key terms h - o Flashcards
(32 cards)
What is habitual behaviour?
Where consumers persist in acting in a particular way even when conditions have changed
Habitual behaviour often leads to a resistance to change in consumer patterns.
Define herding.
Where people take decisions based on the actions of others, rather than on a rational evaluation of the situation they face
Herding can lead to market bubbles or crashes.
What is the incidence of a tax?
The way in which the burden of paying a sales tax is divided between buyers and sellers
This can vary based on the price elasticity of demand and supply.
What does income elasticity of demand (YED) measure?
The sensitivity of quantity demanded to a change in consumer incomes
YED can determine whether a good is normal or inferior.
Define indirect tax.
A tax levied on expenditure on goods or services
This contrasts with direct tax, which is based on income.
What does inelastic mean in economics?
When the price elasticity of demand is less than 1 but greater than zero
This indicates that quantity demanded changes less than proportionately to price changes.
What is an inferior good?
One where the quantity demanded decreases in response to an increase in consumer incomes
Examples include lower-quality food items.
What does internalising an externality refer to?
An attempt to deal with an externality by bringing an external cost or benefit into the price system
This can involve taxes or subsidies.
State the law of demand.
There is an inverse relationship between quantity demanded and the price of a good or service, ceteris paribus
This is a fundamental principle in economics.
Define luxury good.
One for which the income elasticity of demand is positive and greater than 1
As income rises, consumers spend proportionally more on luxury goods.
What is macroeconomics?
The study of the interrelationships between economic variables at an aggregate level
This includes national income, inflation, and unemployment.
What is marginal analysis?
An approach to economic decision making based on considering the additional benefits and costs of a change in behaviour
It helps in optimizing resource allocation.
Define marginal cost.
The cost of producing an additional unit of output
It is crucial for determining the supply curve.
What is marginal social benefit (MSB)?
The additional benefit that society gains from consuming an extra unit of a good
MSB is used in welfare economics.
Define marginal social cost.
The cost to society of producing an extra unit of a good
It includes both private and external costs.
What is a market?
A set of arrangements that allows transactions to take place
Markets can be physical or virtual.
What is a market-based policy?
An approach to tackling market failure by using the market mechanism
This can include implementing taxes or tradable permits.
Define market equilibrium.
A situation that occurs in a market when the price is such that the quantity demanded by consumers is exactly balanced by the quantity supplied by firms
At this point, there is no tendency for price to change.
What is market failure?
A situation in which the free market equilibrium does not lead to a socially optimal allocation of resources
This can result in overproduction or underproduction of goods.
What is microeconomics?
The study of economic decisions taken by individual economic agents, including households and firms
It focuses on supply and demand in specific markets.
Define mixed economy.
An economy in which resources are allocated partly through price signals and partly on the basis of intervention by the state
Most modern economies operate as mixed economies.
What is a model in economics?
A simplified representation of reality used to provide insight into economic decisions and events
Models help in forecasting and policy analysis.
What does moral hazard refer to?
A situation in which a person who has taken out insurance is prone to taking more risk
This can lead to higher costs for insurers.
Define necessity in economics.
A good for which the income elasticity of demand is positive and less than 1
As income rises, consumers spend proportionally less on necessities.
