Microeconomics (Chapters 1-7)
Terms in this set (123)
A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it
Price elasticity of demand
A measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price
All things used in producing goods and services
A situation in which unlimited wants exceed the limited resources available to fulfill those wants
The actual production of goods and services in an economy in a given time period.
Disciplines that study human social behavior or institutions and functions of human society in a scientific manner
A latin phrase that means "all other things held constant"
Approach that seeks to understand behavior and operation of systems without making judgements. It describes what exists and how it works.
Deals with areas of the subject that are open to personal opinion and belief
Concentrates on the operation of a nation's economy as a whole.
The growing ability of the economy to produce goods and services. An increase in real GDP per capita.
Idea that socially responsible companies will outperform their peers by focusing on the world's social problems and viewing them as opportunities to build profits and help the world at the same time
Actions on the part of government that affect economic activity, resource allocation, and especially the voluntary decisions made through normal market exchanges
Goal is to use our limited resources wisely
The study of choices leading to the best possible use of scarce resources in order to best satisfy unlimited wants and needs.
Reallocation of resources
A change in the amount of goods produced.
Too much of one good is produced.
Too little of one good is produced.
Distribution of income
How different social groups receive different amounts of income.
Redistribution of income
Change in distribution of income so that one social class receives more or less income.
Any natural resource provided by nature and used in the production of goods and services.
The physical and mental effort that people contribute to the production of goods and services.
Man-made factor of production used to produce goods and services.
Human skill involving the ability to innovate by developing new ways of doing things, to take business risks and seek new opportunities for opening and running a business. This factor organizes the other three factors.
All human-made goods that are used to produce other goods and services; tools and buildings
The skills, abilities and knowledge acquired by people, as well as levels of health, that make them more productive.
Natural resources and natural services that are necessary to be alive and for future production.
A situation in which a good or service is produced at the lowest possible cost.
Production Possibility Curve ( or Frontier)
A curve showing the different combinations of two goods or services that can be produced in a full-employment, full-production economy where the available supplies of resources and technology are fixed.
Points on the Production possibility curve.
How much of a good or service a producer is willing and able to produce at different prices.
Law of Supply
Other things remaining the same, the higher the price of a good, the greater is the quantity supplied; and the lower the price of a good, the smaller is the quantity supplied
Positive causal relationship
A relationship between two variables in which an increase in the value of one causes an increase in the value of the other, i.e. the two variables change in the same direction; also know as a direct relationship.
The sum of all individual firms' supplies for a good.
Non-price determinants of supply
The variables (other than price) that can influence supply, and that determine the position of a supply curve; a change in any determinant of supply causes a shift of the supply curve, which is referred to as a 'change in supply'
Goods in competitive supply are goods that are produced with the same resources such that resources used in one good cannot be used to produce the other, e.g. wheat and maize.
Refers to the production of two or more goods that are derived from a single product, so that it is not possible to produce more of one without producing more of the other. Example: Butter and Skimmed milk are both produced from whole milk, producing more of one means to produce more of the other.
A government payment that supports a business or market
A situation in which quantity supplied is greater than quantity demanded
when the quantity demanded, exceeds the quantity supplied at the given prices
A state of balance among the components of a system.
A situation in which quantity demanded equals quantity supplied
the price that balances quantity supplied and quantity demanded
The quantity supplied and the quantity demanded at the equilibrium price
A medium that allows buyers and sellers of a specific good or service to interact in order to facilitate an exchange.
An indication of the various quantities of a good or service the consumer is willing and able to buy at different possible prices during a particular time period, ceteris paribus.
A market composed of large numbers of sellers and buyers acting independently, so that no one individual seller or small group of sellers has the ability to control the price of the product sold.
Curve that shows various amounts of a product that consumers are willing and able to purchase during a specified period of time, ceteris paribus.
Law of Demand
Consumers buy more of a good when its price decreases and less when its price increases, ceteris paribus.
Negative Causal Relationship
A relationship between two variables in which an increase in the value of one causes a decrease in the value of the other, i.e the two variables change in opposite directions; also known as an indirect relationship.
The extra benefit that you get from each additional unit of something you buy.
The sum of all individual demands for a good.
Non-Price Determinants of Demand
The variables (other than price) that can influence supply, and that determine the position of a supply curve; a change in any determinant of supply causes a shift of the supply curve, which is referred to as a 'change in supply'.
A good for which, other things equal, an increase in income leads to an increase in demand, ceteris paribus.
A good for which, other things equal, an increase in income leads to a decrease in demand, ceteris paribus.
Two goods that satisfy a similar need.
Two goods that tend to be used together.
The amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
The amount a seller is paid for a good minus the seller's cost of providing it
Extra cost of producing one additional unit of production.
consumer surplus plus producer surplus plus everyone else's surplus
the well-being of society
Quantity demanded is relatively unresponsive to price
Quantity demanded relatively responsive to price
Unit Elastic Demand
Percentage change in quantity demanded equals percentage change in price
Perfectly Inelastic Demand
Quantity demanded is completely unresponsive to price
Perfectly Elastic Demand
Quantity demanded is completely responsive to price
Income Elasticity of Demand
A measure of the responsiveness of demand for one good to a change in income
Cross-Price Elasticity of Demand
A measure of the responsiveness of demand for one good to a change in the price of another good
Price Elasticity of Supply
A measure of the responsiveness of the quantity supplied of a product to changes in its price
Quantity supplied is relatively unresponsive to price
Quantity supplied is relatively responsive to price
Unit Elastic Supply
Percentage change in quantity supplied equals percentage change in price
Perfectly Inelastic Supply
Quantity supplied is completely unresponsive to price
Perfectly Elastic Supply
Quantity supplied is infinitely responsive to price
Raw resources found in nature; refers to commodities (or goods) immediately after they are extracted from land
products made from raw materals by machines
a tax levied on goods or services rather than on persons or organizations
a tax on certain items such as alcohol, tobacco, and gasoline
A tax, such as income tax, that is levied on the income or profits of the person who pays it, rather than on goods or services.
A fixed amount of tax imposed on a product
ad valorem tax
a fixed percentage of the price of the good or serivce
welfare loss (dead-weight loss)
represents welfare benefits that are lost to society because resources are not allocated efficiently
The manner in which the burden of a tax is shared among participants in a market
a price imposed by an authority and set below the equilibrium price. Prices cannot rise above this price.
A legal maximum on the price at which a good can be sold
underground (parallel) market
Refers to a market that arises whenever a buying/selling of a transaction is unrecorded.
the practice of rationing a good or service through a waiting line, waiting list, or lottery
a price imposed by an authority and set above the market price. Prices cannot fall below this price.
A legal minimum on the price at which a good can be sold
The maintaining of certain price levels for key products at or above market value utilizing government funds.
A minimum price that an employer can pay a worker for an hour of labor
A situation in which a market left on its own fails to allocate resources efficiently
A benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service
marginal social costs
full cost of producing another unit of g; includes MC cost to producer and any harm caused to a 3rd party
marginal social benefits
The extra benefit or utility to society of consuming an additional unit of output, including both the private benefit and the external benefits.
licenses to emit limited quantities of pollutants that can be bought and sold by polluters (AKA Cap and Trade)
A monetary tax a company must pay based on the polution it makes
goods or services considered to be harmful to people that would be over-provided by the market and so over-consumed.
are goods or services considered as beneficial for people and that would be under provided by the market and so under consumed for example education and healthcare
common access resources
a resource that is owned by no one, but is available to all users at no charge
Technology that is not polluting, associated with environmental sustainability;includes solar power, wind power, hydropower, recycling, and many more
Information that either the buyer or the seller in a market exchange has and that the other does not have, usually resulting in underallocation.
Arises when people behave recklessly because they know they will be saved if things go wrong.
the ability of a firm or group of firms to control the price of a product they sell.
long-run break-even price (HL)
making 0 economic profits, price = ATC
short-run shut-down price (HL)
price = minimum AVC
Allocative efficiency in theory of the firm (HL)
When price = marginal cost (i.e. MB = MC)
Productive efficiency in theory of the firm (HL)
When price = minimum ATC
barrier to entry
anything preventing other firms from entering an industry
profit maximisation point (HL)
where MC = MR
revenue maximisation point (HL)
where MR = 0
monopolistic competition (HL)
market structure with large number of firms, no barriers to entry, product differentiation
perfect competition (HL)
market structure with very large number of firms, no barriers to entry, homogenous product, perfect information & resource mobility
market structure with 1 or 1 dominant firm, significant barriers to entry, no close substitutes
market structure with a few large firms, significant barriers to entry, firms are interdependent
Focuses on factors other than price such as quality, reputation customer service and business location
agreement between firms to limit competition, by fixing price or quantity produced
game theory (HL)
Mathematical technique analysing the behaviour of decision-makers who are dependent on each other & use strategic behaviour,
prisoner's dilemma (HL)
A model used to help show how two interdependent firms may rationally produce where both firms are worse off if collusion does not take place
concentration ratio (HL)
A measure of market power - the percentage of all sales that is accounted for by the four or eight largest firms in the market
price discrimination (HL)
A price structure in which the seller charges different prices for the product it sells and the price differences do not reflect cost differences.