Mircoeconomics

Terms and definitions

Normative Economics

Subjective, opinion, valued judgement

Positive Economics

Factual, provable statements

Economic Problem

unlimited needs and wants with limited resources

Opportunity cost

the cost of the next best alternative foregone

FoP

Capital, Enterprise, Labour, Land

Demand

the quantity of goods and services consumers are willing and able to buy at each and every price

Law of demand

As price falls, the quantity demanded rises, ceteris paribus

Substitution effect

if the price of a good rises, the good will now cost more than substitutes

Income effect

if the price of a good rises, consumers’ purchasing power of their income falls

Non-price determinants of demand

Consumer income, prices of other goods, taste and fashion, future price changes, number of consumers

Derived demand

demand for FoP used to produce another good

Composite demand

goods have more than on use

Veblen good

high price is attractive

Supply

the quantity of goods and services that firms are willing and able to provide at each and every price

Law of supply

as price increases, quantity supplied increases, ceteris paribus

Profit motive

firms is assumed to seek to maximise profits

Fixed costs

costs do not change in the short run with the level of output

Variable costs

costs do change in the short run with the level of output

Non-price determinants of supply

Subsidies and taxes, Technology, Other related goods, Resource costs, Expectations, Size of the market

Joint supply

2 products produced or supplied together

Competitive supply

2 products produced from the same FoP

Surplus

Excess supply

Shortage

Excess demand

Equilibrium price

price at which quantity demanded equals quantity supplied

Surge pricing

raise price when there is a great increase in demand