Definitions

Question 0

Scarcity

Answer 0

A situation where there are insufficient resources to meet all wants

Question 1

Economic Problem

Answer 1

how to allocate scarce resources among alternative uses

Question 2

Land

Answer 2

The natural resources available in an economy, e.g fish

Question 3

Labour

Answer 3

The quantity and quality of human resources- training, education

Question 4

Capital

Answer 4

Man made aids to production

Question 5

Enterprise

Answer 5

The willingness of an entrepreneur to take risks and organise production

Question 6

Specialisation

Answer 6

The concentration by a worker or workers, firm, region or whole economy on a narrow range of goods and service

Question 7

Opportunity Cost

Answer 7

The cost of the next best alternative which is foregone when a choice is made

Question 8

Production Possibility Curve/Frontier

Answer 8

The maximum quantities of different combinations of two product, given current resources and state of technology

Question 9

Market

Answer 9

Where or when buyers and sellers meet to trade or exchange goods or services

Question 10

Demand

Answer 10

The quantity of a product that consumers are able and willing to purchase at various prices over a period of time.

Question 11

Consumer surplus

Answer 11

The extra amount that a consumer is willing to pay for a product above the price actually paid

Question 12

Supply

Answer 12

The quantity of a product that producers are able and willing to provide at different market prices over a period of time

Question 13

Producer surplus

Answer 13

The difference between the price a producer is willing to accept and what Is actually paid

Question 14

Equilibrium price

Answer 14

The price where demand and supply are equal. Also known as the clearing price.

Question 15

Allocative efficiency

Answer 15

Where consumer satisfaction is maximised.

Question 16

Command economy

Answer 16

An economic system in which most resources are state owned and also allocated centrally

Question 17

Free market economy

Answer 17

An economic system whereby resources are allocated through the market sources of demand and supply

Question 18

Mixed economy

Answer 18

An economic system in which resources are allocated through a mixture of the market and direct public sector movement

Question 19

Trade-off

Answer 19

Linked to opportunity cost,requires trading off one item against another.

Question 20

Price elasticity of demand- definition

Answer 20

The responsiveness of the quantity demanded to a change in the price of the product

Question 21

Price elasticity of demand- equation

Answer 21

%change in the quantity demanded/ %change in price 
PED bigger than 1 =elastic 
PED less than 1 = inelastic 
PED= 1 = unitary elasticity 
Figure should be negative

Question 22

Income elasticity of demand- definition

Answer 22

The responsiveness of demand to a change in income

Question 23

Income elasticity of demand- equation

Answer 23

YED= %change in the quantity demanded/ %change in income

Positive sign = normal good
Negative sign = inferior good

YED more than one= elastic
YED less than one= inelastic
YED= 1 = unitary elasticity

Question 24

Cross elasticity of demand- definition

Answer 24

The responsiveness of demand for one product in relation to a change in price in another product

Question 25

Cross elasticity of demand- equation

Answer 25

%change in quantity demanded of good A / %change in price of good B XED less than one = weak relationship - inelastic XED more than one= strong relationship- elastic 0= no relationship

Question 26

Price elasticity of supply- definition

Answer 26

The responsiveness of the quantity supplied to a change in the price of a product

Question 27

Price elasticity of supply- equation

Answer 27

PES= %change in the quantity supplied/ %change in price Sign should always be positive PES more than one= price elastic PES less than 2= price inelastic PES= 2= unitary

Question 28

Market failure

Answer 28

Where the free market mechanism fails to achieve economic efficiency

Question 29

Inefficiency

Answer 29

Any situation where economic efficiency is not achieved

Question 30

Information failure

Answer 30

A lack of information resulting in consumers and producers making decisions that do not maximise welfare

Question 31

Asymmetric information

Answer 31

Information not equally shared between two parties- resources are not used efficiently

Question 32

Externality

Answer 32

An effect whereby those not directly involved in taking a decision are affected by the actions of others

Question 33

Third party

Answer 33

Those not directly involved in making a decision

Question 34

Negative Externalities

Answer 34

This exists where the social cost of a social activity is greater than the private cost

Question 35

Private cost

Answer 35

The cost incurred by those taking a particular action

Question 36

Social cost

Answer 36

The total cost of a particular action

Question 37

External cost

Answer 37

The cost that is a consequence of externalities to third parties

Question 38

Positive Externalities

Answer 38

This exists where the social benefit of an activity exceeds the private benefit

Question 39

Private benefit

Answer 39

The benefit directly accruing to those taking a particular action

Question 40

Social benefit

Answer 40

The total benefit of a particular action

Question 41

External benefit

Answer 41

The benefits that accrue as a consequence of externalities to third parties

Question 42

Merit goods

Answer 42

These have more private benefits than their consumers actually realise

Question 43

Demerit goods

Answer 43

Their consumption of more harmful than people actually realise

Question 44

Public goods

Answer 44

Goods that are collectively consumed and have the characteristics of non-excludability and non rivalry

Question 45

Free rider

Answer 45

Someone who directly benefits from the consumption of a public good but who does not contribute towards its provision

Question 46

Quasi-Public Good

Answer 46

Goods having some but not all the characteristics of a public good

Question 47

Direct tax

Answer 47

One that taxes the income of people and firms and can not be avoided

Question 48

Indirect tax

Answer 48

A tax levied on goods and services

Question 49

Incidence of taxation

Answer 49

The division of a tax burden between buyers and sellers

Question 50

Subsidy

Answer 50

A payment usually from the Government, to encourage production and consumption

Question 51

Tradable permit

Answer 51

A permit that allows the owner to emit a certain amount of pollution and that, if unused or only partially used, can be sold to another polluter

Question 52

Information provision

Answer 52

The supply of information resulting in consumers and producers making decisions that maximise welfare