Theme 1 Definitions MR STEEDS

Question 1

ceteris paribus

Answer 1

the effect of one economic variable on another

Question 2

law of dimishing marginal utility

Answer 2

as the amount consumed increases, the utility derived by the consumer decreases

Question 3

total utility

Answer 3

the total satisfaction from given level of consumption

Question 4

marginal utility

Answer 4

the change of satisfaction from consuming an extra unit

Question 5

free economy

Answer 5

An economic system based on supply and demand

Question 6

mixed economy

Answer 6

an economy organised with some free market elements and some socialist elements

Question 7

command/centralised economy

Answer 7

economic system where the government makes decisions with the production and distribution of goods

Question 8

demand

Answer 8

consumers desire to buy a product or service

Question 9

supply

Answer 9

quantity of goods or services producers are willing and able to sell at each possible price

Question 10

equilibrium

Answer 10

where supply and demand meet

Question 11

excess demand

Answer 11

when quantity demanded is more than quantity supplied

Question 12

excess supply

Answer 12

when the quantity supplied exceeds the quantity demanded

Question 13

price elasticity of demand

Answer 13

responsiveness of demand to the change in price

Question 14

price elasticity of supply

Answer 14

responsiveness of supply to the change in price

Question 15

elastic

Answer 15

demand drops as price increases

Question 16

inelastic

Answer 16

price increases, demand stays the same

Question 17

income elasticity

Answer 17

responsiveness of demand to the change in income

Question 18

normal good

Answer 18

when income rises, demand also rises (vice versa)

Question 19

inferior good

Answer 19

when income rises, demand fall (and vice versa)

Question 20

luxury good

Answer 20

when income rises, a bigger demand rise happens (and vice versa)

Question 21

cross elasticity of demand

Answer 21

responsiveness of demand of one good to changes in price of a related good

Question 22

merit good

Answer 22

good that benefits the consumer

Question 23

demerit good

Answer 23

good that doesn’t benefit the consumer

Question 24

price mechanism

Answer 24

the way price changes in response to changes in demand or supply

Question 25

rationing function

Answer 25

when supply is limited, price increases which can lead to allocating the available quantity to those willing to pay the higher prices

Question 26

signalling function

Answer 26

price of a good changes, it signals to consumer or producer to change their level of consumption or production

Question 27

incentive function

Answer 27

change in price gives the incentives to producer to change their supply and consumer to change their consumption

Question 28

public goods

Answer 28

good which provided by one, benefits everyone

Question 29

market failure

Answer 29

price mechanism fails to allocate resources efficiently leading to social welfare loss

Question 30

complete market failure

Answer 30

market simply doesn’t provide the product at all

Question 31

partial market failure

Answer 31

market does actually function but it produces either the wrong quantity or price

Question 32

non-excludability

Answer 32

benefit derived from public goods cannot be confined to those who have paid for it

Question 33

non-rival consumption

Answer 33

consumption by one consumers doesn’t restrict consumption by another consumer

Question 34

non-rejectable

Answer 34

collective supply of public goods cannot be rejected by people

Question 35

free rider problem

Answer 35

people benefit from goods or services without paying for it

Question 36

asymmetric information

Answer 36

when one individual has much more information than the other one

Question 37

information gap

Answer 37

when a buyer or seller doesn’t have access to the information needed for them to make a fully informed decision

Question 38

quasi public good

Answer 38

near public good

Question 39

principle agent relationship

Answer 39

an arrangement in which one entity appoints another to act on its behalf

Question 40

imperfect information

Answer 40

when the economic agent lacks information relevant to the transaction

Question 41

perfect information

Answer 41

when the economic agents are perfectly informed when making their decisions

Question 42

unintended consequences

Answer 42

outcomes of an action, decision, or policy that were not foreseen or intended