Definitions

Question 1

Resource allocation

Answer 1

How scarce resources are chosen to produce particular goods and services

Question 2

Incentive function

Answer 2

Increase/decrease in price provides incentive to producers to increase/decrease their supply

Question 3

Signalling function

Answer 3

Increase/decrease in price signals to consumers to decrease/increase demand and signals to producers to increase/decrease supply

Question 4

Rationing function

Answer 4

When demand > supply, market will ration supply by increasing price. When demand < supply, market will reduce supply by decreasing price

Question 5

Free market economy

Answer 5

Market decides how resources are allocated

Question 6

Planned economy

Answer 6

Government decides what is produces and how it’s allocated

Question 7

Mixed economy

Answer 7

Goods and services are provided through the market system except where government chooses to intervene to prevent market failure

Question 8

Maximisation

Answer 8

Where economic agents want to maximise their objectives

Question 9

Market

Answer 9

Where buyers and sellers meet in order to exchange goods and services

Question 10

Sub-market

Answer 10

Distinguishable part of a market

Question 11

Individual demand

Answer 11

Amount of a good or service that an individual consumer is willing and able to buy at any given price over a period of time

Question 12

Market demand

Answer 12

Relates to all consumers in a market and so market demand is the sum of the demand by every consumer in the market

Question 13

Demand

Answer 13

Quantity of a good or service that consumers are willing and able to buy at various prices per period of time

Question 14

Joint demand

Answer 14

Where two products are used together

Question 15

Derived demand

Answer 15

Demand for one good is determined by the demand for another good

Question 16

Competitive demand

Answer 16

A good is purchased as an alternative to another good (pork vs. beef)

Question 17

Composite demand

Answer 17

A good is purchased for another purpose (milk for cheese)

Question 18

Consumer surplus

Answer 18

Extra amount a consumer is willing to pay for a product above the price actually paid

Question 19

Individual supply

Answer 19

Amount of a good or service that an individual firm/supplier is prepared to offer for sale at any given price over a period of time

Question 20

Market supply

Answer 20

Related to all firms in a market and so market supply is the sum of the supply by every firm in a market

Question 21

Supply

Answer 21

Amount of a good or service put into the market by firms at various prices in a particular time period

Question 22

Joint supply

Answer 22

Production of one good automatically leading to the supply of another (beef producing leather)

Question 23

Competitive supply

Answer 23

Supplier can only supply more of one good by producing less of another

Question 24

Composite supply

Answer 24

A good can be obtained from different sources (electricity from solar vs. hydroelectric)

Question 25

Producer surplus

Answer 25

Difference between the price a producer is willing to accept to supply goods and services and what is actually accepted

Question 26

Equilibrium price

Answer 26

Where quantity demanded by consumer and quantity supplied by producers is equal

Question 27

Disequilibrium

Answer 27

Any position in the market where demand and supply are not equal

Question 28

Elasticity

Answer 28

Measures the responsiveness of one variable to changes in another variable

Question 29

Price elasticity of demand PED

Answer 29

The responsiveness of quantity demanded to changes in price of goods/services

Question 30

Income elasticity of demand YED

Answer 30

The responsiveness of quantity demanded to changes in income

Question 31

Cross elasticity of demand XED

Answer 31

The responsiveness of quantity demanded of one product to changes in price of another product

Question 32

Price elasticity of supply PES

Answer 32

The responsiveness of quantity supplies to changes in market price

Question 33

Substitute goods

Answer 33

Compete with one another (alternatives)

Question 34

Complementary goods

Answer 34

Joint demand so they are consumed together

Question 35

Real disposable income

Answer 35

Income after taxes have been deducted and state benefits added and then adjusted to take into account changes in price level

Question 36

Inferior goods

Answer 36

Increased Y = decreased D (YED<0)

Question 37

Normal good

Answer 37

Increased Y = increased D (0

Question 38

Superior good

Answer 38

Increased Y = increased D (YED>1)

Question 39

Total revenue

Answer 39

Money received from selling goods and services

Question 40

Price discrimination

Answer 40

Policy of charging consumers different prices for the same product

Question 41

Productive efficiency

Answer 41

Production of good and services by firms is achieved at the lowest possible average total cost choosing appropriate combinations of input to produce the maximum output from that input

Question 42

Allocative efficiency

Answer 42

Right amounts of the right goods and services produced where consumer satisfaction is maximised

Question 43

Economic efficiency

Answer 43

Where both productive and allocative efficiency are achieved. Society produced a balance of good consumer wish to consume at a minimum cost

Question 44

Cost efficiency

Answer 44

The appropriate combination of input of factors of production given the relative prices of those factors

Question 45

Technical efficiency

Answer 45

Attaining he maximum possible output from a given set of inputs

Question 46

Inefficiency

Answer 46

Where economic efficiency is not achieved

Question 47

Total fixed cost TFC

Answer 47

Costs that do not vary directly with output

Question 48

Total variable costs TVC

Answer 48

Costs that do vary directly with output

Question 49

Total cost TC

Answer 49

Sum of all costs incurred in production of given levels of output

Question 50

Average cost AC

Answer 50

Average cost per unit

Question 51

Average fixed cost AFC

Answer 51

Average fixed cost per unit

Question 52

Average variable cost AVC

Answer 52

Average variable cost per unit

Question 53

Marginal cost MC

Answer 53

Cost of producing one more additional unit of output

Question 54

Economies of scale

Answer 54

A proportionate saving in costs gained by an increased level of production

Question 55

Internal economies of scale

Answer 55

Economies of scale that arise from the expansion of a firm (first half of LATC)

Question 56

External economies of scale

Answer 56

Economies of scale that arise from the expansion of the industry in which a firm is in operation (shift LATC down)

Question 57

Diseconomies of scale

Answer 57

Occur when average total cost rises when output increases

Question 58

Internal diseconomies of scale

Answer 58

Diseconomies of scale that arise from the expansion of a firm (second half of LATC)

Question 59

External diseconomies of scale

Answer 59

Diseconomies of scale that arise from the expansion of the industry in which a firm is in operation (shift LATC up)