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Economics Theme 1 > Key Words > Flashcards

Key Words Flashcards

(73 cards)

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1
Q

Adverse selection

A

A situation in which a person at risk is more likely to take out insurance

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2
Q

Allocative efficiency

A

Achieved when society is producing an appropriate bundle of goods relative to consumer preferences

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3
Q

Asymmetric information

A

A situation in which some participants in a market have better information about market conditions than others

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4
Q

Cartel

A

An agreement between firms in a market on price and output with the intention of maximising their joint profits

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5
Q

Ceteris paribus

A

A Latin phrase meaning ‘other things being equal’; it is used when we focus on changes in one variable while holding other influences constant

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6
Q

Command economy

A

An economy in which decisions on resource allocation are guided by the state

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7
Q

Comparative statistic analysis

A

Examines the effect on equilibrium of a change in the external conditions affecting a market

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8
Q

Competitive market

A

A market in which individual firms cannot influence the price of the good or service they are selling, because of competition from other firms

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9
Q

Complements

A

Two goods are said to be complements if an increase in the price of one good causes the demand for the other good to fall

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10
Q

Consumer surplus

A

The value that consumers gain from consuming a good or service over and above the price paid

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11
Q

Consumption externality

A

An externality that affects the consumption side of a market, which may be either positive or negative

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12
Q

Cross-price elasticity of demand (XED)

A

A measure of the sensitivity of quantity demanded of a good or service to a change in the price of some other good or service

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13
Q

Demand

A

The quantity of a good or service that consumers choose to buy at any possible price in a given period

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14
Q

Demand curve

A

A graph showing how much of a good will be demanded by consumers at any given price

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15
Q

Diminishing marginal utility

A

Describes the situation where an individual gains less additional utility from consuming a product, the more of it is consumed

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16
Q

Division of labour

A

A process whereby the production procedure is broken down into a sequence of stages, and different workers are assigned to a particular stage

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17
Q

Elasticity

A

A measure of the sensitivity of one variable to changes in another variable

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18
Q

External cost

A

A cost associated with an individual’a production or other economic activities, which is borne by a third party and is not reflected in market prices

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19
Q

Externality

A

A cost or a benefit that is external to a market transaction, and is therefore not reflected in market prices

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20
Q

Factors of production

A

Resources used in the production process; inputs into production, including labour, capital, land and entrepreneurship

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21
Q

Firm

A

An organisation that brings together factors of production in order to produce output

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22
Q

Free-rider problem

A

When an individual cannot be excluded from consuming a good, and therefore has no incentive to pay for its provision

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23
Q

Government failure

A

A misallocation of resources arising from government intervention that causes a divergence between marginal social benefit and marginal social cost

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24
Q

Gross domestic product (GDP)

A

A measure of the economic activity carried out in an economy over a period

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25
Incidence of tax
The way in which the burden of paying a sales tax is divided between buyers and sellers
26
Income elasticity of demand (YED)
A measure of the sensitivity of quantity demanded to a change in consumer incomes.
27
Indirect tax
A tax levied on expenditure on goods and services
28
Inferior good
One where the quantity demanded decreases in response to an increase in consumer incomes
29
Internalising an externality
An attempt to deal with an externality by bringing an external cost of benefit into the price system
30
Law of demand
A law that states that there is an inverse relationship between quantity demanded and the price of a good or service, ceteris paribus
31
Luxury good
One for which income elasticity of demand is positive, and greater than 1, such that as income rises, consumers spend proportionally more on the good
32
Macroeconomics
The study of the interrelationships between economic variables at an aggregate (economy-wide) level
33
Marginal analysis
An approach to economic decision making based considering additional (marginal) benefits and costs of a change in behaviour
34
Marginal cost
The cost of producing an additional unit of output
35
Marginal social benefit (MSB)
The additional benefit that society gains from consuming an extra unit of a good
36
Marginal social cost (MSC)
The cost to society of producing an extra unit of a good
37
Market
A set of arrangements that allows transactions to take place
38
Market economy
An economy in which market forces are allowed to guide the allocation of resources
39
Market equilibrium
A situation that occurs in a market when the price is such that the quantity that consumers wish to buy is exactly balanced by the quantity that firms wish to supply
40
Market failure
A situation in which the free market mechanism does not lead to an optimal allocation of resources (e.g. there is a divergence between MSB and MSC
41
Merit good
A good that brings unanticipated benefits to consumers, such that society believes it will be under consumed in a free market
42
Microeconomics
The study of economic decisions taken by individual economic agents, including households and firms
43
Mixed economy
An economy in which resources are allocated partly through price signals and partly on the basis of intervention by the state
44
Model
A simplified representation of reality used to provide insight into economic decisions and events
45
Moral hazard
A situation in which a person who has taken out insurance is prone to taking more risk
46
Necessity
A good for which the income elasticity of demand is positive, and less than 1, such that as income rises, consumers spend proportionally less on the good
47
NIMBY (not in my back yard)
A syndrome under which people are happy to support the construction of an unsightly or unsocial facility, so long as it is not in their own area
48
Non-renewable resources
Natural resources that once used cannot be replenished, such as coal or oil
49
Normal good
One where the quantity demanded increases in response to an increase in consumer incomes
50
Normative statement
A statement that involves a value judgement about what ought to be
51
Opportunity cost
In decision making, the value of the nest-best alternative forgone
52
Positive statement
A statement about what is (i.e. about facts)
53
Potential economic growth
An expansion in the productive capacity of the economy
54
Price elasticity of demand (PED)
A measure of the sensitivity of quantity demanded to a change in price of a good or service.
55
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
56
Private cost
A cost incurred by an individual or (firm or consumer) as part of its production or other economic activities
57
Private good
A good that, once consumed by one person, cannot be consumed by somebody else; such a good has excludability and is rivalrous
58
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
59
Production externality
An externality that affects the production side of a market, which may be either positive or negative
60
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
61
Prohibition
An attempt to prevent the consumption of a demerit good by declaring it illegal
62
Public good
A good that is non-exclusive and non-rivalrous in consumption
63
Relatively elastic
A term used when the price elasticity of demand is greater than 1, but less than infinity
64
Relatively inelastic
A term used when the price elasticity of demand is less than 1 but greater than zero
65
Renewable resources
Natural resources that can be replenished, such as forests that can be replanted, or solar energy that does not get used up
66
Scarcity
A situation that arises from when people have unlimited wants in the face of limited resources
67
Social cost
Private costs plus external costs
68
Subsidy
A grant given by the government to producers to encourage production of a good or service
69
Substitutes
Two goods that are said to be substitutes if demand for one good is likely to rise if the price of the other good rises
70
Supply
The quantity of a good or service that firms choose to sell at any possible price in a given period
71
Supply curve
A graph showing the quantity supplied at any given price
72
Sustainable development
'Development which meets the needs of the present without compromising the ability of future generations to meet their own needs' (Brundtland Commission, 1987)
73
Unitary elastic
A term used when the price elasticity of demand is equal to 1

Economics Theme 1 (1 decks)

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