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Economics micro > Theme 1 Definitions > Flashcards

Theme 1 Definitions Flashcards

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1
Q

What is an 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

This type of tax is often used to tax goods and services based on their price.

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2
Q

Define asymmetric information.

A

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

This situation can create inefficiencies in the market.

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3
Q

What is capital in economics?

A

One of the four factors of production; goods which can be used in the production process

Capital includes machinery, tools, and buildings.

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4
Q

What are capital goods?

A

Goods produced in order to aid production of consumer goods in the future

Examples include equipment and factories.

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5
Q

What does ceteris paribus mean?

A

All other things remaining the same

This assumption is used to isolate the effect of one variable.

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6
Q

Define a command economy.

A

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

This system contrasts with a market economy.

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7
Q

What are complementary goods?

A

Goods that are consumed together

An example would be printers and ink cartridges.

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8
Q

Define consumer goods.

A

Goods bought and demanded by households and individuals

These are the final goods used by consumers.

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9
Q

What is consumer surplus?

A

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

It measures the benefit to consumers.

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10
Q

What is cross elasticity of demand (XED)?

A

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

Calculated as %change in QD of A / %change in P of B.

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11
Q

What is demand?

A

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

Demand can shift based on various factors.

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12
Q

What does diminishing marginal utility refer to?

A

The extra benefit gained from consumption of a good generally declines as extra units are consumed

This concept explains why the demand curve is downward sloping.

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13
Q

Define division of labour.

A

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

This can lead to increased efficiency.

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14
Q

What is the economic problem?

A

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

This situation necessitates prioritization in resource allocation.

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15
Q

Define efficiency in economics.

A

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

Achieving efficiency is a key goal of economic policy.

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16
Q

What is enterprise in economics?

A

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

Entrepreneurs play a crucial role in driving economic growth.

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17
Q

What is equilibrium?

A

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

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18
Q

What is excess demand?

A

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

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19
Q

What is excess supply?

A

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

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20
Q

What are externalities?

A

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

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21
Q

What is an external cost/benefit?

A

The cost/benefit to a third party not involved in the economic activity; the difference between social cost/benefit and private cost/benefit.

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22
Q

What is a free market?

A

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

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23
Q

What is the free rider principle?

A

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

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24
Q

What is government failure?

A

When government intervention leads to a net welfare loss in society.

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25
What is habitual behaviour?
A cause of irrational behaviour; when consumers are in the habit of making certain decisions.
26
What is the incidence of tax?
The tax burden on the taxpayer.
27
What is income elasticity of demand (YED)?
The responsiveness of demand to a change in income.
28
What is an indirect tax?
Taxes on expenditure which increase production costs and lead to a fall in supply.
29
What are inferior goods?
YED<0; goods which see a fall in demand as income increases.
30
What is an information gap?
When an economic agent lacks the information needed to make a rational, informed decision.
31
What is information provision?
When the government intervenes to provide information to correct market failure.
32
What is labour?
One of the four factors of production; human capital.
33
What is land?
One of the four factors of production; natural resources such as oil, coal, wheat, physical space.
34
What are luxury goods?
YED>1; an increase in incomes causes an even bigger increase in demand.
35
What is 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
36
What are market forces?
Forces in free markets which act to reduce prices when there is excess supply and increase them when there is excess demand ## Footnote Market forces are essential in understanding how supply and demand interact in an economy.
37
What is a maximum price?
A ceiling price which a firm cannot charge above ## Footnote Maximum prices are often implemented to protect consumers from excessively high prices.
38
What is a minimum price?
A floor price which a firm cannot charge below ## Footnote Minimum prices are typically used to ensure fair compensation for producers.
39
What is a mixed economy?
Both the free market mechanism and the government allocate resources ## Footnote A mixed economy combines elements of capitalism and socialism.
40
What is a model in economics?
A hypothesis which can be proven or tested by evidence; it tends to be mathematical whilst a theory is in words ## Footnote Economic models simplify reality to help understand complex systems.
41
What are negative externalities of production?
Where the social costs of producing a good are greater than the private costs of producing the good ## Footnote Examples include pollution and resource depletion.
42
What does non-excludable mean?
A characteristic of public goods; someone cannot be prevented from using the good ## Footnote Non-excludable goods are often provided by the government.
43
What are non-renewable resources?
Resources which cannot be readily replenished or replaced at a level equal to consumption; the stock level decreases over time as they are consumed ## Footnote Examples include fossil fuels and minerals.
44
What does non-rivalry mean?
A characteristic of public goods; one person's use of the good does not prevent someone else from using it ## Footnote Non-rivalrous goods can be consumed simultaneously by multiple users.
45
What are normal goods?
YED > 0; demand increases as income increases ## Footnote Normal goods contrast with inferior goods, where demand decreases as income rises.
46
What is a normative statement?
Subjective statements based on value judgements and opinions; cannot be proven or disproven ## Footnote Normative statements often involve opinions about what ought to be.
47
What is opportunity cost?
The value of the next best alternative forgone ## Footnote Opportunity cost is a key concept in economics for understanding trade-offs.
48
What is a perfectly price elastic good?
PED/PES = Infinity; quantity demanded/supplied falls to 0 when price changes ## Footnote Perfectly elastic goods are sensitive to price changes.
49
What is a perfectly price inelastic good?
PED/PES = 0; quantity demanded/supplied does not change when price changes ## Footnote Perfectly inelastic goods are essential items with no substitutes.
50
What are positive externalities of consumption?
Where the social benefits of consuming a good are larger than the private benefits of consuming that good ## Footnote Examples include education and vaccination.
51
What is a positive statement?
Objective statements which can be tested with factual evidence to be proven or disproven ## Footnote Positive statements are based on empirical evidence.
52
What does a possibility production frontier (PPF) depict?
Depicts the maximum productive potential of an economy, using a combination of two goods or services, when resources are fully and efficiently employed ## Footnote The PPF illustrates concepts of opportunity cost and efficiency.
53
What is price elasticity of demand (PED)?
The responsiveness of demand to a change in price. %change in QD / %change in P ## Footnote PED is calculated as the percentage change in quantity demanded divided by the percentage change in price.
54
What is price elasticity of supply (PES)?
The responsive of supply to a change in price ## Footnote PES measures how much the quantity supplied of a good responds to a change in price.
55
What does the price mechanism refer to?
The system of resource allocation based on the free market movement of prices, determined by the demand and supply curves ## Footnote It describes how prices rise and fall based on supply and demand.
56
Define private cost/benefit.
The cost/benefit to the individual participating in the economic activity ## Footnote This includes personal expenses and gains from economic activities.
57
What are private goods?
Goods that are rivalry and excludable ## Footnote Examples include food and clothing, where consumption by one individual prevents another from consuming the same good.
58
What is producer surplus?
The difference between the price the producer is willing to charge and the price they actually charge ## Footnote It represents the benefit to producers for selling at a market price.
59
Define public goods.
Goods that are non-excludable and non-rivalry ## Footnote Examples include national defense and public parks.
60
What does rationality mean in economics?
Decision-making that leads to economic agents maximising their utility ## Footnote It assumes individuals make choices that provide the greatest benefit.
61
What is regulation in an economic context?
Laws to address market failure and promote competition between firms ## Footnote Regulations can include antitrust laws and environmental protections.
62
What characterizes a relatively price elastic good?
When PED/PES > 1; demand/supply is relatively responsive to a change in price ## Footnote A small change in price leads to a large change in quantity demanded/supplied.
63
What characterizes a relatively price inelastic good?
When PED/PES < 1; demand/supply is relatively unresponsive to a change in price ## Footnote A large change in price leads to a small change in quantity demanded/supplied.
64
What are renewable resources?
Resources which can be replenished, so the stock of resources can be maintained over a period of time ## Footnote Examples include solar energy and timber.
65
Define scarcity.
The shortage of resources in relation to the quantity of human wants ## Footnote It is a fundamental economic problem of having seemingly unlimited human wants in a world of limited resources.
66
What is social cost/benefit?
The cost/benefit to society as a whole due to the economic activity ## Footnote It considers both private costs and external costs.
67
What is the social optimum position?
Where social costs equals social benefits; the amount which should be produced/consumed in order to maximise social welfare ## Footnote It reflects an efficient allocation of resources.
68
What does social science study?
The study of societies and human behaviour ## Footnote This encompasses disciplines like economics, sociology, and psychology.
69
What is specialisation in economics?
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 ## Footnote It enhances efficiency and productivity.
70
What is a specific tax?
A tax imposed on a good where the value of the tax is dependent on the quantity that is bought ## Footnote This type of tax is fixed per unit sold.
71
Fill in the blank: The percentage change in price is represented as _______.
%change in P
72
Fill in the blank: The percentage change in quantity demanded is represented as _______.
%change in QD
73
What is the state provision of goods?
Through taxation, the government provides public goods or merit goods which are underprovided in the free market. ## Footnote Public goods are non-excludable and non-rivalrous, while merit goods are deemed beneficial for individuals and society.
74
What is a subsidy?
Government payments to a producer to lower their costs of production and encourage them to produce more. ## Footnote Subsidies can help lower prices for consumers and support industries deemed essential.
75
What does positive XED indicate?
If good B becomes more expensive, demand for good A rises. ## Footnote This shows that goods A and B are substitutes.
76
Define supply in economic terms.
The ability and willingness to provide a particular good/service at a given price at a given moment in time. ## Footnote Supply can be affected by factors such as production costs and technology.
77
What is symmetric information?
Where buyers and sellers both have access to the same information. ## Footnote This condition helps ensure fair transactions in the market.
78
What are trade pollution permits?
Licenses which allow businesses to pollute up to a certain amount. ## Footnote The government controls the number of licenses, allowing it to manage pollution levels.
79
What is unitary price elastic good?
When PED/PES=1; a change in price leads to a change in output by the same proportion. ## Footnote This indicates a proportional response in quantity demanded or supplied to price changes.
80
What is utility in economics?
The satisfaction derived from consuming a good. ## Footnote Utility can be measured in terms of satisfaction or happiness gained from consumption.
81
What is a weakness at computation?
A cause of irrational behaviour; when consumers are bad at making calculations, estimating probabilities and working out future benefits/costs. ## Footnote This can lead to poor decision-making in financial matters.

Economics micro (1 decks)

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