1.2 Vocabulary

Question 1

Utility

Answer 1

The amount of satisfaction obtained from consuming a good/service

Question 2

Rational decision making

Answer 2

Consumers allocate expenditure to maximise utility
Producers allocate resources to maximise profit

Question 3

Demand

Answer 3

desire and willingness to purchase a product at a given price

Question 4

Demand curve

Answer 4

shows the quantity of a good/service that would be bought over a range of different price levels in a given period of time

Question 5

Total utility

Answer 5

satisfaction gained from overall consumption of a good

Question 6

Marginal utility

Answer 6

change in satisfaction gained from the consumption of the next unit of a good

Question 7

Diminishing marginal utility

Answer 7

As more units of a good are consumed, the utility gained from each extra unit will fall

Question 8

Price elasticity of demand

Answer 8

The responsiveness of demand to a change in price

Question 9

Total revenue

Answer 9

The price per unit of a good multiplied by the quantity sold

Question 10

Marginal revenue

Answer 10

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

Question 11

YED

Answer 11

the responsiveness of demand in response to a change in real income

Question 12

Normal good

Answer 12

A good where demand increases with an increase in income
Positive YED

Question 13

Inferior good

Answer 13

A good where demand decreases in response to an increase in income
Negative YED

Question 14

XED (cross price elasticity of demand)

Answer 14

the change in demand of one good in relation to a change in price of another good

Question 15

supply

Answer 15

the quantity a firm is willing to sell at a given price and over a given time period

Question 16

PES
price elasticity of supply

Answer 16

the responsiveness of supply to a change in price

Question 17

equilibrium price

Answer 17

where demand is equal to supply of a good

Question 18

excess supply

Answer 18

where the quantity supplied exceeds the quantity demanded for a good at the current market price

Question 19

excess demand

Answer 19

where the quantity demanded exceeds the quantity supplied for a good at the current market price

Question 20

price mechanism

Answer 20

use of market forces to allocate resources in order to solve the economic problem

Question 21

the 3 functions of the price mechanism

Answer 21

signalling function
rationing function
incentive function

Question 22

consumer surplus

Answer 22

the extra amount of money consumer is willing and able to pay compared to the actual price paid

Question 23

producer surplus

Answer 23

the extra amount of money paid to suppliers above what they are willing to accept to supply a good

Question 24

Indirect tax

Answer 24

tax on expenditure

Question 25

Incidence of tax

Answer 25

The amount paid by the taxpayer

Question 26

Subsidy

Answer 26

Grant given by the government encouraging the production of a good/service