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Unit 1 Definitions Flashcards

1
Q

What is name given to ‘all other things equal’?

A

Ceteris Paribus

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2
Q

Normative statement

A
  • These are statements based on value judgement
  • They are subjective and cannot be tested
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3
Q

Positive statement

A

These are statements that are objective and can be tested

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4
Q

The economic problem

A

There are a scarce amount of resources for an infinite amount of wants and needs

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5
Q

Opportunity cost

A

The value of the next best alternative forgone

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6
Q

What is division of labour and why is it used?

A
  • Where a task is broken up into several component tasks
  • Allows workers to specialise by focusing on a specific component thus, increasing productivity
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7
Q

Free-market economy

A

An economy that has no government intervention in the allocation of resources or the distribution of goods/services

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8
Q

Command economy

A

An economy in which all the resources are owned by the state and the government controls the distribution of goods/services

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9
Q

Mixed economy

A
  • A mix of free-market and command economy
  • Where some resources are owned and allocated by the private sector and some by the public sector
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10
Q

Specialisation

A

When an individual, firm, region or country concentrates in the production of a limited range of goods and services

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11
Q

Consumer good

A

A good that directly provides utility to the costumer

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12
Q

Capital good

A

A good that is used to produce consumer goods such as machinery

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13
Q

What does the production possibility frontier (PPF) represent?

A

The maximum potential output of a combination of goods an economy can achieve when all its resources are fully and efficiently employed, given the current level of technology

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14
Q

Diminishing marginal utility

A

The utility gained from each extra unit consumed will fall

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15
Q

Marginal utility

A

The utility gained from consuming one extra unit of a good or service

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16
Q

Price elasticity of demand

A

Percentage change in quantity demanded over the percentage change in price

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17
Q

Marginal revenue

A

Revenue gained by a firm from selling one extra unit of output

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18
Q

Income elasticity of demand

A

Percentage change in quantity demanded over the percentage change in income

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19
Q

Cross elasticity of demand

A

Percentage change in quantity demanded of good A over the percentage change in price of good B

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20
Q

What are the different YED values and there meanings?

A
  • Negative value = Inferior good
  • Positive value = Normal good
  • Value above 1 = luxury good (a type of normal good)
  • Value between 0 and 1= Relatively income inelastic
  • Value above 1 = Relatively income elastic
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21
Q

What are the different XED values and there meanings?

A
  • Positive value = substitute good
  • Negative value = complementary good
  • Value of zero = unrelated good
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22
Q

Price elasticity of supply

A

Percentage change in supply of good over the percentage change in price of a good

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23
Q

What are the different PED values and there meanings?

A
  • Value greater than 1 = relatively elastic
  • Value smaller than 1 = relatively inelastic
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24
Q

Consumer surplus

A

The extra amount of money consumers are willing to pay for a good or service above the amount they actually pay

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25
Producer surplus
The extra amount of money paid to producers above what they are willing to accept for the supply of a good or service
26
Market failure
When the free market fails to allocate resources efficiently, leading to a net welfare loss
27
External costs
Negative third party effects outside of a market transaction
28
External benefit
Positive third party effects outside of a market transaction
29
Where is the social optimal point?
marginal social benefit = marginal social cost
30
Public goods
Those goods that are non-rivalry and non-excludable in their consumption
31
Government failure
When government intervention leads to an inefficient allocation of resources and a net welfare loss
32
Distortion of price signals
The actions of government which distort the operation of the price mechanism and so misallocate resources e.g. max and min prices
33
Equilibrium price
The price where the quantality demanded equals the quantity supplied for a good or service in a market
34
Price mechanisms
The use of market forces to allocate resources
35
What are the different PES values and there meanings?
Value between 0 and 1 = Relatively price inelastic Value above 1 = Relatively price elastic
36
Law of demand
There is an inverse relationship between quantity demanded and price
37
Law of supply
As the price of a good rises, so will the quantity supplied
38
Free-rider problem
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
39
Luxury goods
An increase in income causes an even bigger increase in demand, YED>1
40
Inferior goods
Goods which see a fall in demand as income rises, YED<0
41
Socially optimal position
- Where social costs equal social benefit - The amount which should be produced/consumed to maximize social welfare
42
Subsidy
Government payment to a producer to lower their costs of production and encourage them to produce more
43
Trade pollution permits
- Licenses provided by the government in order to control the amount of pollution which allow businesses to pollute up to a certain amount - Businesses are allowed to buy and sell the permits which means there may be an incentive to reduce the amount they pollute
44
What is the function of the government?
To regulate and intervene in free markets
45
46
Characteristics of free market economy
- Competition - Motivation of self interest - Limited government intervention
47
Characteristics of a command economy
- No competition - Government control - Limited enterprise
48
Advantages of free market economy
- Increased productivity - Choice for consumers - Innovation
49
Advantages of command economy
- Equality - Necessary goods provided for no profit - Stability/guaranteed employment
50
Disadvantages of free market economy
- Inequality - Market failure - Abuse of power
51
Disadvantages of command economy
- Lack of choice - Less productive - No market forces
52
What is a mixed economy
Where both markets and government play a role in allocating resources
53
Factors effecting consumer surplus
More inelastic = more surplus Higher demand = greater surplus
54
Indirect tax
Tax on goods and services paid indirectly by consumers
55
Ad valorem tax
A tax on goods and services which is proportion to the value of the product
56
Specific tax
Fixed level of tax that does not change with value of good or service. For example 10p per litre of fuel
57
Externalities
A cost or benefit to a third party outside an economic transaction
58
Free-rider problem
A type of market failure where individuals benefit from a good without paying for it leading to under provision of public good
59
Asymmetric information
When buyers and sellers have different levels of information
60
Information gaps
- An information gap occurs when economic agents lack sufficient knowledge to make fully informed decisions - It can lead to irrational decisions, misallocation of resources, and market failure because agents may overconsume or under consume certain goods or services
61
Types of government intervention for information gaps
- Mandatory labelling - Advertisements
62
Moral hazard and example
- When an economic agent partakes in risky behaviour because they know someone else will pay the consequences - Driving more recklessly after buying car insurance
63
What are all the types of government intervention
Minimum/maximum prices Indirect tax Subsidies Provision of public goods Provision of information Regulation
64
When do government failures occur
When government intervention causes a welfare loss instead of a gain
65
Market failure
A situation where the free market fails to allocate resources efficiently, leading to a net welfare loss in society
66
What are the uses of money
- Store of value; allows consumers to save for bigger future consumption - Medium of exchange; everyone accepts it as payment - Unit of account; serves as a measure of value

Economics (11 decks)

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