Microeconomics Flashcards OCR

The problem of scarcity; wants are unlimited but resources are finite so choices have to be made.

One of the four factors of production; goods which can be used in the production process.

Goods which have an opportunity cost and suffer from the problem of scarcity.

Goods with no opportunity cost, since there is no scarcity of the good; they are not traded.

One of the four factors of production; human capital.

One of the four factors of production; natural resources such as oil, coal, wheat, physical space.

Requirements necessary for an individual to live and function, such as food and shelter.

Subjective statements based on value judgements and opinions; cannot be proven or disproven.

Objective statements which can be tested with factual evidence to be proven or disproven.

Decision-making that leads to economic agents maximising their utility.

The shortage of resources in relation to the quantity of human wants.

Something that people desire to have, but do not necessarily need to survive.

Capital, Enterprise, Land, Labour.

Production Possibility Curve

A state when resources are allocated to the best interests of society, when there is maximum social welfare and maximum utility; P=MC.

A state when resources are allocated optimally, so every consumer benefits and waste is minimised.

Something which motivates an individual to make a decision and behave a certain way.

An economy where the market mechanism allocates resources so consumers make decisions about what is produced.

An aim where consumers generate the greatest utility possible, and firms generate the highest profits possible.

An economy where both the free market mechanism and the government allocate resources.

An economy where all factors of production are allocated by the state, so they decide what, how and for whom to produce goods.

A state when resources are used to give the maximum possible output at the lowest possible cost; MC=AC.

The process of how resources are distributed among producers and how goods and services are distributed among consumers.

The value of the next best alternative forgone.

A curve which depicts the maximum productive potential of an economy, using a combination of two goods or services, when resources are fully and efficiently employed.

A situation when one thing is lost to gain something else.

The production of a limited range of goods by a company/country/individual so they aren't self-sufficient and have to trade with others.

A process when labour becomes specialised during the production process so workers carry out a specific task in co-operation with other workers.

A situation when goods are substitutes, so buying one means you don't buy the other.

A situation when a good or service can be obtained from different sources.

The quantity of a good/service that consumers are able and willing to buy at a given price during a given period of time.

The demand of an individual or firm, measured by the quantity bought at a certain price at one point in time.

A situation when goods are bought together.

The sum of all individual demands in a market.

Advertising, Derived demand, Demand for complements, Income, Complements, Tastes and fashions, Substitutes

Behaviour, Utility maximisation, Income limited, and Diminishing utility.

A situation when a business could make more than one good with its resources, and producing one means they can't produce the other.

A situation when a good or service can be obtained from different sources.

The supply of a single firm.

A situation where increasing supply of one good causes an increase in the supply of a by-product.

The sum of all individual supplies in the market.

The ability and willingness to provide a particular good/service at a given price at a given moment in time.

Productivity, Indirect taxes, Number of firms, Technology, Substitutes, Weather, Costs of production.

The difference between the price the consumer is willing to pay and the price they actually pay.

The difference between the price the producer is willing to charge and the price they actually charge.

The demand for one good is linked to the demand for a related good.

A situation when price is set too low so demand is greater than supply.

A situation when price is set too high so supply is greater than demand.

A place where demand and supply interact; the collection of many sub-markets.

Goods with negative XED; if good B becomes more expensive, demand for good A falls.

The responsiveness of demand of one good (A) to a change in price of another good (B), calculated by: %change in QD of A divided by %change in P of B.

The responsiveness of demand or supply to a change in price.

The responsiveness of demand to a change in income.

Goods which see a fall in demand as income increases.

Goods for which an increase in incomes causes an even bigger increase in demand.

Goods for which demand increases as income increases.

A good where PED/PES=Infinity; quantity demanded/supplied falls to 0 when price changes.

A good where PED/PES=0; quantity demanded/supplied does not change when price changes.

A good where PED/PES>1; demand/supply is relatively responsive to a change in price so a small change in price leads to a large change in quantity demanded/supplied.

The responsiveness of demand to a change in price, calculated by: %change in QD divided by %change in P.

The responsiveness of supply to a change in price, calculated by: %change in QS divided by %change in P.

A good where PED/PES<1; demand/supply is relatively unresponsive to a change in price so a large change in price leads to a large change in quantity demanded/supplied.

Goods with positive XED; if good B becomes more expensive, demand for good A rises.

Goods where XED=0; if the price of good B changes, it has no impact on the demand for good A.

Price Elasticity of Demand

Income Elasticity of Demand

Cross-Elasticity of Demand

Price Elasticity of Supply

The concept that the extra benefit gained from consumption of a good generally declines as extra units are consumed; explains why the demand curve is downward sloping.

The effect of an additional action.

The cost or benefit a third party receives from an economic transaction outside of the market mechanism.

The extra benefit to a third party not involved in the economic activity, per unit consumed.

The extra cost to a third party not involved in the economic activity, per unit consumed, expressed by: marginal social cost - marginal private cost.

The extra benefit to the individual per unit consumed.

The extra cost to the individual per unit consumed.

The extra benefit to society per unit consumed, expressed by: marginal external benefit + marginal private benefit.

The extra cost to society per unit consumed, expressed by: marginal external cost + marginal private cost.

A situation when the free market fails to allocate resources to the best interest of society, so there is an inefficient allocation of scarce resources.

A situation where the social costs of consuming a good are greater than the private costs of producing the good.

A situation where the social costs of producing a good are greater than the private costs of producing the good.

A situation where the social benefits of consuming a good are larger than the private benefits of consuming that good.

A situation where the social benefits of producing a good are larger than the private benefits of producing that good.

Marginal Social Benefit

Marginal Social Cost

Marginal Private Benefit

Marginal Private Cost

A situation where one party has more information than the other, leading to market failure.

Goods with negative externalities.

A situation when an economic agent lacks the information needed to make a rational, informed decision.

Goods with positive externalities.

A situation where individuals make decisions in their own best interests knowing there are potential risks for others.

A problem where people who do not pay for a public good still receive benefits from it so the private sector will under-provide the good as they cannot make a profit.

A characteristic of public goods; one person's use of the good does not prevent someone else from using it.

A characteristic of public goods; someone cannot be prevented from using the good.

A characteristic of public goods; people cannot choose not to consume the good.

Goods that are rival and excludable.

Goods that are non-excludable, non-rivalry, non-rejectable and have zero marginal cost.

Goods which aren't perfectly non-rivalry/non-excludable but aren't perfectly rivalry/excludable.

A situation when the government provides public goods or merit goods which are underprovided in the free market.

The introduction of both a maximum and minimum price in the market to prevent large fluctuations in prices.

Government action to increase competition in markets.

A situation when government intervention leads to a net welfare loss in society.

Taxes on expenditure which increase production costs and lead to a fall in supply.

A situation when the government intervenes to provide information to correct market failure.

A ceiling price which a firm cannot charge above.

A floor price which a firm cannot charge below.

A situation when the government and the private sector work together to build and operate projects.

Laws to address market failure and promote competition between firms.

Government payments to a producer to lower their costs of production and encourage them to produce more.

Licenses which allow businesses to pollute up to a certain amount. The government controls the number of licenses and so can control the amount of pollution. Businesses are allowed to sell and buy the permits which means there may be incentive to reduce the amount they pollute.

Private Finance Initiative

Competition and Markets Authority

The merger of firms with no common connection.

A situation when firms take responsibility for consequences on the environment and behave more ethically.

A situation when firms grow by expanding their production through increasing output, widening their customer base, developing a new product or diversifying their range.

A situation when firms aim to increase the size of their market share, for example through mergers.

The merger of firms in the same industry at the same stage of production.

An aim where consumers generate the greatest utility possible, and firms generate the highest profits possible.

A situation where the agent makes decisions on behalf of the principal; the agent should maximise the benefits of the principal but have the temptation of maximising their own benefits.

A situation when firms produce at a point which derives the greatest profit; MC=MR.

A situation when a firm earns just enough profit to keep its shareholders happy.

A situation when firms produce at a point which derives the greatest revenue; MR=0.

A situation when firms produce at a point where they sell as many of their goods and services as possible without making a loss; AR=AC.

A situation when firms aim to maximise social utility.

A situation when a firm merges or takes over another firm in the same industry, but at a different stage of production.

The cost of production per unit, calculated by: total costs/quantity produced.

A situation where output increases by the same proportion that the inputs increase by.

A situation where an increase in inputs by a certain proportion will lead to output increasing by a smaller proportion.

The disadvantages that arise in large businesses that reduce efficiency and cause average costs to rise.

The advantages of large-scale production that enable a large business to produce at lower average cost than a smaller business.

An advantage which arises from the growth of the industry within which the firm operates, independent of the firm itself.

A situation where an increase in inputs by a certain proportion will lead to an increase in output by a larger proportion.

An advantage that a firm is able to enjoy because of growth in the firm, independent of anything happening to other firms or the industry in general.

A law stating that if a variable factor is increased when another factor is fixed, there will come a point when each extra unit of the variable factor will produce less extra output than the previous unit; after a certain point, marginal output falls.

The length of time when all factors are variable.

The lowest level of output necessary to fully exploit economies of scale.

The length of time when at least one factor of production is fixed.

Costs that cannot be recovered once they have been spent.

The cost to produce a given level of output.

Costs which do not vary with output.

Costs which change with output, calculated by: total variable costs + total fixed costs.

Total Cost

Average Cost

Marginal Cost

Total monetary revenue minus total monetary costs.

The price each unit is sold for, calculated by TR / quantity sold.

Profit which considers the opportunity cost of production as well as monetary costs.

The demand of an individual or firm, measured by the quantity bought at a certain price at one point in time.

A situation when goods are bought together.

A situation when revenue does not cover costs.

The sum of all individual demands in a market.

The minimum reward required to keep entrepreneurs supplying their enterprise, the return sufficient to keep the factors of production committed to the business; TC=TR.

The profit above normal profit, TR>TC.

Revenue generated from the sale of a given level of output, calculated by: price x quantity sold.

Total Revenue

Average Revenue

Marginal Revenue

A market with many buyers and sellers selling homogenous goods with perfect information and freedom of entry and exit.

Efficiency in the long run; it is concerned with new technology and increases in productivity which cause efficiency to increase over time.

A single seller in the market.

A situation where economies of scale are so large that not even one producer can fully exploit them; in this case, it is more efficient for there to be a monopoly than many sellers.

A situation when a monopolist charges different prices to different groups of consumers for the same good or service.

A situation when firms produce at a cost above the Average Cost (AC) curve.

A market where there are a large number of relatively small, independent buyers and sellers, selling non-homogeneous goods.

A situation when firms agree to work together, for instance, by setting a price or fixing production quantity.

The combined market share of the top few firms in a market.

A theory used to predict the outcome of a decision made by one firm when it has incomplete information about another firm.

A state where the actions of one firm directly affect another firm.

An oligopoly where firms compete against each other instead of making agreements to limit competition.

Competition on factors other than price, such as customer service or quality; they aim to increase brand loyalty, which makes demand more inelastic.

A market where a few firms dominate, hold the majority of market share, and act interdependently.

Collusion involving a formal agreement, like a cartel.

Collusion without a formal agreement, such as price leadership.

A market where the threat of new entrants forces existing firms to be efficient.

A market with no barriers to entry, where a new firm can easily enter and compete on an equal footing with existing firms.

The output per worker per unit of time.

The cost of labour per unit of output.

Marginal Revenue Product

Income earned that is more than transfer earnings.

The minimum reward needed to keep labour in its current occupation.

Welfare payments from the government to provide a minimum standard of living for those on low incomes.

A market where there is only one buyer and one seller.

The negotiation between employers and a collective group of employees.

The ease and speed at which labour can move from one area to another.

The negotiation between a single employee and their employer.

All those who are economically active; people who are in work or are actively seeking work.

The willingness and ability of labour to respond to changes in market conditions.

The wage the government believes is necessary to cover the basic cost of living; it is paid to everyone over 25.

A ceiling wage that people cannot earn above.

A floor wage that people cannot earn below.

A single buyer in the market.

The ease and speed at which labour can move from one type of job to another.

An agreement where employees agree to make changes that improve productivity in order to receive higher wages.

Organisations that protect the rights and pay of workers through a process of collective bargaining.

A situation that occurs when different workers are paid different amounts.

Those who are economically active, i.e., the labour force.

Average Cost of Labour

Marginal Cost of Labour

Office for National Statistics