Possible definitions Flashcards
(26 cards)
What is opportunity cost?
The next best alternative forgone when an economic decision is made.
What does the economic problem refer to?
The issue of scarcity, where finite resources are insufficient to meet infinite wants.
What is market equilibrium?
The point where the quantity demanded equals the quantity supplied, resulting in no excess demand or supply in the market.
Define division of labour.
The process of splitting the production process into different tasks, with each worker specializing in one task to improve efficiency.
What is a positive statement?
A statement based on facts that can be tested and verified, free from opinions or value judgments.
What is consumer surplus?
The difference between the price consumers are willing to pay for a good and the price they actually pay.
Define productive efficiency.
When a firm produces at the lowest possible cost, making the best use of available resources.
What is market failure?
A situation where the allocation of resources by the free market is inefficient, leading to a loss of economic welfare.
Fill in the blank: Goods that are often used together are called _______.
[complementary goods]
What is a subsidy?
A financial payment made by the government to reduce the cost of production or consumption of a good or service.
Define an inferior good.
A good for which demand decreases as consumer income rises, and vice versa.
What does income elasticity of demand (YED) measure?
How much the quantity demanded of a good changes in response to a change in consumer income.
What is a normative statement?
A statement based on opinions or value judgments that cannot be tested or verified.
Define externality.
A cost or benefit experienced by a third party not directly involved in the production or consumption of a good or service.
What is scarcity?
The basic economic problem where limited resources are insufficient to satisfy unlimited wants.
What does diminishing marginal returns refer to?
A principle stating that as more of a variable input is added to a fixed input, the additional output produced eventually decreases.
Define a free market economy.
An economic system where resources are allocated through the price mechanism without government intervention.
What characterizes a command economy?
An economic system where the government makes all decisions about the allocation of resources and production.
What is producer surplus?
The difference between the price producers are willing to accept for a good and the price they actually receive.
Fill in the blank: A price ceiling set by the government is known as a _______.
[maximum price]
What does ceteris paribus mean?
All other things being equal.
Define price mechanism.
The system where supply and demand determine prices, which then allocate scarce resources in a market economy.
What is an ad valorem tax?
A tax that is charged as a percentage of the value of a good or service.
What is a merit good?
A good that is under-consumed in a free market but provides greater social benefits than individuals realize.
