AQA AS Economics – Microeconomics

a statement of fact that can be scientifically tested to see if it is correct or incorrect

a statement that includes a value judgement and cannot be refuted just by looking at the evidence

something that is necessary for human survival, such as food, clothing, warmth, or shelter

something that is desirable, such as fashionable clothing, but is not necessary for human survival

the economic well-being of an individual, a group within society, or an economy

a process, or set of processes, that converts inputs into output of goods

a good which is used in the production of other goods or services. also known as a producer good

a good which is consumed by individuals or households to satisfy their needs or wants

inputs into the production process, such as land, labour, capital, and enterprise

a resource, such as oil, which is scarce and runs out as it is used. also known as a non-renewable resource

a resource, such as timber, that with careful management can be renewed as it is used

how best to make decisions about the allocation of scarce resources among competing uses so as to improve and maximise human happiness and welfare

results from the fact that people have unlimited wants but the resources needed to meet these wants are limited. people would like to consume more goods and services than the economy is able to produce with its limited resources

the cost of giving up the next best alternative

a curve depicting the various combinations of two products (or types of products) that can be produced when all the available resources are fully and efficiently employed

the increase in the potential level of real output the economy can produce in a period of time

when all who are willing and able to work are employed

when those who are able to work are not employed

for the economy as a whole this occurs when it is impossible to produce more of one good without producing less of another. For a firm it occurs when the average total cost of production is minimised

occurs when the available economic resources are used to produce the combination of goods and services that best matches people's tastes and preferences

a market in which a large number of buyers and sellers possess good market information and can easily enter or leave a market

the price at which planned demand for a good or service exactly equals planned supply

the quantity of a good or service that firms are willing and able to sell at given prices in a given period of time

the quantity of a good or service that consumers are willing and able to buy at given prices in a given period of time. for economists, demand is always effective demand

the desire for a good or service backed by the ability to pay

the quantity of a good or service that all the consumers in a market are willing and able to buy at at different market prices

a determinant of demand, other than the good's own price, that fixes the position of the demand curve

a rightward shift of the demand curve

a leftward shift of the demand curve

a good for which demand increases as income increases and demand decreases when income falls

a good for which demand decreases as incomes increase and demand increases as income falls

the proportionate of a second variable to an initial change of the first variable

measures the extent to which the demand for a good changes in response to a change in the price of that good

measures the extent to which the demand for a good changes in response to a change in income

measures the extent to which the demand for a good changes in response to a change in price of another good

the quantity of a good or service that all firms plan to sell at given prices in a given period of time

the difference between total sales revenue and total costs of production

the money a firm receives from selling its output, calculated by multiplying the price by the quantity sold

determinants of supply, other than the good's own price, that fix the position of the supply curve

a rightward shift of the supply curve

a leftward shift of the supply curve

measures the extent to which the supply of a good changes in response to a change in the price of that good

a state of rest or balance between opposing forces

a situation in a market when there is excess supply or excess demand

when planned demand = planned supply. there is no excess demand or excess supply

when there is excess supply or excess demand in the market

when firms wish to sell more than consumers wish to buy, with the price above the equilibrium price

when consumers wish to buy mire than firms wish to sell, with the price below the equilibrium price

when one good is produced, another good is also produced from the same raw materials

when raw materials are used to produce one good they cannot be used to produce another good

a good which is demanded at the same time as the other good

a good which can be used in place of another good

demand for a good which has more than one use

demand for a good which is an input into the production of another good

converts inputs or factor services into outputs of goods and services

occurs when a firm adds variable factors of production to fixed factors of production

occurs when a firm changes the scale of all of the factors of production

output per unit of input

output per worker

output per unit of capital

the difference between labour productivity in the UK and in other developed economies

a worker only performing one task, or a narrow range of tasks, or a firm specialising in producing different goods or services

different workers perform different tasks in the course of producing a good or service

the buying and selling of goods and services

to give something in return for something else. Money is a medium of exchange

cost of production which, in the short run, does not change with output

cost of production which changes with the amount that is produced, even in the short run

the whole cost of producing a particular level of output

total cost of production divided by output

long-run total cost divided by output

as output increases, long-run average cost falls

as output increases, long-run average cost rises

a cost saving generated through changes to the 'productive process' as the scale of production and level of output increase

cost saving from the growth of the firm itself

cost saving resulting from the growth of the industry or market of which the firm is a part

all the money received by a firm from selling its total output

total revenue divided by output

the organisation of a market in terms in terms of the number of firms in the market and the ways in which they behave

a firm which passively accepts the ruling market price set by market conditions outside its control

a firm possessing the power to set the price within the market

a market that displays the six conditions

1. a large number of buyers and sellers 2. perfect market information 3. the ability to buy or sell as much as is desired at the ruling market price 4. the inability of an individual buyer or seller to influence the market prices 5. a uniform or homogenous product 6. no barriers to entry or exit in the long run

one in which firms strive to outdo their rivals, but it does not necessarily meet all the conditions of perfect competition

a market containing very few firms, in the extreme only one firm

when there is only one firm in the market

the power of a firm to act as a price maker rather than as a price taker

any market structure lying between the extremes of perfect competition and pure monopoly

occurs when a firm's total sales revenue is furthest above cost of production

occurs when sales revenue is maximised

occurs when a firm maximises its percentage share of the market in which it sells its product

makes it difficult or impossible for new firms to enter a market

makes it difficult or impossible for firms to leave a market

through exercising their collective spending power, consumers collectively determine what is produced in a market

producers or firms in a market determine what is produced and what prices are charged

when a country or firm has complete control of a natural resource, or when there is only room in a market for one firm benefitting from economics of scale to the full

a strategic or man-made barrier to market entry caused by the government legislation protecting the right of a firm to be the sole producer of a patented good, unless the firm grants royalties for other firms to produce the good

provides consumers and producers with useful information about goods or services

attempts to persuade potential customers that a good or service possesses desirable characteristics that make it worth buying

through flooding the market with information and persuasion about a firm's product, this functions as a man-made barrier by making it difficult for smaller firms to compete

making a product different from other products through product design, the method of producing the product, or through its functionality

a firm chooses the quantity of a good to sell, rather that its price. in monopoly, the market demand curve then dictates the maximum price that can be charged is the firm is to successfully sell its chosen quantity

a ratio which indicates the total market share of a number of leading firms in a market, or the output of these firms as a percentage of total output

a market dominated by a few firms

when resources are allocated in a way which does not maximise economic welfare

co-operation between firms, e.g. to fix prices

creates new ideas for products or processes

converts the results of invention into marketable products or services

reducing the price of a good/service to gain sales by making it more attractive for consumers

reducing the price of a good to just above the average cost to deter the entry of new firms into the market

temporarily reducing the price of a good to below average cost to drive smaller firms or new entrants out of the market

prices provide information to buyers and sellers

prices create incentives for people to alter their economic behaviour

rising prices ration demand for a product

changing relative prices allocate scarce resources away from markets exhibiting excess supply and into markets in which there is excess demand

when the market mechanism leads to a misallocation of resources in the economy, either completely failing to provide a good or providing the wrong quantity

a situation in which there is no market because the functions of prices have broken down

a good, such as an orange, that is excludable and rival

a good, such as a radio programme, that is non-excludable and non-rival

a good which is not fully non-rival and/or where it is possible to exclude people from consuming the product

a public good, in the case of an external benefit, or a public bad, in the case of an external cost, that is 'dumped' on third parties outside the market

aka external benefit, occurs when the consumption or production of a good causes a benefit to a third party, where the social benefit is greater than the private benefit

aka external cost, occurs when consumption or production of a good causes costs to a third party, where social cost is greater than private cost

an externality generated in the course of producing a good or service

an externality generated in the course of consuming a good or service

the total benefit of an activity, including the external benefit as well as the social benefit.

a good for which the social benefits of consumption exceed the private benefits. value judgements are involved in deciding that a good is a merit good

a payment made by government or other authority, usually to producers, for each unit of subsidised good that they produce

a good for which the social costs of consumption exceed the private costs. value judgements are involved in deciding that a good is a demerit good

the total cost of an activity, including the external cost as well as the private cost

the inability of labour to move from one job to another, either for occupational reasons or for geographical reasons

occurs when workers find it difficult or impossible to move to jobs in another part/ another country

occurs when workers find it difficult or impossible to move between jobs because they lack or cannot develop the skills required for new jobs

involves the imposition of rules, controls and constraints, which restrict freedom of economic action in the market place

a compulsory levy imposed by the government to pay for its activities. can also be used to achieve other objectives, such as reduced consumption of demerit goods

a price above which it is illegal to trade. these can distort markets by creating excess demand

a price below which it is illegal to trade. these can distort prices by creating excess supply