click below
click below
Normal Size Small Size show me how
LC Econ Micro Review
Review of LC Econ Micro Review-terms
Question | Answer |
---|---|
Economics | The study of the production distribution and consumption of goods and services by society. |
Macreconomics | The part of the subject which studies the decision making process of governments in areas such as income inflation international trade employment and growth. |
Microeconomics | The part of the subject which studies the decision making process of small units in the economy such as individual producers and individual consumers. |
Opportunity cost | The alternatives that have to be done without in order to have an item. |
Centrally planned economy | Where the state controls and directs all economic activity. |
Factors of production | The resources required to produce goods and services. |
Free Enterprise Economy | Where economic activity is undertaken by companies and indiviuduals who are free to operate without undue government interference. |
Mixed Economy | Where state and private enterprises exist but the government exercises a certain amount of regulation. |
External economies of scale | That factors that lower the average cost of production as the industry grows in size and that benefits all firms in the industry. |
External diseconomies of scale | That factor that cause average cost of production to rise as output expands and that are common to every firm in the industry. |
Internal economies | The factors that lower a firms average cost of production as the firm expands in size. |
Internal diseconomies | The factors that cause a firms average cost of production to rise once the firms reaches a certain size. |
Economic good | A good that gives utility is scare relative to the demand for it and is transferable. |
Law of Diminishing Marginal Utility | As extra units of a good are consumed the utility or satisfaction gained from each extra unit of that good falls. |
Law of Equi-Marginal Returns | To enjoy maximum utility a consumer must spend his/her income so that the ratio of marginal utility to price is the same for all the goods he/she buys. |
Commodity markets | The markets where major commodities or raw materials are bought and sold. |
Final market | A market that supplies goods and services that give consumers utility and for which they are willing to pay a price. |
Intermediate market | A market where a good is sold to be used as an input in the production of another good. |
Complemetary goods | Goods that are in joint demand. The use of one involves the use of the other. |
Giffen good | A good which quantity demanded increases if price increases and quantity demanded falls if price falls. |
Normal good | A good with a positive income effect. More of it will be bought as income rises. |
Inferior good | A good with a negative income effect. Less of it will be bought when income rises. |
Law of demand | The relationship between price and quantity demanded that applies to the vast majority of goods.That is if price rises quantity demanded falls and if price falls quantity demanded rises. |
Snob good | A good that is attractive to some consumers because it is expensive. A rise in price will cause an increase in demand and a fall in price will cause a fall in demand. |
Substitute good | Goods that satisfy the same need and so can be used instead of each other. |
Capacity constraint | The physical limit to the quantity of good a firm is able to supply. |
Perfectly inelastic supply | A situation where quantity supplied is fixed regardless of price. |
Law of supply | The relationship between price and quantity supplied that applies to the vast majority of goods. That is if price rises quantity supplied rises and if price falls quantity supplied falls. |
Cross elasticity of demand | The responsiveness of the demand for one good to a change in the price of another good. |
Income elasticity of demand | The responsiveness of demand for a good to changes in income. |
Unit elasticity of demand | A good is said to have unit elasticity of demand if the proportionate change in quantity demanded is equal to the proportionate change in price. |
Law of Diminishing Marginal Returns | If increasing quantities of a variable factor are combined with a given amount of a fixed factor eventually a stage will be reached where the addition to total output (that is, marginal output) will decline. |
Marginal cost | The change in total cost as a result of producing one extra unit of output. |
Supernormal profit (SNP) | Any profit received in excess of normal profit. |
Free entry and exit | A situation where there are no restrictions preventing the entry of new firms to the industry or the exit of existing firms. |
Long- run equilibrium | The combination of price and quantity that gives the firm the highest profit in the long run. |
Short-run equilibrium | The combination of price and quantity that gives the firm the highest profit in the short run. |
Barriers to entry | Obstacles preventing the arrival of new firms to compete with the monopolist. |
Monopoly | A monopoly is a market structure where the the entire output of a good or service is supplied by one firm. |
Patent | A temporary monopoly granted to a company that has invented a new product or process so that it an recoup its costs before facing competition. |
Price discrimination | The selling of the same good (or service) to different customers at different prices, where the difference in price is not caused by differences in costs. |
Product differentiation | This is where the consumer can distinguish the product of one firm from that of all others because of branding of goods and competitive advertising. |
Collusion | Any action undertaken by separate and rival companies to restrict competition between them with a view to increasing their total output. |
Price rigidity | A reluctance on the part of the firm in oligopoly to change from the current price because any such change will cause a fall in total revenue. |