3 Flashcards
Market forces
Forces in free markets which act to reduce prices when there is excess supply and increase them when there is excess demand.
Maximum price
A ceiling price which a firm cannot charge above.
Minimum price
A floor price which a firm cannot charge below.
Mixed economy
Both the free market mechanism and the government allocate resources.
Model
A hypothesis which can be proven or tested by evidence; it tends to be mathematical whilst a theory is in words.
Negative externalities of production
Where the social costs of producing a good are greater than the private costs of producing the good.
Non-excludable
A characteristic of public goods; someone cannot be prevented from using the good.
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.
Non-rivalry
A characteristic of public goods; one person’s use of the good does not prevent someone else from using it.
Normal goods
YED>0; demand increases as income increases.
Normative statement
Subjective statements based on value judgements and opinions; cannot be proven or disproven.
Opportunity cost
The value of the next best alternative forgone.
Perfectly price elastic good
PED/PES=Infinity; quantity demanded/supplied falls to 0 when price changes.
Perfectly price inelastic good
PED/PES=0; quantity demanded/supplied does not change when price changes.
Positive externalities of consumption
Where the social benefits of consuming a good are larger than the private benefits of consuming that good.
Positive statement
Objective statements which can be tested with factual evidence to be proven or disproven.
Possibility production frontier (PPF)
Depicts the maximum productive potential of an economy, using a combination of two goods or services, when resources are fully and efficiently employed.
Price elasticity of demand (PED)
The responsiveness of demand to a change in price.
