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Economics AS > Definitions > Flashcards

Definitions Flashcards

1
Q

What are economic goods?

A

Resources which are scarce

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2
Q

What are free goods?

A

Resources which aren’t scarce

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3
Q

What is opportunity cost?

A

Value of the next best alternative forgone

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4
Q

What is a renewable good/service?

A

Can be exploited over & over again, stock level maintained over time

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5
Q

What is a non-renewable good/service?

A

Once exploited can’t be replaced, stock level decreases over time

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6
Q

What is a sustainable resource?

A

A renewable resource economically exploited in a way that won’t diminish

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7
Q

What is scarcity?

A

Insufficient resources to provide for everyone’s wants

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8
Q

What is labour?

A

Workforce of an economy, each worker has unique set of characteristics

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9
Q

What is capital?

A

Manufactured stock of tools, machines etc. used in the production of goods/services

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10
Q

What is a production possibility frontier (PPF)?

A

Maximum potential output for 2 goods or services an economy can achieve when all resources are allocation efficiently

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11
Q

What is economic growth?

A

Where a country increases is productive potential/ GDP

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12
Q

What is specialisation?

A

System of organisation:

- concentrate on producing certain goods & trading surplus with others

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13
Q

What is division of labour?

A

Specialisation by individual workers

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14
Q

What is a free market economy?

A

All resources allocated by price mechanism, no government intervention

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15
Q

What is a mixed economy?

A

Some resources allocated by price mechanism, some by government

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16
Q

What is the substitution effect?

A

As price of good falls, it becomes cheaper relative to its substitutes so some consumers switch to cheaper goods

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17
Q

What is the income effect?

A

Price of good falls, real income of consumer my rise

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18
Q

What is elastic demand?

A

Responsiveness of demand > change in price

- PED>1

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19
Q

What is inelastic demand?

A

Responsiveness of demand

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20
Q

What is unitary elasticity?

A

Responsiveness of demand is equal to a change in price

- PED = 1

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21
Q

What is price elasticity of demand?

A

Responsiveness in the demand for a good due to a change in price
- (%changeD/%changeP)

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22
Q

What is income elasticity of demand?

A

Responsiveness of demand for a good or service to a change in real income
- (%changeD/%changeY)

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23
Q

What is real income?

A

Spending power of money income

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24
Q

What is normal good?

A

Where demand increases when income increases

- +ve

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25
Q

What is an inferior good?

A

Where demand falls when income increases

- -ve

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26
Q

What is perfectly inelastic demand?

A

Quantity of demand doesn’t change at all as price changes

- PED = 0

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27
Q

What is perfectly elastic demand?

A

Where buyers prepared to purchase all they an obtain at a given price but none at all at a higher price
- PED = infinity

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28
Q

What is cross elasticity demand?

A

Responsiveness of demand for a good B to a change in price of good A
- (%changeDB/%changeDA)

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29
Q

What is a complement?

A

Good which is purchased with other goods to satisfy a want

  • joint demand
  • -ve
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30
Q

What is a substiutute?

A

Good which can be replaced by another to satisfy a want

  • competitive demand
  • +ve
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31
Q

What is price elasticity of supply?

A

Responsiveness of the supply of a good to a change in price

%changeQS/%changeP

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32
Q

What is elastic supply?

A

% change in supply > % change in price

- PES>1

33
Q

What is inelastic supply?

A

% change in supply

34
Q

What is unit elastic supply?

A

% change in supply = % change in price

- PES = 1

35
Q

What is perfectly elastic supply?

A

PES is infinite (horizontal curve)

36
Q

What is perfectly inelastic supply?

A

Change in price has no effect on quantity supplies

- PES = 0 (vertical curve)

37
Q

What is consumer surplus?

A

Extra money consumers prepared to pay for a good/service over and above what they actually pay

38
Q

What is producer surplus?

A

Extra amount of money paid to producers above what they’re willing to accept to supply a goods/service

39
Q

What is the price mechanism?

A

Principal way of allocating resources in a market economy

40
Q

What is a market economy?

A

Where buyers & sellers come into contact for purpose of exchange

41
Q

What is a direct tax?

A

Levied directly on an individual or organisation

42
Q

What is an indirect tax?

A

Levied on purchase of goods & services, represents tax on expenditure

43
Q

What is a tax?

A

Compulsory charge made by the government

44
Q

What is a subsidy?

A

Grand provided by the government to increase output by a firm and lower production costs

45
Q

What is ad valorem tax?

A

Tax levied as a % of the value of the good e.g VAT

46
Q

What is specific/unit tax?

A

Tax levied on volume e.g excise duties

47
Q

What is the incidence of tax?

A

Tax burden on the tax-payer

48
Q

What is derived demand?

A

When demand for 1 good is the result of or derived from the demand for another good

49
Q

What is composite demand?

A

When a good is demanded for 2 or more distinct uses

50
Q

What is joint supply?

A

When 2 or more complements are produced together

- change in supply of 1 good will change supply of other goods with which it is in joint supply in

51
Q

What are unit labour costs?

A

Costs of employing labour per unit of output or production

total wage costs / total volume of goods made

52
Q

What is the National Minimum Wage (NMW)?

A

Legal minimum hourly rate of pay an employer can pay it’s workers (£6.70 for adults, £3.87 for 16-17yr olds, £5.30 for 18-20yr olds)

53
Q

What is market failure?

A

Where resources are inefficiently allocation by the price mechanism

54
Q

What are externalities (spillovers)?

A

Third party effects ignored by the price mechanism

- costs or benefits external to an exchange

55
Q

What are external costs?

A

Negative externalities

- net social cost > net private cost

56
Q

What are external benefits?

A

Positive externalities

- net social benefit > net private benefit

57
Q

What are private costs/benefits?

A

Cost/benefit of an activity to an individual economic unit

58
Q

What are social costs/benefits?

A

Cost/benefit of an activity to society as a whole

59
Q

What are public goods?

A
  • Non rivalry: consumption by 1 person doesn’t reduce amount available for consumption by another
  • Non-excludability: once provided, no person can be excluded from benefiting (or suffering e.g pollution)
60
Q

What is a merit good?

A

Under provided by the market mechanism

e.g health, education, insurance

61
Q

What are demerit goods?

A

Over provided by the market mechanism

e.g drugs, alcohol, tobacco

62
Q

What is a private good?

A

Consumption by 1 person results in good not being available for consumption by another

63
Q

What is the free rider problem?

A

Person/ organisation which receives benefits that others have paid for without contribution themselves

64
Q

What is a quasi-public good?

A

May not possess perfectly the characteristics of being non-excludable but which is non-rivalry

65
Q

What is the principal-agent problem?

A

Goals of principals (those to gain/lose from decision on behalf of principals)
e.g shareholders, managers, parents

66
Q

What is symmetric information?

A

Where buyers & sellers have access to the game information

67
Q

What is asymmetric information?

A

Where buyers & sellers have different amounts of information

68
Q

What is mobility of labour?

A

Ability of workers to change from one job to another

69
Q

What is geographical immobility?

A

Obstacles which prevent labour moving from 1 area to another to find work

70
Q

What is occupational immobility?

A

Obstacles which prevent labour from changing their type of occupation to find work

71
Q

What is inequality?

A

When the market mechanism creates unequal distribution of income & therefore some people in society cannot afford the basic necessities

72
Q

What is carbon offsetting?

A

Firms pay for removal of carbon emissions elsewhere

73
Q

What are tradable pollution permits (C-emissions trading)?

A

Firms can buy & sell allowances between them to curb CO2 emissions

74
Q

What is minimum pricing?

A

Where the government aims to stabilise commodity prices & producer incomes through guaranteed minimum price schemes

75
Q

What are buffer stock schemes?

A

Government agency scheme aiming to reduce price fluctuations of a commodity and stabilise producer incomes

76
Q

What is government failure?

A

Occurs when government intervention leads to a net welfare loss compared to the free market solution

77
Q

What is the public choice theory?

A

Theories about how & why public spending + taxation decisions are made
- can be less serious than market failure

78
Q

What is a positive statement?

A

Tested to be true or false

79
Q

What is a normative statement?

A

Concerned with value judgements

Economics AS (2 decks)

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