Unit 3 - Microeconomic Decision Makers

Barter

The act of trading goods or services between two or more parties without the use of money

Base rate (or Bank rate)

The interest rate that a central bank will charge to lend money to commercial banks and on which other financial organizations base their interest rates

Central bank

Responsible to its government for controlling the country's money supply as the issuer of notes and coins and the level of reserves a commercial bank must hold. It also sets the rate of interest.

Commercial bank

Financial institution in which individuals and firms can save their money and also obtain loans

Creditor

The lender of money

Interest rate

The cost of borrowing money

Lender of last resort

Where the central bank gives loans to banks or other eligible institutions that are experiencing financial difficulty and may not be able to quickly borrow money elsewhere

Measure of value or unit of account

The idea that money allows the value of different goods and services to be compared

Medium of exchange

Anything that sets the standard of value of goods and services and is acceptable to all parties involved in a transaction

Money

Anything that is generally accepted as a means of payment for goods and services

Quantitative Easing (QE)

Where a central bank buys financial assets from banks and other private sector businesses with new electronically created money

Standard for deferred payment

Enables people to borrow money and pay it back at a later date

Store of value

Allows wealth to one firm buys another firm either be stored in the form of money

Borrowing

Being lent money with the requirement to pay it back in an agreed period of time, very often with interest

Consumer spending

The purchase of goods and services by households; also referred to as **consumer spending**

Direct tax

A tax on income or wealth

Disposable income

The income available to spend and save after direct taxes have been deducted and any state benefits added

Household

A group of people who share the same living accommodation, who pool at least some of their income and who consume certain goods and services such as housing and food collectively

Income

The reward for the services provided by a factor of production, including labour

Indirect tax

A tax on spending that is initially charged to the producer, but may then be passed on to consumers through an increase in price

Rate of inflation

The persistent rise in the general price level over time

Real income

Income taking the effects of inflation into account, so it is the purchasing power of income

Saving

That part of someone's income which is not spent on consumption

Spending

Involves the use of money to purchase goods and services

Rate of interest (interest rate)

The cost of borrowing money from a lender, and the reward for saving

Basic pay 

The amount of money received before any additional payments are added or any deductions, such as income tax, are made

Derived demand

When a product or factor of production is not demanded for itself, but is dependent on the demand for the product it helps to produce.

Division of labour

The process by which workers specialise in, or concentrate on, one particular task

Earnings

the total amount received including additional payments

Living wage

A wage set at a level to enable workers to reach a minimum acceptable living standard

Minimum wage

The lowest wage level that an employer may legally pay their workers

Non-wage factor

Something other than pay that influences choice of occupation

Salary

An annual sum of money usually paid in twelve equal monthly amounts

Specialisation

The process by which individuals, firms, regions and whole economies concentrate on producing those products in which they have an advantage

Wage

A payment for units of time or units of product

Wage rate

Amount of money paid to a worker per unit of time

Collective bargaining

A process of negotiation over pay and conditions between a trade union, representing a group of workers, and employers

Equal opportunities

The policies and practices in employment that prevent discrimination against someone on the grounds of race, age, gender, religion, disability or any other individual or group characteristic unrelated to ability, performance and qualification

Health and safety

The laws and rules for identifying potential dangers and health problems at work and, also, the ways of preventing these issues and keeping people safe

Industrial action

Any measure taken by a trade union (or other organized labour) to try to enforce their demands or to address their complaints; this may take the form of strikes, overtime bans, go-slows, work-to-rules or sit-ins

Trade union

An organization of workers that actively supports its members in a variety of ways, such as increasing wages and improving working conditions

Average Cost (AC)

The cost of producing a unit (unit cost of production). It is calculated by dividing total cost by output or quantity.

Conglomerate merger

Two firms with unrelated business activities join together

Diseconomies of scale

Where an increase in the level of production results in a rise in the average costs of production

Economies of scale

Where an increase in the level of production results in a fall in the average costs of production

External economies

Arise from factors outside the control of a firm and fall on all firms in the industry regardless of size

Horizontal merger

Two firms at the same stage of production in the same industry join together

Internal economies

Come from the growth of the firm itself, resulting in a fall in average costs (economies) or rise in average costs (diseconomies)

Merger

The process by which two independent firms come together to form a new firm

Primary sector

The direct use of natural resources; it is the extraction of basic materials and goods from the land and sea

Profit maximisation

The greatest profit a firm can make is shown by where there is the most positive difference between TR and TC the greatest profit a firm can make is shown by where there is the most positive difference between TR and TC

Secondary sector

All activities in an economy that are concerned with either manufacturing or construction

Takeover

The process by which one firm buys another firm either by buying out the owner or by purchasing more than 50% of its shares

Tertiary sector

All activities in an economy that involve the idea of a service

Vertical merger

Two firms at different stages in the same industry join together; this may be forward or backward

Capital intensive production

Where a high level of investment is required, such as in machinery, equipment. vehicles, etc. compared to the other factors of production.

Efficiency

How effective the firm is in using factors of production to generate its output

Labour intensive production

Where the production of a good or service depends more heavily on labour than the other factors of production.

Labour productivity

Output per worker per time period

Production

The total output of the goods and services produced by a firm or industry in a period of time

Productivity

Measures the contribution to production (total output) by each factor of production employed. It is one measure of the degree of efficiency in the use of factors of production in the production process. It is measured in terms of output per unit of input.

Average Cost (AC)

The cost of producing a unit (unit cost of production). It is calculated by dividing total cost by output or quantity.

Average Fixed Costs (AFC)

The fixed costs per unit

Average Revenue (AR)

The revenue per unit sold

Average Variable Costs (AVC)

The variable costs per unit

Fixed Costs (FC)

Those costs which do not vary with output

Profit

The income a firm receives after expenses have been deducted (total revenue - total costs). Profit is the factor reward for enterprise.

Sales (revenue) maximisation

Where a firm increases market share and/or increases total revenue

Social welfare

A firm being concerned about the welfare of its workers, society as a whole or local community

Survival

The objective of remaining in business

Total Costs (TC)

All the costs of the firm added together. TC = FC +VC

Total Revenue (TR)

The total income of a firm from the sale of its goods and services

Variable Costs (VC)

Those costs which change as output changes

Barriers to entry

Ways in which new firms are prevented from entering a particular industry

Competition

Where different firms are trying to sell a similar product to a customer

Competitive market

Where a large number of firms compete with each other to satisfy the wants and needs of a large number of consumers

Consumer sovereignty

The power of consumers over how the market allocates resources through determining what is produced and for whom

Monopoly

The sole producer or seller of a good or service

Product differentiation

Setting one product apart from another by emphasising a particular aspect or aspects; it is used to increase consumer interest