Microeconomics

microeconomics

examines the behaviour of individual decision-making units of the economy; the study of choices leading to the best possible use of scarce resources in order to best satisfy unlimited human needs and wants

macroeconomics

examines the economy as a whole

economics

a social science dealing with how people organise their activities and behaviours to satisfy their needs and wants

Scarcity

The idea that resources are insufficient to satisfy unlimited human needs and wants

Choice

The decision between two or more competing alternative options

efficiency

making the best possible use of scarce resources to avoid resource waste

allocative efficiency

the standard used to determine the appropriateness of economic actions from the point of view of minimising resource waste; producing the quantity of goods mostly wanted by society

equity

the idea of being fair or just, giving people the specific support they need based on their unique circumstances

equality

the sameness of treatment or outcomes for people/groups of people in a society

economic well-being

the levels of prosperity, economic satisfaction and standards of living among members of a society

sustainability

the long-term maintenance or viability of any particular activity/policy; the ability of the present generation to satisfy its needs by the use of resources without limiting future generations’ ability to satisfy their own needs

change

the shifts and developments over time

interdependence

the idea that economic decision-makers depend on each other

intervention

typically referring to government intervention, the actions taken by governments or other public authorities to influence or correct economic outcomes within a market

Resources/factors of production

the inputs used to produce goods and services

land

all natural resources

labour

the physical and mental effort that people contribute to the production of goods and services

Capital

man-made resources used to produce goods and services

Entrepreneurship

the ability to innovate and take risks to develop new ways of doing things

human capital

the skills, abilities, and knowledge acquired by people

natural capital

includes everything included in ‘land’, plus additional natural resources that occur naturally i:e air, biodiversity, etc

financial capital

investments in financial instruments/ fund that are used to buy financial instruments

opportunity cost

the value of the next best alternative that must be given up to obtain something else

free good

a good that is not scarce and therefore has zero opportunity cost

resource allocation

assigning available factors of production to specific uses chosen among many alternatives

distribution of income

how national income is divided among different individuals or households within an economy

redistribution of income

when the distribution of income changes so that different social groups now receive more/less income than previously

market method/ free market economy

resources are owned by private individuals

command method/planned economy

resources are owned by the government, which makes economic decisions via commands (legislation, regulations)

economic growth

increases in the quantity of output produced in an economy over a period of time

actual growth

movement from a point inside the PPC to one closer to the PPC caused by a reduction in UE and increase in efficiency

growth in production possibilities

shift of the PPC cause by the increase of quantity/quality of resources and technological improvements

hypothesis

an educated guess that indicates a cause-and-effect relationship about an event

empirical evidence

real-world information, observations, and data that we acquire through our senses/experiences

theory

a general explanation of a set of interrelated events

law

a statement that describes an event in a concise way and is supposed to have universal validity

competition

a process in which rivals compete to achieve some objective

demand

the quantity of a g/s which the consumer is willing and able to buy at different prices during a particular time period, ceteris paribus

law of demand

there is a negative relationship between the price of a good and its quantity demanded over a particular time period, ceteris paribus

market demand

the sum of all individual demands for a good

utility

the satisfaction that consumers gain from consuming something

law of diminishing marginal utility

as consumption of a good increases, the extra utility the consumer receives decreases with each additional unit consumed

substitution effect

if the price of a good falls, the consumer buys more of the now less expensive good, therefore quantity demanded increases.

income effect

as a result of a fall in price, the consumer’s real income has increased and can now buy more of a good/service

supply

the willingness and ability to produce and provide a good/service at a variety of prices in a certain time frame, ceteris paribus

market supply

the sum of all individual firms’ supplies for a good

short run

a time period during which at least one input is fixed

long run

time period when all inputs can be changed

law of diminishing marginal returns

as more units of a variable input is added to 1+ fixed inputs, the marginal product of the variable input at first increases, but there comes a point when it beginds to decrease

consumer surplus

the highest price consumers are willing to pay for a good minus the price actually paid

producer surplus

the price received by firms for selling their good minus the lowest price that they are willing to accept to produce the good

social surplus

the sum of consumer and producer surplus (welfare), maximised at competitive market equilibrium

nudge theory

a method designed to influence consumers’ choices in a predictable way without offering financial incentives, sanctions, and limiting choice

choice architecture

the design of the ways people make choices, influenced by how options are presented to them

default choice

doing the option that results when one does not do anything

restricted choice

choice that is limited by the government/ other authority

mandated choice

a choice between alternatives that is made compulsory by the government or other authorities

market share

the percentage of total sales in a market that is earned by a single firm

satisficing

the idea that firms try to achieve a satisfactory level of profits together with satisfactory results for many more objectives rather than optimal results for one objective

price elasticity of demand

the responsiveness of the quantity of a good demanded to changes in its price.

total revenue

the amount of money received by firms when they sell a good/service (PxQ)

primary commodities

goods arising directly from the use of natural resources (exclude agriculture, fishing, forestry, and extractive industries)

manufactered products

goods produced by labour usually working together with capital as well as raw materials; typically high PED bc have substitutes

income elasticity of demand

a measure of the responsiveness of demand to changes in income

price controls

the setting of minimum or maximum prices by the government or private organisations so that prices are unable to adjust to their equilibrium level determined by demand and suppky, resulting in market disequilibrium and shortages/surpluses

specific tax

a fixed amount of tax per unit

ad valorem tax

a fixed percentage of the price

common pool resources

resources that are not owned by anyone, wdo not have a price, and are available for anyone to use

market failure

the failure of the market to allocate resources efficiently

externality

when the actions of consumers/producers give rise to negative/positive side-effects on other people who are not part of these actions and whose interests are not taken into consideration

carbon tax

a tax per unit of carbon emissions of fossil fuels

collective self-governance

an approach to manage resources undertaken by communities of resources users themselves because they realise that it is in their best interests to work collectively to preserve resources for their livelihoods

demerit goods

goods considered to be undesirable for consumers, but are overprovided by the market

merit goods

goods that are held to be desirable for consumers but are underprovided by the market

asymmetric information

a situation where buyers and sellers have inequal access to information

adverse selection

where one party in a transaction has more information about the quality of the product being sold than the other party

Moral hazard

a situation where one party takes risks but does not face the full costs of risks because the full costs are borne by the other party

wealth

the money or things of value that people own minus debt

market power

the extent to which each individual firm in the industry is able to control the price at which it sells its product

perfect competition

where many firms sell identical products, no single firm can influence the market price, and companies can enter or exit the market freely.

monopoly

where there is a single firm in the market and have the greatest ability to control the price of its product

revenue

the payments firms receive when they sell the goods and services they produce

average revenue

revenue per unit of output sold

marginal revenue

additional revenue arising from the sale of an additional unit of output

costs of production

the total of all direct and indirect expenses a business incurs to manufacture a g/s

explicit cost

payments made by a firm to outsiders to acquire resources for use in production

implicit costs

the sacrificed income arising from the use of self-owned resources by a firm

normal profit

the minimum amount of revenue that the firm must receive so that it will keep the business running

price competition

a market strategy where businesses match or lower their prices to win customers from rivals and increase market share.

non-price competition

when firms use methods other than price reductions to attract customers

concentration ratio

quantifies market concentration and based off of market shares in an industry

market concentration

the number of firms and their respective shares in an industry

abuse of market power

where a company exploits their large market power to eliminate competition