Microeconomics

G11

Behavioural economics

Adds elements of psychology to traditional models in an attempt to understand decision making by the consumers

Capital

Factor of production - Physical = Stock of manufactured resources, human = Value of workforce

Ceteris paribus

All things being equal

Circular economy

Economic system that focuses on society wide benefits. Based on design out waste, keep products/materials in use, regenerate natural systems

Circular flow of income

Simplified model of the economy that shows the f,ow of money through the economy

Consumer surplus

The additional benefit/utility received by consumers by paying a price that is lower than they are willing to pay

Consumption

Spending by households on consumer goods and services over a period of time

Demand

The willingess and ability of consumers to purchase a quantity of a good or service

Demand curve

Shows the relationship between the price of a good/service and the quantity demanded

Demerit goods

Goods/services considered to be harmful to people

Economic development

A broad concept involving improvement in standards of living etc

Economic growth

The growth of the real value of output on an economy over time measured with GDP

Elasticity

A measure of responsiveness of something to a change in one of its determinants

Engel curve

Curve that shows the relationship between income and quantity demanded

Equilibrium

A state of being equal without an outside disturbance

Excess demand

Shortage. Price of a good is lower than the equilibrium price such that the quantity demanded is greater than the quantity supplied

Excess supply

Surplus. Where the price of a good is higher than the equilibrium price, such that the quantity supplied is greater than the quantity demanded

Exports

Goods/services produced in one country and purchased by consumers in another country

Externalities

External costs or benefits to a third party when a good or service is produced or consumed

Factors or production

Land, labour, capital, entrepreneurship

Land

Rent

Labour

Wages

Capital

Interest

Entrepreneurship

Profit

Free market economy

Means of production are privately held by individuals and firms. Supply/demand determine what,how much, how and for whom to produce.

Imports

Goods/services purchased by consumers in one country that have been produced in another country

Income elasticity of demand (YED)

A measure in the responsiveness of the demand for a good or a service to a change in incomeI

Indirect taxes

Added to the selling price of a good or a service

Inflation

An increase in the general or average level of prices and a fall in the value of money

Inflation rate

Percentage change of a price index over a certain time period

Injections

Investment, government expenditure and export revenues that add spending to the circuclar flow of income

Interest rate

The price of borrowing money

Law of demand

As the price of a good falls, the quantity demanded will normally increase

Law of supply

As the price of a good rises, the quantity supplied will normally rise

Leakages

Savings, taxes and import expenditure that remove spending from the circular flow of income

Marginal costs

The additional costs of producing more than one unit of input

Marginal utility

Extra utility derived from consuming one or more unit of a good or a service

Market

Where buyers and sellers come together to carry out an economic transaction

Market demand

Horizontal sum of the individual demand curves for a product of all the consumers in a market

Market equilibrium

The point where the quantity of a product demanded is equal to the quantity of a product supplied. This creates the market clearing price and quantity where there is no excess demand or supply

Market failure

A failure of markets to produce at the point where community surplus is maximised (consumer surplus + producer surplus)

Merit goods

Goods/services considered to be beneficial for people

Negative externalities of consumption

Negative effects suffered by a third party when a good/service is consumed

Normal goods

Demand for it increases as income increasesN

Normative economics

Areas of economics that are open to personal opinion and belief

Opportunity cost

Next best alternative when an economic decision is made

Perfectly elastic demand

Increase in price of a G/S leads to a fall in the QD of the G/S to zero

Perfectly elastic supply

Where a change in the price of a G/S leads to a fall in the QS of the G/S to zero

Perfectly inelastic demand

Where a change in the price of a G/S leads to no change in the QD of the G/S

Perfectly inelastic supply

Where a change in the price of a G/S leads to nochange in the QS of the G/S

Positive economics

Deals with areas of the subject that are capable of proven to be correct or not

Positive externalities of consumption

Benefits that are enjoyed by a third party when G/S are consumed

Positive externalities of production

Benefits that are enjoyed by a third party when a G/S is prpdiced

Price ceiling

Imposed by an authority and set below the equilibrium price, prices cannot rise above this set price

Price controls

Imposed by authority, set above or below the market equilibrium price

Price floor

Imposed by an authority and set above market price, proces cannot fall below this set price

(Price) Elastic demand

Change in the price of a G/S leads to a proportionally larger change in the QD of it

(Price) Elastic supply

Change in price of a G/S leads to a proportionally smaller change in the QD of the G/S

(Price) Inelastic demand

Change in the price of a G/S leads to a proportionally smaller change in the QD of the G/S

(Price) Inelastic supply

Change in the price of a G/S leads to a proportionally smaller change in hte QS of the G/S

PED stands for…

Price elasticity of demand

Definition of PED

Measure of the responsiveness of the QD of a G/S when there is a change in its price

PES stands for…

Price elasticity of supply

Definition of PES

Measure of responsiveness of the QS of a G/S when there is a change in its price

Producer surplus

Additional benefit received by producers by receiving a price that is higher than the price they were willing to receive

PPC

Production possibilities curve

Quantity demanded

Willingness and ability to purchase a quantity of a G/S at a certain price over a given time period

Quantity supplied

Willingness and ability to produce a quantity of a good or service at a given price over a given time period