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Economics Revision Hard > Theme 1 definition > Flashcards

Theme 1 definition Flashcards

1
Q

Ad valorem tax

A

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

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2
Q

asymmetric information

A

When an economic agent has more information than another which may lead to market failure

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3
Q

Capital

A

A factor of productions; goods which can be used in the production process

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4
Q

Ceteris Paribus

A

All other things remaining the same

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5
Q

Command economy

A

All factors of production are owned by the state, the state decides how resources are allocated, what and whom to produce for

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6
Q

complementary goods

A

Negative XED; if good B becomes more expensive, demand for good A will fall

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7
Q

Consumer goods

A

Goods bought and demanded by households and individuals

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8
Q

Consumer surplus

A

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

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9
Q

Cross elasticity of demand XED

A

The responsiveness of demand for one good A to a change in the price of another good B

%change in QD of A / %change in P of B

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10
Q

Demand

A

The quantity of a good/service that consumers are able and willing to buy at a given moment of time

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11
Q

Diminishing marginal utility

A

The extra benefit gained from consumption of a good generally declines as extra units are consumed, this is why demand is downward sloping

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12
Q

Division of labour

A

When labour becomes specialised during the production process so do a specific task in cooperation with other workers

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13
Q

Economic problem

A

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

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14
Q

Efficiency

A

When resources are allocated optimally, so every consumer benefits and waste is limited

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15
Q

Enterprise

A

One of the four factors of productions; the willingness and ability to take risk and combine the three other factors of production

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16
Q

Equilibrium of price/quantity

A

When demand equals supply so there are no market forces bringing about change to price or quantity demanded

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17
Q

Excess demand

A

When price is set too low, so demand is greater than supply

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18
Q

Excess supply

A

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

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19
Q

Externalities

A

The cost or benefit to a third party due to an economic transaction between agents; highlights the difference between social cost/benefit and private cost/benefits

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20
Q

Free market

A

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

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21
Q

Free rider problem

A

People who do not pay for a public good still receives benefits from it so the private sector will under provide the good as they cannot make a profit

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22
Q

Government failure

A

When government intervention leads to a net welfare loss in society

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23
Q

Habitual behaviour

A

A cause of irrational behaviour; when consumers are in a habit of making a certain decision

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24
Q

Incidence of tax

A

The tax burden on the tax payer

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25
Income elasticity (YED)
The responsiveness of demand to a change in income %change in QD/%change in Y
26
indirect tax
A levy on expenditure which increases production cost, leading to a fall in supply
27
inferior goods
YED<0; goods which see a fall in demand as income increases
28
Information gap
When an economic agents lacks the information needed to make a rational, informed decision
29
Information provision
When the government provides information to correct market failure
30
Labour
One of the factors of production; human capital
31
Land
One of the factors of production; natural resources such as oil, wheat, coal and physical space
32
Luxury goods
YED>1; an increase in incomes causes an even bigger increase in demand
33
Market failure
When the free market fails to allocate resources to the best interest of society, so there is an inefficient allocation of scarce resources
34
Market forces
Forces in the free market which acts to reduce prices when there is excess supply and increases them when there is excess demand
35
Maximum price
A price ceiling below market equilibrium that firms cannot charge above
36
Minimum price
A price floor set above equilibrium that firms cannot charge below
37
Mixed economy
Both the free market mechanism and the government allocation of resources
38
Model
A hypothesis which can be proven or tested by evidence; it tends to be mathematical whilst a theory is in words
39
Negative externalities of production
Where the social cost of producing a good are greater than the private cost, this is a overproduction of demerit goods that cause negative externalities like pollution and health issues
40
Non-excludable
Characteristic of public goods; where someone cannot prevent you from using the good as everyone has access to the good.
41
Non-renewable resources
Resources that cannot be readily replenished or replaced at equal levels of its consumption, so general stock decreases over time e.g fossil fuel
42
Non-rivalry
A characteristic of public goods; one persons use does not prevent someone else from using it
43
Normal goods
YED>0, demand increases as income increases
44
Normative statements
Subjective statements based on value judgements and opinions which cannot be proven or disproven
45
Opportunity cost
The value of the next best alternative forgone
46
Perfectly price elastic good
PED/PES = infinity, quantity demand/supply falls to zero when price change
47
Perfectly price inelastic good
When PED/PES = 0; quantity demanded/supplied does not change when price change
48
Positive externalities of consumption
Where social benefits of consuming a good are larger than the private benefits; merit/public goods that are underproduced
49
Positive statements
Objective statements which can be tested with factual evidence to be proven or disproven
50
Possibility production frontier (PPF)
Depicts the maximum productive potential of an economy, using a combination of two goods or services, when resources are fully and efficiently employed; demonstrates opportunity cost
51
Price elasticity of demand
The responsiveness of demand to a change in price %change in QD / %change in price
52
Price elasticity of supply
The responsiveness of supply to a change in price %change in QD / %change in p
53
Price mechanism
The system of resource allocation based on the free markets movement of prices, determine by the demand and supply curves
54
Private cost/benefit
Cost/benefit to the individual participating in the economic activity
55
Private goods
Goods that are rivalry and excludable
56
Producer surplus
The difference between the price the producer is willing to charge and the price they actually charge
57
Public goods
Goods that are non-excludable and non-rivalrous
58
Rationality
Decision-making that leads to economic agents maximising their utility
59
Regulation
Laws to address market failure and promote competition among firms
60
Relatively price elastic goods
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 demand/supplied
61
Relatively inelastic goods
When PED/PES<1; demand/supply is relatively unresponsive to a change in price so a large change in price leads to a larger change in quantity demanded/supplied
62
Renewable resources
Resources that can be replenished, so stock can be maintained over time
63
Scarcity
The shortage of resources in relation to quantity of human wants
64
Social cost/benefit
The cost/benefit to society as a whole due to economic activity
65
Social optimum position
Where social costs equal social benefits; the amount which should be produced/consumed in order to maximise social welfare
66
Social science
The study of societies and human behaviour
67
Specialisation
The production of a limited range of goods by a company/country/individual so they aren't self-sufficient and have to trade with others
68
Specific tax
A tax imposed on a good where the value of the tax is dependent on the quantity that is bought
69
State provision of goods
Through taxation, the government provides public goods or merit goods which are underprovided for in the free market
70
Subsidy
Government payments to a producer to lower their cost of production and encourage them to produce more; grants given to firms
71
Substitutes
Positive XED, if good B becomes more expensive, demand for good A rises
72
Supply
The ability and willingness to provide a particular good/service at a given price at a given moment
73
Symmetric information
Where buyers and sellers both have access to the same information
74
Trade pollution permits
Licenses which allow businesses to pollute up to a certain amount. Government controls amount of licenses. Businesses are allowed to sell and buy permits which means there is incentive to reduce pollution
75
Unitary price elastic good
When PED/PES = 1; a change in price leads to a change in output by the same proportion
76
Utility
The satisfaction derived from consuming a good
77
Weakness at computation
A cause of irrational behaviour; when consumers are bad at making calculation, estimating probabilities and working out future benefits/costs
78

Economics Revision Hard (17 decks)

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