key terms a - g Flashcards
from boost textbook (30 cards)
ad valorem tax
a sales tax that is set at a percentage of the price e.g. VAT
adverse selection
a situation in which a person at risk is more likely to take out insurance
allocative efficiency
achieved when society is producing an appropriate bundle of goods relative to consumer preferences
asymmetric information
a situation in which some participants in a market have better information about market conditions than others
bounded rationality
a situation in which people’s ability to take rational decisions is limited by a lack of information or an inability to interpret the information that is available, perhaps because of weakness at computation
capital goods
goods used as part of the production process, such as factories or machinery
cartel
an agreement between firms in a market on price and output with the intention of maximising their joint profits
ceteris parabus
“other things being equal”
command economy
an economy in which decisions on resource allocation are guided by the state
competitive market
a market in which individual firms cannot influence the price of the good or service they are selling, because of competition from other firms
complements
when an increase in the price of one good causes the demand for the other good to fall
consumer goods
goods produced for present use (consumption)
consumer surplus
the value that consumers gain from consuming a good or service over and above the price paid
consumption externality
an externality that affects the consumption side of a market, which may be either positive or negative
XED (cross elasticity of demand)
a measure of the sensitivity of quantity demanded of a good or service in response to a change in the price of another good or service
demand
the quantity of a good or service that consumers are willing and able to buy at any given price in a given period of time
demand curve
a graph showing how much of a good will be demanded by consumers at any given price
diminishing marginal utility
as consumption of a good increases, the benefit derived from consuming an extra unit of that good decreases
division of labour
when the production procedure is broken down into different stages, with workers assigned to each different stage
elastic
when the price elasticity of demand is greater than 1 but less than infinity
elasticity
a measure of the sensitivity of one variable to changes in another variable
external benefit
the benefit that a third party receives outside of the price mechanism
external cost
the burden placed on a third party outside of the price mechanism, not reflected in market prices
externality
a cost or benefit that is external to a market transaction
