Ad valorem tax
A tax levied on a commodity set as a percentage of the selling price
Adverse selection
A situation in which a person at risk is more likely to take out insurance
Allocative efficiency
Achieved when consumer satisfaction is maximised
Buffer stock
A scheme intended to stabilise the price of a commodity by buying excess supply in periods when supply is high and selling when supply is low
Capitalism
A system of production in which there is private ownership of productive resources, and individuals are free to pursue their objectives with minimal interference from the gov
Comparative static analysis
Examines the effect on equilibrium of a change in the external conditions affecting a market
Composite demand
Demand for a good that has multiple uses
Composite supply
Where a product produced by a firm serves more than one market
Cost efficiency
Appropriate combination of inputs of factors of production, given the relative prices of those factors
Derived demand
Demand for a factor of production or a good which derives not from the factor or good itself but from the good it produces
Economic efficiency
Where both productive and allocative efficiency have been reached
Economies of scale
When an increase in the scale of production leads to production at lower long run average cost
Excess burden of a sales tax
Deadweight loss to society following the imposition of a sales tax
Firm
An organisation that brings together factors of production in order to product output
Free-rider problem
When an individual cannot be excluded from consuming a good and thus has no incentive to pay
Gross domestic product
Measure of the economic activity carried out in an economy during a period
Incidence of a tax
The way in which the burden of paying a sales tax is divided between buyers and sellers
Inferior good
Quantity demanded decreases in a response to an increase in consumer income
Internalising an externality
An attempt to deal with an externality by bringing an external cost or benefit into the price system
Invisible hand
Term used by Adam smith to describe the way in which resources are allocated in a market economy
Joint demand
Demand for goods which are interdependent, such that they are demanded together
Joint supply
Where a firm produces more than one product together
Macroeconomics
Study of interrelationships between economic variables at an aggregate level
Microeconomics
Study of the economic decisions taken by individual economic agents including households and firms
Pareto optimum
An allocation of resources is said to be Pareto optimum if no reallocation of resources can make an individual better off without making some other individual worse off
Resource allocation
The way in which a society’s productive assets are used amongst their alternative uses
Sunk goods
Costs incurred by a firm that cannot be recovered if the firm ceased trading
Technical efficiency
Attaining the maximum possible output from a given set of inputs