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Mircoeconomics terms
WJEC AS Level
72
Economics
11th Grade
01/05/2014

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Term
Abnormal profits
Definition
Occurs when the total revenue is greater than the total costs
Super normal profits
Term
Ad valorem tax
Definition
A tax placed on the producer that is a percentage of the price
Term
Allocating efficiency
Definition
Occurs when the price paid by the customer equals the social marginal cost of producing the good
Term
Asymmetrical information
Definition
Occurs when one individual/organization knows more about an issue than another
Eg. The seller has more information not available to the buyers
Term
Average cost
Definition
The cost per unit
(Average total cost)
Term
Average fixed cost
Definition
The fixed cost per unit
Term
Barriers to entry
Definition
Anything that makes it difficult for other firms to enter a market
Term
Breakeven point
Definition
This is the output at which the total revenue equals the total cost
Term
Cartel
Definition
This occurs when the firm's in an oligopoly collude when getting prices and outputs
Term
Conclusive oligopoly
Definition
This occurs when several firms that dominate an industry act together
Eg. When setting the price or quantity
Term
Company
Definition
A business organization that has its own legal identity; it is owned by shareholders who have limited liability
Term
Complementary demand
Definition
Occurs when one good is demanded in conjunction with another
Term
Concentration ratio
Definition
The 'n' firm concentration ratio measures the market share of the largest 'n' firms in a markets
Term
Consumer surplus
Definition
The difference between the price charged for a product and the utility that consumers derive from it
Term
Cost benefit analysis
Definition
A method of investment appraisal that takes account of social costs and benefits
Term
Cross price elasticity of demand
XED
Definition
Measures the responsiveness of demand for one product in relation to changes in the price of another
Term
Demand curve
Definition
Shows the quantity demanded at each and every price, all other factors being unchanged
Term
Derived demand
Definition
Occurs when the demand for something is derived from the demand for something else.
Eg. Employers demand labour because their products are demanded
Term
Diminishing returns
Definition
Occurs when the extra output produced falls as more units of the variable factor are added
Term
Diseconomies of scale (external)
Definition
Occur when a firm's unit costs increase at every level of output due to an increase in the size of the industry as a whole
Term
Diseconomies of scale (internal)
Definition
Occur when there are increases in the long run average costs as the scale of production increases
Term
Enterpreneurship
Definition
Occurs when individuals are willing to take the risks to produce new ideas or introduce new processes
Term
Equilibrium
Definition
Occurs when there is a state of balance and there is no incentive for change
Term
External economies of scale
Definition
Occurs when a firm's unit costs fall at every level of output due to an increase in the size of the industry as a whole
Term
Externality
Definition
Occurs when there is a difference between private and social costs and benefits
Term
Fixed costs
Definition
Costs that do not change with the amount of products produced
Term
Free rider theory
Definition
Occurs when it is not possible to exclude individuals from consumption of a product
Term
Game theory
Definition
Involves the study of alternative
Term
Hit and run competition
Definition
Occurs when firms enter a market attracted by high profits and then leave when they are competed away
Term
Horizontal integration
Definition
Occurs when two or more firms at the same stage of the same production process are integrated
Eg. Takeover or merger
Term
Income elasticity of demand
YED
Definition
Measures the responsiveness of the demand for a product in relation to changes to income
Term
Inferior goods
Definition
These have a negative income elasticity of demand. Demand falls as income increases, and a negative price elasticity of demand. A higher price leads to a lower quantity demanded
Term
Internal economies of scale
Definition
Occurs when there are reductions in a firm's long run average costs as the scale of production increases
Term
Joint supply
Definition
Occurs when the supply of one product is linked to the supply of another
Eg. An increase in the supply of beef increases the supply of hides
Term
Linked demand curve
Definition
Tis is a model of oligopoly; demand is assumed to be price elastic above the existing price and price inelastic below the existing price
Term
Long run
Definition
The period of time when all of the factors of production are variable
Term
Marginal cost
Definition
The extra cost of producing an extra unit
Term
Marginal revenue
Definition
The extra revenue earned by selling another unit
Term
Marginal revenue product
Definition
Measures the value of the output produced by employing an extra worker
Term
Marginal utility
Definition
This is the extra satisfaction gained from consuming another unit
Term
Merit good
Definition
This is a product that is underinsured in the free market because it's external benefits are not appreciated or known by customers
Term
Monopolisitic competition
Definition
A market structure in which there are many firms but each offers a differentiated product
Term
Monopoly
Definition
A firm that dominates a market
Term
Multinational
Definition
A company that has production bases in more that one country
Term
Non-excludability
Definition
This occurs when it is not possible to prevent someone from consuming a product
Term
Normal goods
Definition
Normal goods gave a negative price elasticity of demand and a positive income elasticity of demand
Term
Normal profit
Definition
Occurs when the total revenue equals the total costs
Term
Objective
Definition
This is a target
Eg. To maximise profits
Term
Oligopoly
Definition
A market structure in which a few firms dominate the market
Term
Opportunity cost
Definition
The next best alternative forgone
Term
Perfect competition
Definition
This is a market structure with many firms, freedoms of entry and exit, where firms produce identical products and where firms are price takers
Term
Price discrimination
Definition
Occurs when different prices are charged to different customers for the same product
Term
Price elasticity of demand
Definition
Measures the responsiveness of the demand for a probe in relation to changed in its price
Term
Price else of supply
Definition
Measures the responsiveness of the supply fora product in relation to changes in its price
Term
Producer surplus
Definition
The difference between the price paid to producers for products and the cost of producing the items
Term
Production possibility frontier
Definition
Shows the maximum combination of production that an economy can produce given its resources
Term
Productive efficiency
Definition
Occurs when more of one product can only be produced if less of another product is produced. It also occurs when a firm produces at the minimum of the average cost curve, that is, at the lowest cost per unit possible
Term
Progressive tax
Definition
A tax system where the average rate of tax increases as income increases
Term
Proportional tax
Definition
A tax system where the average rate of tax is constant as income increases
Term
Public good
Definition
A product that is non-diminishable and non-excludable
Term
Short run
Definition
The period of time when at least one factor of production is fixed
Term
Shut down point
Definition
Occurs when price is the minimum of average variable cost;a firm would shut down if the price fell below the average variable cost
Term
Social costs
Definition
The private costs plus external costs
Term
Supernormal profits
Definition
These are the same as abnormal profits. They occur when the price is greater than the average cost
Term
Supply curve
Definition
Shows the quantity that producers are willing and able to produc at each and every price, all factors being unchanged
Term
Sustainability
Definition
This refers to the ability of the economy to survive to produce in the long run
Term
Takeover
Definition
This occurs when one business buys control of another
Term
Total cost
Definition
The total cost at any level of output equals the fixed costs plus the variable costs
Term
Total revenue
Definition
The value of scales (calculated as the price of a product multiplied by the quantity sold)
Term
Trade union
Definition
This is an organization that represents employees;it aims to protect employees' rights and promote their interests
Term
Utility
Definition
The satisfaction that a consumer would receive from consuming s product
Term
Vertical integration
Definition
Occurs when two or more firms at different stages of the same production process are integrated
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