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Economics > Definitions > Flashcards

Definitions Flashcards

1
Q

Economic growth

A

Increase in national output within an economy in a year

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2
Q

Actual growth

A

Increase in real GDP via more efficient resource allocation

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3
Q

Potential growth

A

Increase in resources

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4
Q

Economic development

A

Sustainable increase in standards of living (income per capita, health, education, environment)

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5
Q

PPF

A

Maximum attainable output of a country given its limited resources and tech

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6
Q

Opportunity cost

A

What one needs to sacrifice when an economic decision takes place

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7
Q

Pareto optimal

A

We cannot make one better off without making the other worse off, PPC (opportunity cost, scarcity)

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8
Q

Demand

A

Quantity that consumers are willing and able to buy at a given price, CP

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9
Q

Law of Demand

A

Fall in price good X, increase in Qd for good X

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10
Q

Theory of diminishing marginal utility

A

The more you buy, the more your utility decreases

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11
Q

Substitute

A

Good/service as an alternative to another good (coffee, tea)

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12
Q

Complementary good

A

Good/service that is bought with another good but paid separately (tennis racket, tennis balls)

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13
Q

Inferior good

A

When income increases, demand decreases (fast food)

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14
Q

Normal good

A

When income increases, demand increases (luxury cars)

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15
Q

Market

A

Where buyers and sellers meet

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16
Q

Supply

A

Q that producers are willing/able to sell at a given price

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17
Q

Law of Supply

A

Price increases, Qs increases

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18
Q

Law of Diminishing Marginal Returns

A

Increase in a resource unit (labor/capital) eventually leads to a decrease in marginal product

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19
Q

Competitive supply

A

Several producers produce same/similar goods hence they are incentivised to offer the most competitive price and differentiate (phones)

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20
Q

Joint Supply

A

When two different goods are produced simultaneously. Price of Good X can affect supply of Good Y. (meat, leather)

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21
Q

Free market

A
  • Decisions made by producers and consumers
  • Decisions driven by market forces; price competition, demand, supply
  • Private property
  • Profit motive
  • Got only ensure property and contract rights are ensured to regulate competition
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22
Q

Planned/Command Economy

A
  • Everything is controlled by the gvt
  • Resources allocated by the state
  • No private ownership
  • Who/What/How to produce decided by get
  • Social welfare over profit
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23
Q

Mixed economy

A
  • Resources allocated by market forces and gvt
  • Gvt can intervene to fix market failure and achieve social goals
  • Some private ownership
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24
Q

Rationing function of price

A
  • Allocates resources
  • When demand > supply, P increases, limiting consumption of those unwilling to pay a higher price
  • Viceversa if a surplus occurs
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25
Q

Signaling function of price

A
  • Convey info about market’s conditions and value of goods and services
  • Prices are high -> shortage of good -> resources should be diverted into that good
  • Viceversa for lower prices/oversupply
26
Q

Incentive function of price

A
  • Price determines consumer/producer behaviour
  • When prices are high, firms want to produce more, consumers buy less and viceversa
27
Q

Consumer surplus

A

Difference between max amount a consumer is willing / able to pay for a good vs what they actually pay

28
Q

Producer surplus

A

Difference between actual price received for a good vs price they were willing to accept

29
Q

Marginal cost

A

Additional cost of a firm to produce 1 extra unit of output
Supply

30
Q

Marginal Benefit

A

Additional benefit received by a consumer from consuming an extra unit of a good. Max price a consumer is willing / able to pay for an extra unit
Demand

31
Q

Transitional economy

A

An economy transitioning from planned to free market through
- Deregulation
- Privatization
- MArket liberalisation

32
Q

Consumer rationality

A

When consumers makes choices based on taste and preference

33
Q

Completeness assumption

A

Consumers know their preferences and can rank them

34
Q

Transitivity assumption

A

If a consumer prefers good A over B, and B over C they will automatically prefer good A over C. Their taste is consistent

35
Q

Non satiation assumption

A

Consumers will always prefer more of a good rather than less

36
Q

Bias

A

Systematic error in thinking and decision making

37
Q

Rule of thumb

A
  • Simple / easy to apply decision making shortcuts
  • Thinking that higher price = better quality
38
Q

Framing bias

A
  • Way in which info is presented can affect one’s perception
  • 50% chance of doubling initial investment rather than 50% chance of losing investment money
39
Q

Anchoring bias

A
  • Relying too heavily on the initial info provided
  • Buying a 50$ shirt rather than 100$ one even though both are expensive
40
Q

Availability bias

A
  • Giving more weight to easily rememberable / available info
  • Purchasing product advertised on a billboard
41
Q

Bounded rationality

A
  • Herbert Simon
  • Humans don’t have unlimited capacity for processing information
  • Searching for information to maximise utility is costly
  • Instead of maximising, consumers will satisfice (satisfactory outcome > best outcome)
42
Q

Bounded self control

A
  • People exercise self control to certain limits
  • Consumers spend too much / save too little
43
Q

Bounded selfishness

A
  • People are selfish within limits
  • May want to contribute to a public good rather than maximising their own utility, sacrificing personal welfare
44
Q

Nudge theory

A
  • Behavioral economics
  • Individuals can be easily influenced by environment and choice presentation into making decisions via subtle changes called ‘nudges’
  • No financial incentives, sanctions, choice limitations
45
Q

Default choice

A

Choices made by default
- Organ donation in Italy, France, UK are default

46
Q

Restricted choice

A

Choices limited by gvt or authority
- Speed limits, voting/smoking age

47
Q

Mandated choice

A

Compulsory choice between alternatives
- Deciding to donate organs, deciding to make a living will

48
Q

PED

A

Measure of responsiveness of Qd for a good in respect to a change in price
- Always negative due to law of Demand

49
Q

Tax incidence

A

Who ends up paying a tax (tax shifting). In the case of an indirect tax consumers may pay the tax wholly or partially

50
Q

Flat rate/specific tax

A

Same amount of tax per each unit sold
- Usually per litre or kilo

51
Q

Ad valorem tax

A

Indirect tax expressed as a percentage of price of a good

52
Q

Primary commodities

A

Necessities w no substitutes, PED inelastic

53
Q

YED

A

Measure of responsiveness of demand of a good with respect to a change in consumer income

54
Q

PES

A

Measure of responsiveness of Qs with respect to a change in price
- Always positive due to law of supply

55
Q

Maximum price

A

When gvt sets a price below equilibrium, only prices below equilibrium are allowed not above. Increases availability and equality.

56
Q

Minimum price

A

When gvt sets a price above equilibrium, only prices above are allowed.
Protects and aids certain suppliers.

57
Q

Indirect tax

A

Tax imposed on spending to buy goods/services
Can be excise or on all/most goods VAT/IVA

58
Q

Excise tax

A

Indirect tax imposed on particular goods (cigs, alc, petrol). Can be advalorem or specific.

59
Q

Subsidy

A

Assistance by gvt to individuals or group of individuals to increase production or consumption of a good

60
Q

Merit goods

A

Goods/services which are often undervalued and under consumed by consumers with positive externalities which are ought to be subsidised
(education, health, renewable energy)

Economics (5 decks)

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