AQA AS Microeconomics Key Terms Flashcards

Occupational Immobility The lack of skill, knowledge and/or ability to perform a job. Often due to structural unemployment. Geographical Immobility Difficulty moving/commuting to where employment opportunities are. EG family reasons, costs of moving house/rent. Income A flow of earnings to a factor of production over a period of time. Wealth A stock of owned assets. EG housing property or a portfolio of shares. Indirect tax Taxes 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/or governments have effects that are unanticipated. Inflation A sustained rise in the general price level Economies of scale Where an increase in production leads to a lower Average Total Cost (ATC) Diseconomies of scale Where an increase in production leads to a higher Average Total Cost (ATC) Competition A market situation in which there are a large number of buyers and sellers. Monopoly A market structure dominated by a single seller of a good or service. Externalities Cost/Benefits that spillover to an external third party, not involved in an economic transaction. Marginal Private Cost (MPC)/Marginal Private Benefit (MPB) The cost/benefit to an individual or firm of an economic transaction. Marginal External Cost (MEC)/Marginal External Benefit (MEB) The cost/benefit spillover to a 3rd party not involved in the economic transaction Marginal Social Cost (MSC)/Marginal Social Benefit (MSB) The full cost/benefit to society.MSC = MPC + MECMSB = MPB + MEB Positive Externalities Positive spillover effects to 3rd parties of an economic transaction. Ex ante A term that refers to future events yet to come. Ex post A term that refers to occurances after an event Merit Good A good that would be under-consumed in a free market. All benefits to society are not fully perceived. Informational Failure Where economics agents do not fully perceive the pros and cons of an economics transaction. Partial Market Failure Where the free market provides a product but with mis-allocation of resources. Demerit Good A good which would be over-consumed in a free market, as consumers don't fully understand the costs. Public Good Satisfies the Non-excludability and Non-rivalry conditions. (has complete market failure due to free rider problem). EG national defence Quasi-Public Good Has Some qualities of a public good, but does not fully satisfy the criteria. (has partial market failure) EG a local park. Private Good Is excludable and has rivals in competition Complete Market Failure The free market fails to provide a product/service at all (EG public goods) Minimum/Maximum Price A method of intervention by the government to impose lawfully a floor/ceiling price. Price Elasticity of Demand, Ped The responsiveness of demand to a change in the price level. Subsidies Payments made by the government to producers to encourage production of a good/service. Incidence of Tax The proportion of tax that is passed onto the consumer. This will be high when there is inelastic Ped; but low when there is elastic Ped. Income elasticity of demand, Ied The proportion to which demand changes in response to changes in income. Substitutes Goods that can be used as alternatives to another good. Commodity A good that is traded, but usually refers to raw materials or semi-manufactured goods, often traded in bulk. and often involves homogeneous (unbranded) 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 the government intervenes in a attempt to correct market failure, but worsens the situation; ie Costs > Benefits of the intervention. Buffer stocks An intervention system that aims to limit the volatility/fluctuations of the price of a commodity. Inflationary pressures. Occurances thatare likely to lead to increased price levels Negative Externalities Costs imposed on a third party, not involved in an economic transaction. Production The process that converts factors of production into outputs of goods and services. Fixed costs Costs of productions that do not vary as output changes, EG rent, new capital, salaries. Variable costs Costs of production that vary with output Supply The amount offered for sale at each given price level Planned supply The amount producers plan to produce at each given price level Actual supply The amount actually produced (may be different from planned supply) Market Supply The sum of all firms supply in a market's supply at each given price level. Extension in supply Increased supply due to rising market price Contraction in supply Decreased supply due to falling market price. Joint Supply Production of one good results in the production of another EG Crude Oil --> petrol, diesel, polymers, bitumen, etc Equilibrium Where demand equals supply and there is no tendency to change. Disequilibrium Where demand does not equal supply (and therefore there is tendency for price/quantity changes). Excess Supply Supply > Demand at a given price. Signals producers to lower prices. Market-clearing price The (highest) price at which all goods that are supplied will be demanded. Effective Demand Demand supported by the ability to pay for a good or service Market Demand Total demand for a good in a market; the sum of individual's demand. Contractions in demand. Falls in quantity demanded caused by price rises. Extensions in demand Rises in quantity demanded caused by falls in price Normal Goods Increase in demand when incomes rise Inferior goods Decrease in demand when incomes rise Complimentary products Goods that are consumed together; EG Bread and Butter. Composite Demand Goods that are demanded for more than one purpose. Derived Demand When demand for one good/service comes from demand of another good/service; EG demand for tyres comes from demand for cars. Productivity A measure of efficiency. Labour productivity equals output per person per unit time (usually hour) Human Capital Skills, abilities, motivation and knowledge of labour. 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/services, which when assembled, produces a better quality product/service. Value Judgement Non-falsifiable statements, often depending on the views of the individual Normative Statements Opinions that require value judgments to be made. Positive Statements Falsifiable statements, ie they can be tested against real-world data. Demand The amount that consumers are willing and able to buy at each given price level Economic Welfare The benefit or satisfaction an individual or society gets from the allocation of resources Economic goods Goods that are scarce in resource and therefore have an opportunity cost Free Goods Goods that do not have an opportunity cost Factor Market The markets of the factors of production (CELL - Capital, Enterprise, Land and Labour) Profit Where a firm's total revenue > costs Free market economy Has very little government intervention, eg in equity issues such as protection from thievery. PPB or PPC or PPF(Production Possibility Boundary/Curve/Frontier) Indicates the max possible output at a fixed period of time (and technology, capital, etc) Productive Efficiency Firms operating at lowers ATC (average total cost), producing maximum outputs from given inputs Allocative Efficiency Producing the right balance of goods and services which society values. i.e. you cannot make anyone better off without making someone else worse off.