Microeconomic Definitions U1

Question	Answer
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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Microeconomic Definitions U1

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	Created by tyrasirandula over 11 years ago