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Microeconomics A-level > Basic Principles > Flashcards

Flashcards in Basic Principles Deck (29)
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1
Q

Capital

A

Investment in goods that are used to produce other goods in the future. Fixed capital includes machinery, equipment, new technology, factories and buildings.

2
Q

Capital goods

A

Capital goods such as factories and machinery are useful for the goods and services they can help produce in the future.

3
Q

Ceteris paribus

A

Latin for ‘all other things being equal’.
Used to isolate the relationship between two variables, by assuming all other influencing factors are help constant - by assuming ceteris paribus.

4
Q

Costs

A

The expenses faced by firms when producing a good or service for a market. In the short run, firms will have fixed or variable costs.

5
Q

Equilibrium

A

A state of balance.

A situation where there is no tendency for change.

6
Q

Firm

A

An organisation that uses factors of production (resources) to create goods and services.

7
Q

Free goods

A

Free goods are not scarce and have no opportunity cost.

8
Q

Free market economy

A

A market where there is little or no government intervention and the forces of supply and demand set the prices and allocation of resources.

9
Q

Income

A

Income represents a flow of earnings from using factors of production to generate an output of goods and services.

10
Q

Land

A

Land is the natural resource available for production, which may contain natural resources such as oil, which can be extracted.

11
Q

Market failure

A

Occurs when freely functioning markets fail to deliver an efficient allocation of resources, leading to a loss of productive efficiency.

12
Q

Macroeconomics

A

Concerns the economy as a whole, for example the levels of output, inflation, employment, growth, imports and exports.

13
Q

Microeconomics

A

The study of economics at the level of the individual firm, industry or consumer.

14
Q

Normative statements

A

Express an opinion about what ought to be, they are subjective statements so carry value judgements.

15
Q

Opportunity cost

A

Measure the cost of any choice in terms of the next best alternative that might have been produced using those resources.

16
Q

Positive statements

A

Objective statements that can be tested or rejected by referring to the available evidence or data.

17
Q

Production possibility frontier (PPF)

A

A diagram showing the combinations of two or more goods and services that can be produced using all available factor resources efficiently. Also shows the principle of diminishing returns.

18
Q

Productive efficiency

A

This occurs when a business in a given market or industry reaches the lowest point of its average cost curve, as output is being produced at minimum cost per unit.

19
Q

Profits

A

When total revenue exceeds total cost.

Total profit = total revenue - total cost

20
Q

Scarcity

A

Scarce means limited, our resources of land, labour, capital and enterprise are finite. There is only a limited amount of resources available to produce the unlimited amount of goods and services.

21
Q

Trade

A

The exchange of goods or services, it improves consumer choice and total welfare.

22
Q

Production

A

Involves using up scarce resources, in most cases. From primary industries - manufacturing basic resources - to quaternary industries - service sector.

23
Q

Stakeholders

A

Groups who have an interest in the activity of a business/market. Different stakeholders have different objectives, and stakeholder conflict ensues.

  • government
  • firms
  • consumers
  • workers
24
Q

Externalities

A

Third party effects arising from production and consumption of goods and services in a market for which no appropriate compensation is paid

25
Q

Finite resources

A

There’s only a finite number of workers, machines, acres of land, and natural resources. Therefore we can’t produce an infinite amount of goods and services.

26
Q

Fixed costs

A

These costs relate to the fixed factors of production and do not vary directly with the output
E.g. Rent, depreciation of capital equipment due to age, marketing costs

27
Q

Incentives

A

Something that motivates a producer or consumer to follow a course of action or to change behaviour, like producers face profit incentives.
Government intervention, e.g. Subsidies and taxation, can change the incentives that consumers and producers face.

28
Q

Negative externalities

A

Occur when production and/or consumption impose external costs on third parties outside of the market for which no appropriate compensation is paid.

29
Q

Monopoly

A

A pure monopolist is a single seller of a product in a given market or industry. So the firm has 100% market share.
A monopolistic market relates to any firm with over 25% of the industries’ total sales.