3. Microeconomic decision Makers

Economics Terms

Money

is an item which generally acceptable as a means of payment

commercial banks

banks which aim to make a profit by providing a range of banking services to households and firms

central banks

a government-owned bank which provides banking services to government and commercial banks and operates monetary policy

Liquidity

means being able to turn an asset into cash quickly without making a loss

Disposable income

is income left after the income tax has been deducted and state benefits have been received

→ income - (tax + state benefits)

Wealth

is a stock of assets, including money held in the bank accounts, shares in companies, government bonds, cars and properties

Rate of interest

is a charge for borrowing money and a payment for lending money

Average propensity to consume (APC)

is the proportion of household disposable income which is spent

Consumption

expenditure by households on consumer goods and income

Savings ratio

is the proportion of household disposable income that’s saved

Average propensity to save (APS)

is the proportion of household disposable income that’s saved

Mortage

is a loan to help buy a house

Earnings

is the total pay received by a worker

Wage rate

is a payment which an employer contracts to pay a worker.

→ basic wage of worker receiver per unit of output or time

National minimum wage (NMW)

is a minimum wage rate for an hour’s work, fixed by government for whole economy

elasticity of demand of labour

is a measure of responsiveness of demand for labour to a change in wage rate

elasticity of supply of labour

is a measure of responsiveness of the supply of labour to a change in wage rate

specialisation

is when concentration lays on products or tasks

division of labour

is when workers specialize in particular tasks

trade union

is an association which represents the interests of a group of workers

Collective bargaining

represents workers negotiating with employers’ associations

Industrial action

is when workers disrupt production to put pressure on employers to agree to their demands

Industry

is a group of firms producing the same product

Primary sector

covers industries which extract natural resources

Secondary sector

covers the manufacturing and construction industries

tertiary sector

covers industries which provide a service

Quaternary sector

covers knowledge-based service industries

Internal growth

is an increase in size of a firm resulting from it enlarging existing plans or opening new ones

External growth

is an increase in size of firm resulting from it merging or taking over another

Horizontal merge

merger of firms producing same product at sam stage of production

Vertical merger

merge of two firms producing same product in different stages of production

Vertical backwards merger

a merge with a firm at an earlier stage in supply chain

Vertical foreward merger

merge with a firm at later stage of supply chain

Conglomerate merger

merge of two firms at different stage of production and producing different products

Internal economies of scale

lower long-run average costs resulting from a firm growing in size

external economies of scale

lower long-run average costs resulting from an industry growing in size

Internal diseconomies of scale

higher long-run average costs arising from a firm growing too large

External diseconomies of scale

higher -long-run average costs arising from industry growing too large

Total cost

is total amount spent on factors of production to produce a product

Average total costs

total costs/ output

Fixed costs

costs which don’t change with output in short run

Average fixed costs

total fixed costs/ output

Variable costs

costs changing with output

Average variable cost

total variable cost/ output

Price

amount of money having to be given to obtain a product

total revenue

is total money received by selling product

average revenue

total revenue/ quantity sold

Profit satisficing

sacrificing some profit to achieve goals

profit maximization

masking as much profit as possible

Market structure

conditions which exist in a market, including number of firms

Competitive market

a market with number of firms that compete with eachother

Monopoly

a market with single supplier

Barrier to entry

anything making difficult for firm to start producing a product

Barrier to exist

anything making difficult for a firm to stop producing product

Scale of production

size of production units and methods of production used