Definitions Flashcards
define opportunity cost
definition- the next best alternative foregone as a result of making a decision.
define demand
the willingness and ability to buy a product.
define supply
the willingness and ability of firms to supply a good
define PED
price elasticity of demand.
-the responsiveness of demand to a change in price.
define PES
price elasticity of supply.
-the responsiveness of supply to a change in price/ the percentage change in quantity supplied of a product divided by the percent change in price.
externalities
effects resulting from a particular activity
e. g negative externality- the pollution caused by a production process.
e. g Positive externality- teaching helps the student to learn but so that benefits the student but also the economy as the student is more knowledgeable.
merit good
are those goods and services that the government feels that people will under-consume if it didn’t pay for them.
e.g. education and health
demerit good
good that are bad for you
e.g. alcohol and cigarettes
subsidies
money granted by the state to keep down the price of goods and maintain the supply.
private costs
the costs incurred by the consumer(e.g. cost of cigarettes) or the producer (e.g. the cost of aviation fuel)
external costs
the negative impacts on a third party (e.g second hand smoking)
social costs
social costs = privat costs + external costs.
private benefits
the benefits gained by the consumer (e.g. higher income from university education) or the producer (the profits from selling honey)
external benefits
the positive impacts on a third party (e.g. the benefits of new inventions from more educated workers and honey bees polonaise farmers fields)
social benefits
social benefits = private benefits + external benefits
