Definition of terms Flashcards
Market
Where buyers and sellers come together to carry out an economic transaction
Demand
Quantity of a good/service consumers are willing and able to purchase
Supply
Quantity of a good/service producers are able and willing to produce
Indirect taxes
Taxes on goods and services that are added to the price of a product
Subsidy
Payments made by the government to firms that reduce their costs of production
Excess demand
More of a good is being demanded at a given price than its being supplied
Excess supply
More of a good is being supplied at a given price than its being demanded
Market equilibrium
Where demand is equal to supply (curves intersect)
Consumer surplus
Additional benefit received by consumers by paying a price that is lower than the
highest price they are willing to pay
Producer surplus
Additional benefit received by producers by selling to a price that is higher than the lowest price they are willing to receive
Social (community) surplus
The sum of consumer and producer surplus
Allocative efficiency
The best allocation of resources for society (in a free market in equilibrium)
PED
A measure of the responsiveness of the quantity demanded of a good to a change in its price (% change in Q / % change in P)
Total revenue
Revenue gained by a firm from the sale of a particular quantity of a good (Q x P)
YED
A measure of the responsiveness of demand for a good or service to a change in the income of consumers (% change in Q / % change in income)
PES
A measure of the responsiveness
of the quantity supplied of a good to a change in its price (% change in Q supplied / % change in P)
Maximum price
Highest price a firm can legally charge for a good
Minimum price
Lowest price a firm can legally charge for a good
Welfare loss
The loss of economic efficiency that can occur when the market for a good does not achieve allocative efficiency
Market failure
Cases where markets fail to achieve allocative efficiency at equilibrium, leading to over/under consumption/production
Externalities
Occurs when the consumption or production of a good affects a third party
Common pool resources
Natural resources with two characteristics 1. Non excludable 2. Rivalrous
Merit goods
Goods or services that generate positive externalities
Demerit goods
Goods or services that generate negative externalities
Public goods
Goods that benefit society and would not be provided in a free market. 2 characteristics: 1. Non excludable 2. Non rival
