1.1 THE MARKET SYSTEM Flashcards
goods
things that are produced in order to be sold
finite
having an end or a limit
infinite
without limits
scarce resources
amount of resources available when supply is limited
opportunity cost
cost of the next best alternative given up (when marking a choice)
expenditure
spending by a government, usually a national government
capital goods
those purchased by firms and used to produce other goods such as factories machinery, tools and equipment
consumer goods
those purchased by households such as food, confectionery, cars, tablets and furniture
production possibility curve (PPC)
line that shows the different combinations of two goods an economy can produce if all resources are used up
economic growth
increase in the level output by a nation
variables
something that affects a situation in a way that means you cannot be sure what will happen
maximise
to increase something such as profit, satisfaction or income as much as possible
revenue
money that a business receives over a period of time, especially from selling goods or services
enterprises
companies, organisations or businesses
administration
activities involved with managing and organising the work of a company or organisation
demand curve
line drawn on a graph that shows how much of a good will be bought at different prices
demand schedule
table of the quantity demanded of a good at different price levels - can be used to calculate expected quantity demanded
effective demand
amount of a good people are willing to buy at given prices over a given period of time supported by the ability to pay
inverse relationship (between price and quantity demanded)
when price goes up, the quantity demanded falls and when the price goes down the quantity demanded rises
shift in the demand curve
movement to the left or the right of the entire demand curve when there is a change in any factor affecting demand except the price
disposable income
income that is available to someone over a period of time to spend; it includes state benefits but excludes direct taxes
inferior goods
goods for which demand will fall if income rises or rise if income falls
normal goods
goods for which demand will increase if income increases or fall if income falls
substitutive goods
goods bought as an alternative to another but perform the same function
complementary goods
goods purchased together because they are consumed together
supply
amount that producers are willing to offer for sale at different prices in a given period of time
supply curve
line drawn on a graph which shows how much of a good sellers are willing to supply at different prices
proportioned relationship (between the price and the quantity supplied)
when the price goes up, the quantity supplied also goes up and when the price goes down the quantity supplied goes down
shift in the supply curve
movement to the left or right of the entire supply curve when there is any change in the conditions of supply except the price
ventures
new business activities or projects that involve taking risks
indirect taxes
taxes levied on spending, such as VAT
productivity
rate at which goods are produced, and the amount produced in relation to the work, time and money needed to produce them
consumption
amount of goods, services, energy or natural materials used in a particular period of time
subsidy
money that is paid by a government or organisation to make prices lower, reduce the cost of producing goods or providing a service, usually to encourage production of a certain good
equilibrium price
price at which supply and demand are equal
market clearing price
price at which the amount supplied in a market matches exactly the amount demanded
total revenue
amount of money generated from the sale of goods calculated by multiplying price by quantity
excess demand
where demand is greater than supply and there are shortages in the market
excess supply
when supply is greater than demand and there are unsold goods in the market
price elasticity of demand
the responsiveness of demand to a change in price
inelastic demand
(alternative term: price inelastic)
change in price results in a proportionately smaller change in the quantity demanded
elastic demand
(alternative term: price elastic)
change in price results in a greater change in the quantity demanded
perfectly elastic
demand where PED (price elasticity of demand)= infinite (an increase in price will result in zero demand)
perfectly inelastic demand
demand where PED (price elasticity of demand)=0 (a change in price will result in no change in the quantity demanded)
unitary elasticity
where PED =-1 ( the responsiveness of demand is proportionately equal to the change in price)
fast-moving consumer goods (FMCG)
goods, especially food that sell very quickly and in large amounts
price elasticity of supply
responsiveness of supply to a change in price
inelastic supply
change in price results in a proportionately smaller change in the quantity supplied (alternative term: price inelastic)
elastic supply
change in a price results in a proportionately greater change in the quantity supplied (alternative term: price elastic)
perfectly elastic (supply)
where PES (price elasticity of supply) = infinite (producers will supply an infinite amount at the given price)
perfectly inelastic (supply)
where PES (price elasticity of supply) = 0 (the quantity provided is fixed and cannot be ajusted whatever the price)
unitary elasticity (with regard to supply)
where PES =1 (a change in price will be matched by an identical change in the quantity supplied)
wholesalers
person or company that sells goods in large quantities to businesses, rather than to the general public
raw materials
substances used to make a product
income elasticity of demand
responsiveness of demand to a change in income
discretionary expenditure
non-essential spending or spending that is not authomatic
excise duty
government tax on certain goods, such as cigaretter, alcoholic drinksand petrol that are soldin the country
valued-added tax (VAT)
tax on some goods and services - businesses pay valued-added tax on most goods and services they buyand if they are VAT registered, charge value-added tax on the goods and services they sell
economy
system that attempts to solve the basic economic problem
private sector
provision of goods and services by businesses that are owned by individuals or group of individuals
public sector
government organisations that provide goods and services in the economy
shareholders
people or organisations that owns shares in a company
dividend
part of a company’s profit that is divided among the people with shares in the company
assets
things or resources belonging to an individual or a business that has value or the power to earn money
liabilities
amount of debt that is owed or must be paid
market failure
where markets lead to inefficiency
mixed economy
economy where goods and services are provided by both the private and the public sectors
merit goods
goods that are under-provided by the private sector
public goods
goods that are not likely to be provided by the private sector
free rider
individual who enjoys the benefit of a good but allows others to pay for it
privatisation
act of selling a company or activity controlled by the government to private investors
monopolies
situation where a business actvity is controlled by only one company or by the government, and other companies do not compete with it
nationalised industries
public corporations previously part of the private sector that were taken into state ownership
natural monopolies
situation that occurs when one firm in an industry can serve the entire market at a lower cost than would be possible if the industry were composed of many smaller firms
diversified
if a company or an economydiversifies, it increases the range of goods and services it produces
hostile takeover
takeover that the company being taken over does not want or agree to
takeovers
act of getting control of a company by buying over 50 per cent of its shares
spillover effects
effect that one situation or problem has on another situation
external costs
negative spillover effects of consumption or production - they affect third parties in a negative way
external benefits
positive spillover effects of consumption or production - they bring benefits to third parties
private costs
costs of an economic activity to individuals and firms
social costs
costs of an economic activity to society as well as the individual or firm
private benefits
rewards to third parties of an economic activity, such as consumption or production
social benefits
benefits of an economic activity to society as well as to the individual or firm
demand
amount of a good that will be bought at given prices over a period of time
