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Economics Theme 1 > Definitions > Flashcards

Definitions Flashcards

1
Q

Ad valorem tax

A

A sales tax that is set a percentage of the price

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2
Q

Adverse selection

A

A situation in which a person at risk is more likely to take out insurance

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3
Q

Allocative efficiency

A

Achieved when society is producing an appropriate bundle of goods relative to consumer preferences

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4
Q

Asymmetric information

A

A situation in which some participants in a market have better information about market conditions than others

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5
Q

Bounded rationality

A

A situation in which peoples ability to take rational decisions is limited by a lack of information that is available, perhaps because of weakness at computation

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6
Q

Capital goods

A

Goods used as part of the production process, such as machinery or factories

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7
Q

Cartel

A

An agreement between firms in a market on price and output with intention of maximising their joint profits

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8
Q

Ceteris paribus

A

Latin phrase meaning ‘other things being equal’; it is used when focusing on changes in one variable wile holding other influences constant

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9
Q

Command economy

A

An economy in which decisions on resource allocation are guided by state

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10
Q

Competitive market

A

A market in which individual firms cannot influence the price of the goods or service they are selling, because of competition from other firms

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11
Q

Complements

A

Two goods are said to be complements if an increase in the price of one good causes the demand for the other good to fall

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12
Q

Consumer goods

A

Goods produced for present use (consumption)

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13
Q

Consumer surplus

A

The value that consumers gain from consuming a good or service over and above the price paid

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14
Q

Consumption externality

A

An externality that affects the consumption side of a market, which may be either positive or negative

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15
Q

Cross elasticity of demand (XED)

A

A measure of the sensitivity of quantity demanded of a good or service to a change in the price of another good or service

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16
Q

Demand

A

The quantity of a good or service that consumers are willing and able to buy at any given price in a given period of time

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17
Q

Diminishing marginal utility

A

Describes the situation where an individual gains less additional utility from consuming a product, the more of it is consumed

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18
Q

Division of labour

A

A process whereby the production procedure is broken down into a sequence of stages, and workers are assigned to a particular stage

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19
Q

Elastic

A

A term used when the price elasticity of demand is greater than 1 but less than infinity

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20
Q

Elasticity

A

A measure of the sensitivity of one variable to changes in another variable

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21
Q

External benefit

A

The benefit that society receives over and above those that accure to the individual engaged in an economic activity

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22
Q

Externality

A

A cost or a benefit that is external to a market transaction, and is thus not reflected in market prices, which may effect third parties not involved in the transaction

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23
Q

Factors of production

A

Resources used in the production process; inputs into production, particularly including labour, capital, land and enterprise

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24
Q

Firm

A

An organisation that brings together factors of production in order to produce output

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25
Q

Free market economy

A

An economy in which market forces are allowed to guide the allocation of resources

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26
Q

Free-rider Problem

A

When an individual cannot be excluded from consuming a good, and thus has no incentive to pay for it’s provision

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27
Q

Government failure

A

A misallocation of resources arising from government intervention to correct a market failure that causes a less efficient allocation of resources and imposes a welfare loss on society

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28
Q

Gross domestic product (GDP)

A

A measure of the economic activity carried out in an economy over a period of time

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29
Q

Habitual behaviour

A

When consumers persist in acting in a particular way even when conditions have changed

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30
Q

Herding

A

Where people take decisions based on the actions of others, rather than on a rational evaluation of the situation that they face

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31
Q

Incidence of a tax

A

The way in which the burden of paying a sales tax is divided between buyers and sellers

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32
Q

Income elasticity of demand (YED)

A

A measure of the sensitivity of quantity demanded to a change in consumer incomes

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33
Q

Indirect tax

A

A tax levied on expenditure on goods and services
(As opposed to a direct tax which is charged directly to an individual based on a component of income)

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34
Q

Inelastic

A

A term used the price elasticity of demand is less than 1 but greater than zero

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35
Q

Inferior goods

A

Where the quantity demanded decreases in response to an increase in consumer incomes

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36
Q

Internalising an externality

A

An attempt to deal with an externality by bringing an external cost or benefit into the price system

37
Q

Law of demand

A

A law that states that there is an inverse relationship between quantity demanded and the price of a good or service, ceteris paribus

38
Q

Luxury goods

A

Which the income elasticity of demand is positive, and greater than 1, such that as income rises, consumers spend proportionately more on the good

39
Q

Macroeconomics

A

The study if the interrelationships between economic variables at ab aggregate level

40
Q

Marginal analysis

A

An approach to economic decision making based on considering the additional benefits and costs of a change in behaviour

41
Q

Marginal cost

A

The cost of producing an additional unit of output

42
Q

Marginal social benefit (MSB)

A

The additional benefit that society gains from consuming an extra unit of good

43
Q

Marginal social cost

A

The cost to society of producing an extra unit of a good

44
Q

Market

A

A set or arrangements that allow transactions to take place

45
Q

Market-based policy

A

An approach to tackling market failure by using the market mechanism

46
Q

Market equilibrium

A

A situation that occurs in a market when the price is such that the quantity demanded by consumers is exactly balanced by the quantity supplied by firms

47
Q

Market failure

A

A situation in which the free market equilibrium does not lead to a socially optimal allocation of resources, such that too much or too little of a good is being produced and/or consumed

48
Q

Microeconomics

A

The study of of economic decisions taken by individual economic agents, including households and firms

49
Q

Mixed economy

A

An economy in which resources are allocated partly though price signals and partly on the basis of intervention by the state

50
Q

Model

A

A simplified representation of reality used to provide insight into economic decisions and events

51
Q

Moral hazard

A

A situation in which a person who has taken out insurance is prone to taking more risk

52
Q

Necessity

A

A good for which the income elasticity of demand is positive, and less than 1, such that as income rises, consumers spend proportionately less on the good

53
Q

NIMBY (not in my back yard)

A

A syndrome under which people are happy to support the construction of an unsightly or unsocial facility, so long as it is not in their back yard

54
Q

Non-excludability

A

A situation in which it is not possible to provide a product to one person without allowing others to consume it as well

55
Q

Non-renewable resources

A

Natural resources that once used cannot be replenished, such as coal or oil

56
Q

Non-rivaly

A

A situation in which one person’s consumption of a good does not prevent others from consuming it as well

57
Q

Normal good

A

One where the quantity demanded increases in response to an increase in consumer incomes

58
Q

Normative statement

A

A statement that involves a value judgement about what ought to be

59
Q

Nudge theory

A

Analysis that suggests that peoples behaviour can be influenced by making desirable decisions easy to make

60
Q

Opportunity cost

A

In decision-making, the value of the next best alternative forgone

61
Q

Perfectly elastic supply

A

A situation in which firms will supply any quantity of a good at the going price: elasticity of supply is infinite

62
Q

Perfectly inelastic supply

A

A situation in which firms can supply only a fixed quantity, so cannot increase or decrease the amount available: elasticity of supply is zero

63
Q

‘Polluter pays’ principle

A

An argument that a firm causing pollution should be charged the full external cost that they inflict on society

64
Q

Positive statement

A

A statement about what is

65
Q

Potential economic growth

A

An expansion in the productive capacity of the economy

66
Q

Price elasticity of demand (PED)

A

A measure of the sensitivity of quantity demanded to a change in the price of a good or service

67
Q

Price elasticity of supply (PES)

A

A measure of the sensitivity of quantity supplied of a good or service to a change in the price of that good or service

68
Q

Price mechanism

A

A process by which resource allocation is influenced through rationing, incentives and signalling

69
Q

Price signal

A

Where the price of a good carries information to producers or consumers that guides the market towards equilibrium and assist in resource allocation

70
Q

Private benefit

A

The benefit from an individual’s economic activity that accrue to that individual

71
Q

Private cost

A

A cost incurred by an individual as part of its production or other economic activity

72
Q

Private good

A

A good that, once consumed by one person, cannot be consumed by somebody else; such a good has excludability and is ribalrous

73
Q

Producer surplus

A

The difference between the price received by firms for a good or service and the price as which they would have been prepared to supply that good or service

74
Q

Production externality

A

An externality that affects the production side of a market, which may be either be positive or negative

75
Q

Production possibility frontier (PPF)

A

A curve showing the maximum combinations of goods or services that can be produced in a given period with available resources

76
Q

Prohibition

A

An attempt to prevent the consumption of a good by declaring it illegal

77
Q

Public good

A

A good that is non-exclusive and non-rivalrous in consumption - consumers cannot be excluded from consuming the good, and consumption by one person does not affect the amount of the good available for others to consume

78
Q

Regulation

A

Intervention to tackle market failure by direct action to command and control behaviour

79
Q

Renewable resources

A

Natural resources that can be replenished, such as forests that can be replanted, or solar energy that does not get used up

80
Q

Scarcity

A

A situation that arises when people have unlimited wants in the face of limited resources

81
Q

Social benefit

A

The sum of private benefits and external benefits

82
Q

Social cost

A

The sum of private and external costs

83
Q

Specific tax

A

A slaws tac that is set at a constant amount per unit of sales

84
Q

Subsidy

A

A grant given by the government to producers to encourage production of a good or service

85
Q

Substitutes

A

Two goods are said to be substitutes if the demand for one food is likely to rise if the price of the other good rises

86
Q

Supply

A

The quantity of a good or service that producers are willing and able to sell at any given period of time

87
Q

Trade-able pollution permit system

A

A system for controlling pollution based on a market for permits that allow firms to pollute up to a limit

88
Q

Unitary elastic

A

A term used when the price elasticity of demand is equal to 1

89
Q

Value judgement

A

A statement based on your opinion or beliefs, rather than on facts

Economics Theme 1 (22 decks)

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