THEME 1

Question 1

Ad valorem tax

Answer 1

An indirect tax imposed on a good where the value of the tax is dependent on the value of the good

Question 2

Asymmetric information

Answer 2

Where one party has more information than the other, leading to market failure

Question 3

Ceteris Paribus

Answer 3

All other things remaining the same

Question 4

Command economy

Answer 4

All factors of production are allocated by the state, so they decide what, how and for whom to produce goods

Question 5

Complementary goods

Answer 5

negative XED; if good B becomes more expensive, demand for good A falls

Question 6

consumer goods

Answer 6

goods bought and demanded by households and individuals

Question 7

consumer surplus

Answer 7

the difference between the price the consumer is willing to pay and the price they actually pay

Question 8

cross elasticity of demand

Answer 8

(XED) the responsiveness of demand for one good (A) to a change in price of another good

Question 9

diminishing marginal utility

Answer 9

the extra benefit gained from consumption of a good generally declines as extra units are consumed; explains why the demand curve is downward sloping

Question 10

Economic problem

Answer 10

the problem of scarcity; wants are unlimited but resources are finite so choices have to be made

Question 11

efficiency

Answer 11

when resources are allocated optimally, so every consumer benefits and waste is minimised

Question 12

enterprise

Answer 12

the willingness and ability to take risks and combine the three other factors of production

Question 13

excess supply

Answer 13

when price is set too high so supply is greater than demand

Question 14

excess demand

Answer 14

when price is set too low so demand is greater than supply

Question 15

externalities

Answer 15

the cost or benefit a third party receives from an economic transaction outside of the market mechanism

Question 16

free market

Answer 16

An economy where the market mechanism allocates resources so consumers and producers make decisions about what is produced, how to produce and for whom

Question 17

free rider principle

Answer 17

people who don’t pay for a public good still receive benefits from it so the private sector will under-provide the good as they can’t make a profit

Question 18

gov failure

Answer 18

when gov intervention leads to a net welfare loss in society

Question 19

habitual behaviour

Answer 19

a cause of irrational behaviour: when consumers are in the habit of making certain decisions

Question 20

incidence of tax

Answer 20

the tax burden on the taxpayer

Question 21

income elasticity of demand

Answer 21

(YED) The responsiveness of demand to a change in income %change in QD/%change in Y

Question 22

Indirect tax

Answer 22

taxes on expenditure which increase population costs and lead to a fall in supply

Question 23

inferior goods

Answer 23

YED<0; goods which see a fall in demand as income rises

Question 24

market failure

Answer 24

when the free market fails to allocate resources to the best interest

Question 25

mixed economy

Answer 25

both the free market mechanism and the gov allocate resources

Question 26

negative externalities of production

Answer 26

where the social costs of producing a good are greater than the private costs of producing the good

Question 27

non-excludable

Answer 27

a characteristic of a public good; someone can't be prevented from using the good

Question 28

non-rivalry

Answer 28

a characteristic of a public good; one person's use of the good doesn't prevent someone else from using it

Question 29

Normal goods

Answer 29

YED>0; demand increases as income rises

Question 30

Normative statements

Answer 30

subjective statements based on value judgements and opinions; can't be proven or disproven

Question 31

opportunity cost

Answer 31

the value of the next best alternative forgone

Question 32

perfectly price elastic good

Answer 32

PED/PES = infinity; quantity demanded/supplied fall to 0 when price changes

Question 33

Perfectly price inelastic good

Answer 33

PED/PES= 0; quantity demanded/supplied does not change when price changes

Question 34

Positive externalities of consumption

Answer 34

where the social benefits of consuming a good is larger than the private benefits of consuming that good

Question 35

Positive statement

Answer 35

objectives statements which can be tested with factual evidence to be proven or disproven

Question 36

PPF

Answer 36

Possibility production frontier - depicts the max productive potential of an economy, using a combination of two goods or services, when resources are fully and efficiently employed

Question 37

Price elasticity of demand (PED)

Answer 37

the responsiveness of demand to a change in price

Question 38

Price elasticity of supply (PES)

Answer 38

The responsiveness of supply to a change in price

Question 39

price mechanism

Answer 39

the system of resource allocation based on the free market movement of prices determined by the demand and supply curve

Question 40

private goods

Answer 40

goods that are rivalry and excludable

Question 41

producer surplus

Answer 41

the difference between the price the producer is willing to charge and the price they actually charge

Question 42

public good

Answer 42

goods that are non-excludable and non-rivalry

Question 43

Rationality

Answer 43

decision-making that leads to economic agents maximising their utility

Question 44

regulation

Answer 44

laws to address market failure and promote competition between firms

Question 45

Relatively price elastic good

Answer 45

When PED/PES>1; demand/supply is relatively responsive to a change in price so a small change in price leads to a large change in quantity demanded/supplied

Question 46

Relatively price inelastic good

Answer 46

When PED/PES<1; demand/supply is relatively unresponsive to a change in price so a large change in price leads to a large change in quantity demanded/supplied

Question 47

social cost/benefit

Answer 47

the cost/benefit to society as a whole due to the economic activity

Question 48

social optimum position

Answer 48

where the social cost equals social benefits; the amount which should be produced/consumed in order to maximise social welfare

Question 49

specialisation

Answer 49

The production of a limited range of goods by a firm/individual/country so they aren't self-sufficient and have to trade with others

Question 50

specific tax

Answer 50

a tax imposed on a good where the value of the tax is dependent on the quantity that is bought

Question 51

state provision of goods

Answer 51

through taxation, the gov provides public goods or merit goods which are underprovided in the free market

Question 52

subsidy

Answer 52

gov payments to a producer to lower their costs of production and encourage them to produce more

Question 53

trade pollution permits

Answer 53

licenses which allow firms to pollute up to a certain amount. The gov controls num of licenses and so can control the amount of pollution. Firms can sell their permits

Question 54

Unitary price elastic good

Answer 54

when PED/PES=1; a change in price leads to a change in output by the same proportion

Question 55

Utility

Answer 55

the satisfaction derived from consuming a good

Question 56

Weakness at consumption

Answer 56

A cause of irrational behaviour; when consumers are bad at making calculations, estimating probabilities and working out future benefits/costs