ECON PAPER 1 - MICRO definitions

avatar
Created by
S B

Cards (40)

  • FUNCTION OF MONEY
    acts as a medium of exchange / measure of value / a store of value / method of deferred payment
  • EXTERNAL BENEFITS
    EB = social benefits - private benefits
    benefits occurring to a 3rd party
    spillover effects
  • DIMINISHING MARGINAL UTILITY
    as decline in the additional satisfaction a person derives from consuming an additional unit of that product
  • PES
    measure of responsiveness of quantity supplied to a change in price
    PES = % change QS / % change P
  • XED
    measures the responsiveness of quantity demanded for one good to a change in the price of another good
  • PRODUCER SURPLUS
    a measure of producer welfare
    the different between what producers are willing and able to supply a good for and the price they actually receive
  • SIGNALLING FUNCTION
    they adjust to demonstrate where resources are required
  • INCENTIVE FUNCTION
    for consumers +/ suppliers
  • PUBLIC GOOD
    non excludable & non rivalrous
  • OPPORTUNITY COST
    the value of the next best alternative foregone
  • PPF
    the maximum potential output combinations of two goods an economy can achieve when all its resources are fully and efficiently employed
  • BASE YEAR
    the year with which all other values in a series are compared
    benchmark year
  • SUBSIDY
    government grant / policy designed to encourage production or consumption
  • FIXED COST
    remain the same as output increases or decreases
  • VARIABLE COSTS
    vary directly with output
  • COMMAND ECONOMY
    centrally planned / government run
    no or limited private sector
    gov allocates all / most resources
  • CETERIS PARIBUS
    all other things being equal
    all other factors remain unchanged
  • ASYMMETRIC INFORMATION
    where one party in a transaction has more or superior information compared to another
    providers know more than consumers
  • INFERIOR GOOD
    as income rises there is a fall in demand
    YED = % change in demand / % change income (Y)
  • CONSUMER SURPLUS
    measure of the welfare (utility) that people gain from consuming goods and services
    difference between the total amount that consumers are willing and able to pay and the total amount that they actually pay
  • RENEWABLE ENERGY
    a resource made from something which can be renewed itself / infinite supply
  • NON-RENEWABLE ENERGY
    a resource which once exploited cannot be replaced / finite supply
  • REAL PRICE
    price adjusted to remove effects of inflation
  • FREE MARKET ECONOMY
    resources are allocated via price mechanism / market forces of supply and demand / the invisible hand of the market
    price changes act as a signal
    increase in demand / fall in supply --> prices rise --> ration good
    consumer sovereignty
    by privately owned firms
    limited gov intervention --> laissez-faire
  • POSITIVE STATEMENT
    statement of fact that can be tested
  • NORMATIVE STATEMENT
    statement containing a value judgement
  • DIVISION OF LABOUR
    where a task is broken down into its component parts
    where an individual concentrates on one particular task to the exclusion of others
  • DEMAND
    the amount consumers are willing and able to buy at a particular price at a given time
  • REVENUE = price x quantity
  • INDIRECT TAX
    imposed on producers / suppliers by gov
    tax on good or service which is added to their price
    on consumer expenditure
  • ECONOMIC PROBLEM
    infinite wants and finite / scarce resources
  • SPECIFIC TAX
    a set amount levied per unit of the product sold
  • GOVERNMENT FAILURE
    occurs when government intervention in the economy causes a net welfare loss / decline in economic welfare
  • PRICE DISCRIMINATION
    charging different prices to different groups of consumers for the same service
  • MONOPSONY
    single dominant buyer
    has bargaining power in their market
  • PRINCIPAL AGENT PROBLEM
    conflict of interest between the principal (shareholders) and the agent (managers)
  • MINIMUM PRICE
    lowest price that can legally be set
    price floor which cannot be charged below
  • CONCENTRATION RATIO
    the sum of the largest market share of the biggest n firms as a proportion of the whole market
  • CONTESTABLE
    Low barriers to entry or exit
    low sunk costs
  • Productive (lowest point of AC)
    Allocative (P=MC)
    Dynamic (technical – LRAC shifting down)
    X-inefficiency (organisational slack – higher AC)
    Social efficiency (MSC=MSB)