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Economics > Theme 1 Definitions > Flashcards

Theme 1 Definitions Flashcards

(88 cards)

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1
Q

Economics

A

The study of how to best allocate scarce resources amongst alternative needs and wants

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2
Q

Ceteris paribus

A

Where we analyse the impact of two variables on each other but assume all other variables are equal

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3
Q

Positive statements

A

Statements that can be proven right or wrong according to data

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4
Q

Normative statements

A

Value judgement based on opinion

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5
Q

Scarcity

A

Where there are not enough resources relative to needs and wants

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6
Q

Basic economic problem

A

Resources are scarce but wants are infinite.

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7
Q

Renewable resources

A

Resources that can be exploited over and over again because they have the potential to renew themselves. Providing consumption does not exceed that which is renewed

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8
Q

Non renewable resources

A

Resources such as coal or oil, which once exploited, cannot be replaced

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9
Q

Land

A

Raw materials. Includes anything that is extracted from the land

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10
Q

Labour

A

Human Resources. Related to human capital - the economic value of a persons skills

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11
Q

Enterprise

A

A human resource that takes risks and seeks to make profit from organising the other factors of production

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12
Q

PPF

A

A diagram illustrating the maximum quantities that can be produced with a given amount of resources and technology

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13
Q

Productive capacity

A

The point at which all factors of production are fully employed

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14
Q

Opportunity cost

A

The next best alternative foregone

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15
Q

Capital

A

Machinery. It can make labour more productive but may also be used as a substitute for labour

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16
Q

Consumer goods

A

Goods designed for use by final consumers

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17
Q

Specialisation

A

Where the production process is broken up into specific tasks

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18
Q

Division of labour

A

Specialisation of labour

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19
Q

Money

A

A medium of exchange for goods and services

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20
Q

Command economy

A

An economic system where decisions about how to allocate resources are made by the government

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21
Q

Free market economy

A

An economic system where all resources are allocated by the forces of supply and demand

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22
Q

Mixed economy

A

An economic system that allows for some government intervention where the market fails to allocate resources efficiently

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23
Q

The law of diminishing marginal utility

A

Where an individual experiences decreasing utility/value per extra unit of a product consumed.

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24
Q

Profits

A

Revenue - costs

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25
Demand
The willingness and ability of consumers to buy a good or service at a given price
26
PED
The responsiveness of demand to a change in price
27
YED
The responsiveness of demand to a change in income
28
Normal goods (luxury goods)
Goods that have a positive income elasticity of demand.
29
Inferior goods
Goods that have a negative income elasticity of demand
30
XED
The responsiveness of demand for good A following the change in price of good B
31
Competitive demand
Substitute goods that are in the same market. They have a positive XED
32
Joint demand
Goods that are complimentary and are demanded together. They have a negative XED
33
Derived demand
Where a factor of production is demanded not for what it is but for what it can provide
34
Supply
The willingness and ability of producers to supply a good or service at a given price
35
PES
The responsiveness of supply to a change in the price level.
36
Productivity
Output per unit of input
37
Labour productivity
Output per unit of labour input
38
Price mechanism
Resources are allocated through the price mechanism-where demand and supply meet an equilibrium price is formed. Has 3 functions: signalling, rationing, transmission of preferences
39
Rationing
Refers to an artificial control of the distribution of scarce resources
40
Incentives
An incentive is something that motivates a producer or consumer to follow a course of action or to change behaviour
41
Consumer surplus (consumer welfare)
The difference between the price consumers are willing to pay and the price they actually pay
42
Producer surplus (producer welfare)
The difference between the price producers are willing to receive and the price they actually receive
43
Shortage
A disequilibrium where there is excess demand (price is below equilibrium price)
44
Surplus
A disequilibrium where there is an excess supply (price is above the equilibrium price)
45
Tax
A charge that is levied on a good or service. Shifts the supply curve to the left and will reduce consumer and producer surplus
46
Indirect tax
A tax on consumption e.g. VAT
47
Direct tax
A tax on income. Called a corporation tax for firms
48
Ad valorem tax
A charge levied as a percentage of the value
49
Stamp duty
A tax paid on a property when it is sold
50
Progressive tax
A tax that takes a greater percentage of income from the rich e.g. income tax
51
Regressive tax
A tax that takes a greater percentage of income from the poor, may increase income inequality
52
Subsidy
A sum of money provided by the government to reduce costs and increase the incentive to produce and consume. Will increase producer and consumer surplus
53
Revenue
Price x Quantity. This is the inflow of money firms receive for selling their product
54
Profit
Revenue - Costs
55
Average revenue
Total revenue/total output
56
Fixed costs
Costs that do not change with output (capital and fixed contract labour)
57
Variable costs
Costs that change with output(raw materials and part time labour)
58
Economies of scale
The benefit a firm experienced when they increase their scale of output. Represented by falling average costs
59
Spare capacity
A point within the PPF where there are unemployed factors of production
60
Rational economic behaviour
Where economic agents are able to rank the order of different outcomes available to them in terms of the net benefits derived
61
Habitual behaviour
Where consumers have a preference towards consuming a good based purely on habit as opposed to rational decision making
62
Consumer computation
Where consumers behave irrationally based on their inability to accurately compute the probability of an outcome resulting from a purchasing decision
63
Market failure
Refers to a misallocation of resources, where the marker fails to allocate resources efficiently
64
Positive externalities
An external benefit, a positive spill-over effect on a third party. Where social benefits exceed private benefits
65
Private benefits
Benefits to the first and second party involved in the transaction
66
Social benefits
Private benefits+external benefits
67
Net welfare gain
This is where social benefits exceed the social costs
68
Negative externalities
An external cost, a negative spill-over effect on a third party. Where social costs are greater than private costs
69
Socially optimal point
The target point to eliminate externalities. Where MSB=MSC
70
Market equilibrium
Where private costs=private benefits (S=D)
71
Private costs
Costs on the first and second party involved in the transaction
72
Social costs
External costs+private costd
73
Net welfare loss
This is where social costs are greater than social benefits
74
Merit goods
Goods that are under consumed, have positive externalities and consumers fail to recognise the full benefits of consumption
75
Demerit goods
Foods that are over consumed, have negative externalities and consumers fail to recognise the full costs of consumption
76
Information failure (imperfect information)
Where consumers, producers or the government fail to recognise the full costs or benefits of consumption or production
77
Asymmetric information
A form of information failure, where one party knows more than another
78
Private goods
Goods that are provided by the market mechanism. They are rivalrous, excludable and reject-able
79
Public goods
Goods that are under-provided by the market mechanism as firms may find it difficult to charge a price and earn a profit, non rivalrous, non excludable
80
Non-rivalry
Where consumption of the food does not reduce the quantity of benefits available for other consumers
81
Non-excludability
Where consumers cannot be excluded from consumption, a price cannot be charged for the use of the good
82
Quasi public good
A good or service that displays some but not all the characteristics of a public good
83
Free rider problem
Consumers may benefit without having to pay
84
Minimum prices
A legal price floor below which the price cannot fall
85
Maximum price
A legal price ceiling above which the price cannot rise.
86
Trade pollution permit
A system that creates a market for pollution. Polluting firms are given a right to pollute on the conditions they purchase permits per tonne of pollution
87
Government failure
A situation whereby government intervention leads to an even greater misallocation of resources relative to the free market outcome
88
The law of unintended consequences
Government intervention may always lead to an unanticipated/unexpected consequence of some kind

Economics (5 decks)

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