key terms p - z Flashcards
(30 cards)
perfectly elastic supply
a situation in which firms will supply any quantity of a good at the going price: elasticity of supply is infinite
perfectly inelastic supply
a situation in which firms can supply only a fixed quantity, so cannot increase or decrease the amount available: elasticity of supply is zero
‘polluter pays’ principle
an argument that a firm causing pollution should be charged the full external cost that they inflict on society
positive statement
a statement that can be tested with evidence to determine whether it’s true or false
potential economic growth
an expansion in the productive capacity of the economy
price elasticity of demand (PED)
a measure of the sensitivity of quantity demanded to a change in the price of a good or service
price elasticity of supply (PES)
a measure of the sensitivity of quantity supplied of a good or service to a change in the price of that good or service
price mechanism
a process by which resource allocation is influenced through rationing, incentives and signalling
price signal
where the price of a good carries information to producers or consumers that guides the market towards equilibrium and assists in resource allocation
private benefit
the benefit from an individual’s (a firm or household’s) economic activity that accrue to that individual
private cost
a cost incurred by an individual (firm or consumer) as part of its production or other economic activities
private good
a good that, once consumed by one person, cannot be consumed by somebody else; such a good has excludability and is rivalrous
producer surplus
the difference between the price received by firms for a good or service and the price at which they would have been prepared to supply that good or service
production externality
an externality that affects the production side of a market, which may be either positive or negative
production possibility frontier (PPF)
a curve showing the maximum combinations of goods or services that can be produced in a given period with available resources
prohibition
an attempt to prevent the consumption of a good by declaring it illegal
public good
a good that is non-exclusive and non-rivalrous in consumption - consumers cannot be excluded from consuming the good, and consumption by one person does not affect the amount of the good available for others to consume
regulation
intervention to tackle market failure by direct action to command and control behaviour
renewable resources
natural resources that can be replenished, such as forests that can be replanted, or solar energy that does not get used up
scarcity
a situation that arises when people have unlimited wants in the face of limited resources
social benefit
the sum of private benefits and external benefits
social cost
the sum of private and external costs
specific tax
a sales tax that is set at a constant amount per unit of sales
subsidy
a grant given by the government to producers to encourage production of a good or service
