definitions theme 1 Flashcards
(50 cards)
who are economic agents
consumers
producers
shareholders
employees
the government?
what are capital goods
goods produced in order to aid production of consumer goods in the future
what’re complementary goods
negative XED
what’re consumer goods
goods bought/demanded by households and individuals
what is an ad valorem tax
an indirect tax on a good where the value of the tax is dependent on the value of the good
what is consumer surplus
the difference between the price consumers are willing to pay and the price they actually pay
what is XED
responsiveness in demand for good A to a change in the price of good B
%change in QD of A
/
%change in P of B
what is demand
the quantity of a good/service that consumers are able and willing to buy at a given price at a given moment of time
what is diminishing marginal utility
the extra benefit gained from consumption of a good generally declines as extra units are consumed; explains the downward D slope
what is division of labour
when labour becomes specialised during the production process so do a specific task in cooperation with other workers
what is efficiency
when resources are allocated optimally, so every consumer benefits and waste is minimised
what is excess demand
when price is set too low so demand > supply
what is excess supply
when the price is set too high so supply > demand
what’re external costs/benefits
the cost/benefit to a 3rd party not involved in the economic activity; the difference between social cost/benefit and private cost/benefit
what’re externalities
the cost or benefit a 3rd party receives from an economic transaction outside of the market mechanism
what is the free market
an economy where the market mechanism allocated resources so consumers and producers make decisions about what is produced, how to produce them and for whom
what is government failure
when government intervention leads to a net welfare loss in society
what is incidence of tax
the tax burden on the taxpayer
what is YED
responsiveness of demand to a change in income (Y)
%change in QD
/
%change in Y
what is an indirect tax
taxes on expenditure which increases production costs and lead to a fall in supply
what’re inferior goods
YED <0; goods which see a fall in demand as income rises, vice versa
what’re luxury goods
YED>1; an increase in incomes causes an even bigger increase in demand
what is a veblen good
a good for which it’s demand increases with its price
what is the market failure
when the free market fails to allocate recourses to the best interest of society, leading to inefficient allocation of scarce resources
