Defininitions

Question 1

Capital

Answer 1

Man-made aids to production

Question 1

Enterprise

Answer 1

The risk-taking role undertaken by owners of a business as they combine other factors of production in the pursuit of profit

Question 2

Investment

Answer 2

Spending by firms on new capital stock or repair of existing stock

Question 3

Opportunity Cost

Answer 3

The next best alternative forgone when an economic decision is made

Question 4

Production Possibility Frontier

Answer 4

All combinations of total output which an economy is capable of producing using all it’s resources in the most efficient way

Question 5

Productive Efficiency

Answer 5

When a firm operates at minimum average total cost, producing the maximum possible output from inputs into the production process

Question 6

Allocative Efficiency

Answer 6

This is achieved in an economy when it is not possible to make anyone better off without making someone worse off, or you cannot produce more of one good without making less of another

Question 7

Positive Statement

Answer 7

Statements that can be tested against real-world data

Question 8

Normative Statements

Answer 8

Opinions that require value judgements to be made

Question 9

Specialization

Answer 9

Where a factor of production is devoted to a specific job in the production process

Question 10

Division of Labor

Answer 10

Where labor specializes in the performance of a particular part of the production process

Question 11

Demand

Answer 11

The quantity of a good consumers are willing and able to buy at a given price per period

Question 12

Supply

Answer 12

The quantity of a good producers are willing and able to sell at a given price per period

Question 13

Market

Answer 13

Institution where buyers are in contact with sellers to arrange sale of goods

Question 14

Equilibrium

Answer 14

The price at which demand is equal to supply and there is no tendency or change

Question 15

Ceteris Paribus

Answer 15

All other factors remaining constant

Question 16

Disequilibrium

Answer 16

A situation within the market where supply does not equal demand

Question 17

Joint Demand

Answer 17

When demand for one good involves demand for another good (complement). Eg bacon and eggs

Question 18

Joint supply

Answer 18

Where the production of one good also results in the production of another

Question 19

Derived demand

Answer 19

Demand for a factor or good/service which is not demanded for itself but for what it can provide

Question 20

Composite Demand

Answer 20

Where a good is demanded for two or more separate uses

Question 21

Elasticity of demand

Answer 21

The responsiveness of quantity demanded to a change in price

Question 22

Income elasticity of demand

Answer 22

The responsiveness of quantity demanded to a change in income

Question 23

Cross elasticity of demand

Answer 23

The responsiveness of quantity demanded of one good to a change in price of another

Question 24

Elasticity of supply

Answer 24

The responsiveness of quantity supplied to a change in price

Question 25

Normal good

Answer 25

Good whose demand rises as income rises

Question 26

Inferior good

Answer 26

Good whose demand falls as income rises

Question 27

Substitute good

Answer 27

Goods that can be used as alternatives to another good

Question 28

Indirect tax

Answer 28

Tax levied on the sale of goods

Question 29

Subsidy

Answer 29

Government payment to producer for production of goods intended to lower the market price

Question 30

Mixed Economy

Answer 30

Where resource allocation is undertaken by state planning and market forces.

Question 31

Free market economy

Answer 31

Where markets determine resource allocation with minimal state intervention.

Question 31

Command economy

Answer 31

Where resources are allocated according to centralized state planning

Question 32

Laissez faire

Answer 32

Where government does not interfere with the functioning of markets

Question 33

Market failure

Answer 33

The failure of the market to allocate resources efficiently

Question 34

Minimum price

Answer 34

A guaranteed price at which producers can sell at their output

Question 35

Maximum price

Answer 35

Price above which producers or consumers cannot legally trade

Question 36

Buffer stock scheme

Answer 36

An intervention system that aims to limit the fluctuations of the price of a commodity

Question 37

Tariff

Answer 37

Tax levied on import

Question 38

Economies of scale

Answer 38

The gains in efficiency from expanding the scale of production

Question 39

Monopoly

Answer 39

A single seller in the market or industry

Question 40

Public good

Answer 40

A good with non-excludability and non-rivalry

Question 41

Merit good

Answer 41

A good which consumers under consume at market prices because they underestimate the long term benefits to themselves

Question 42

Demerit good

Answer 42

A good which consumers over consume at market prices because they underestimate the long term harm to themselves

Question 43

Negative externality

Answer 43

The negative spill over effect to the third party not involved in the economic transaction

Question 44

Positive externality

Answer 44

The positive spill over effect on the third party not involved in the economic transaction

Question 45

Government failure

Answer 45

When government intervention causes inefficiency in resource allocation