definitions from the Edexcel Student Unit Guide.

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Scarcity When there are insufficient resources to provide for everyone’s wants.
Opportunity Cost The next best alternative foregone.
A renewable source One whose stock level can be maintained over a period of time.
A non-renewable source One whose stock level is decreased over time as it is consumed.
PPF Shows the maximum potential level of output an economy can produce for two goods or services, given all its current resources/technology.
Factors of production Are inputs used in production of goods and services.
Specialisation When an individual/firm/country concentrates on the production of a limited range of goods and services.
Division of labour A form of specialisation where individuals concentrate on the production of a particular good or service.
Free market economy All resources are allocated by the price mechanism. No government intervention.
Mixed economy Some resources are allocated by the price mechanism, and some by the government.
A positive statement Are concerned with facts, there is a scientific approach, and can be tested true or false.
A normative statement Based on value judgement, there is no scientific approach.
Market Where buyers and sellers come in contact for the purpose of exchange.
Demand The quantity of a good or service purchased at a given price over a given time period.
PED Percentage change in quantity demanded/ Percentage change in price
Total Revenue The total revenue a firm receives from selling a given quantity of goods or services.
XED Percentage change in demand for good B/ Percentage change in price for good A
Substitute goods Goods which are in competitive demand.
Complimentary goods Goods which are in joint demand.
YED Percentage change in quantity demanded/ Percentage change in real income
Normal goods A good where a rise in income causes a rise in demand.
Inferior goods A good where a rise in income causes a fall in demand.
Supply The quantity of a good or service that firms are willing to sell at a given price over a given time.
PES Percentage change in quantity supplied/ Percentage change in price of a good
Equilibrium When there is balance in a market, quantity demanded = quantity supplied.
Consumer surplus The extra amount of money consumers are prepared to pay for a good or service about what they actually pay.
Producer surplus The extra amount of money paid to producers above what they are willing to accept for a good or service.
Price mechanism The way price responds to changes in demand or supply for a product or factor input so that a new equilibrium position is reached in a market.
A direct tax Is a tax levied directly on an individual or organisation, e.g. income tax, corporation tax.
An indirect tax Is a tax levied on the purchase on good or services, e.g. VAT.
Subsidy A grant (provided by the government) to encourage suppliers to increase production of a good or service, leading to a fall in price.
Derived demand Demand which is derived from the demand for the goods or services it makes.
National Minimum Wage The legal minimum hourly rate of pay an employer can pay its workers.
Market Failure When the price mechanism causes an inefficient allocation of resources, the forces of demand and supply causes a net welfare loss.
Externalities The costs or benefits which are external to an exchange.
Private costs Costs which are internal to the firm/individual.
Social costs Private costs + external costs
External costs A negative third party effect.
External benefits A positive third party effect.
Private benefits Benefits which are internal to the firm/individual.
Social benefits Private benefits + social benefits
Triangle of welfare loss The excess of social costs over social benefits.
Triangle of welfare gain The excess of social benefits over social costs.
Public goods Goods which are non-rival, and non-excludable.
Non-rival As more people consume a good and enjoy its benefits, it does not reduce the amount available to others.
Non-excludability Once a good has been produced for the benefit of one person, it is impossible to stop others from benefitting. Characteristic of the free-rider problem.
Mobility of labour The ability of workers to change from one job to another.
Geographical immobility The obstacles which prevent labour from moving from one area to another to find work.
Occupational immobility The obstacles which prevent labour from changing their type of occupation to find work.
Commodities Raw materials used in the production of goods.
Emission Trading System An attempt to limit greenhouse gas emissions from heavy industry.
Buffer stock schemes Attempts to reduce price fluctuations of a commodity and stabilise producer incomes.
Government failure Occurs when government intervention leads to a net welfare loss/ where the government causes a misallocation of resources in a market.
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