Microeconomics

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Front (Term)

Economic problem

Back 1

Back (Definition)

Allocating finite resources to satisfy unlimited wants and needs

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Front (Term)

Opportunity cost

Back 2

Back (Definition)

The benefit forgone of the next best alternative to the choice being made

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Front (Term)

Demand

Back 3

Back (Definition)

The quantity of goods and services consumers are both willing and able to buy at any given price over a period of time

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Supply

Back 4

The quantity of goods and services that producers are willing and able to provide onto the market at any given price in a time period

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Joint supply

Back 5

When a rise in the output of one good automatically leads to a rise in the supply of another product

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Market clearing price

Back 6

The price at which the quantity suppliers wish to sell matches the amount consumers wish to purchase

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Excess demand

Back 7

When demand exceeds supply so there is pressure on prices to rise

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Excess supply

Back 8

When supply exceeds demand so there is pressure on prices to fall

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Derived demand

Back 9

Occurs when the demand for a product or factor of production comes about because it is needed to produce other goods. It is derived from the demand for the original product

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Price elasticity of demand

(PED)

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Measures the % change in quantity demanded resulting from a given % change in price (responsiveness of quantity demanded due to a change in price)

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Income elasticity of demand

(YED)

Back 11

Measures the % change in demand resulting from a given % change in household income

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Economies of scale

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The cost advantages that a business can exploit by expanding their scale of production in the long run. Economies of scale reduce long run average costs

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Market failure

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Occurs when the market fails to allocate resources efficiently

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Externalities

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Occur when there are external costs and benefits to society that are not taken into account by the operation of the price system e.g. Pollution

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Missing markets

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Occur when the market mechanism would fail to provide a good or service at all e.g. Public goods i.e. National defence

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Government failure

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Occurs where intervention leads to a misallocation of resources or a reduction in economic welfare

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Public goods

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Are both non-rival and non-excludable in their consumption

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Free rider

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Someone who benefits from resources, goods or services without paying for the cost

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Merit goods

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Goods which provide positive externalities when consumed and are likely to be under-provided by the market mechanism

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Demerit goods

Back 20

Goods which are over provided by the market mechanism

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Negative externalities

Back 21

Costs created by the producer or consumer of the good but are not paid for by them

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Cross elasticity of demand

(XED)

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Measures the responsiveness of the quantity demanded of one good to changes in the price of another

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Positive externalities

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Occur when the consumption or production of a good causes an external benefit to a third party

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Maximum prices

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A legally imposed limit on the price of a good or service that suppliers cannot exceed

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Minimum prices

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A legally imposed price floor below which the normal market price cannot fall

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Market structure

Back 26

Refers to the number and relative size of firms in the market or industry e.g. 7 U.K. Supermarkets have over 90% market share

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Barriers to entry

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Are the things that make it difficult for a new firm to enter the market

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Price elasticity of supply

(PES)

Back 28

Measures the % change in quantity supplied resulting from a given % change in price

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Short run

Back 29

The period of time during at least one factor of production is fixed in time

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Production

Back 30

The total output of goods and services produced within a market

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(Labour) Productivity

Back 31

The output of a worker or any other factor of production over a period of time

=total output per time period/ number of units of labour

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Total costs

Back 32

The costs of all resources necessary to produce any particular level of output

TC=fixed costs+variable costs

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Fixed costs

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Do not vary with output in the short run

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Variable costs

Back 34

Vary with output i.e. Increases as output rises

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Economic efficiency

Back 35

Occurs when society is using its scarce resources to produce the highest possible level of goods and services that consumers want to buy