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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. |
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MrFromholz
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