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Economics theme 1 > Definitions > Flashcards

Definitions Flashcards

1
Q

Positive statement

A

is an assertion of fact
can be proved or disproved
value free
(look for words such as ‘will’ or ‘has’ or ‘is’)

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2
Q

Normative statement

A

is a value judgement
can be tested as true or false
contains a value judgement
(look for words such as ‘should’ and if the statement is suggesting one action is better than another)

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3
Q

Price mechanism

A

interaction of supply and demand
Invisible hand
allocates resources according to market signals in prices and quantities

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4
Q

Producer surplus

A

the difference between the price producers are willing to supply a good for and the market price

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5
Q

Consumer surplus

A

the difference between the price a consumer is willing to pay for a good and the market price

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6
Q

Price elasticity of demand

A

% change in quantity demanded/% change in price
responsiveness of demand to a change in price
-ve for normal good
+ve for giffen good

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7
Q

Income of elasticity of demand

A

%change in quantity demanded/%change in income
Responsiveness of demand to a change in income
+ve for normal good
-ve for inferior good

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8
Q

Cross elasticity of demand

A

%change in demand good A /%change in price good B

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9
Q

Price elasticity of supply

A

% change in supplied / % change in price

responsiveness of supply to a change in price

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10
Q

Public good

A 
Non-rivalry
Non-excludability 
Characterised by free rider problem
Under provided if left to market
Hard to attach monetary value
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11
Q

National minimum wage

A

Legal minimum firms can pay to workers

Extends supply contracts demand

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12
Q

Asymmetric information

A

Imbalance of information between producer and consumer
A form of market failure
Misallocation of resources

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13
Q

Opportunity cost

A

the value of the next best alternative that is foregone

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14
Q

External benefits

A

Benefits ignored by the price mechanism

Positive third party effects

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15
Q

External costs

A

Costs ignored by the price mechanism

Negative third party effects (ad valorem tax on diagram)

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16
Q

Mixed economy

A

Resources are allocated by the market (price mechanism) and partly by the state (government)

17
Q

Product possibility frontier

A

The maximum output combinations of two goods an economy can produce when all its resources are fully and efficiently employed

18
Q

Normal good

A

A good that when price rises demand decreases or contracts (and vice versa) and as income rises demand rises (and vice versa)

19
Q

Giffen good

A

A good that when price rises demand rises (vice versa), ostentatious goods or goods with snob value, caviar

20
Q

Inferior good

A

A good that when income rises demand falls (vice versa)

21
Q

Minimum price floor

A

a minimum price below which price can not fall

22
Q

(Im)Mobility of labour

A

The (in)ability of labour to move from one place to another

Typically affected by asymmetric knowledge of job market

23
Q

Specific or per unit tax

A

An indirect tax put on the sales of a good that is a fixed amount (parallel shift)

24
Q

Ad valorem (by value) tax

A

An indirect tax put on the sales of a good expressed as a % (VAT) pivot/non-parallel shift

25
Q

Buffer stock scheme

A

When government buys up stock to prevent fluctuations in supply
Common Agricultural Policy

26
Q

Marginal social benefit (MSB) Marginal social cost (MSC)

A

The extra benefit to society over and above that produced by the market
The extra cost to society over and above that produced by the market

27
Q

Command or planned economy

A

Where all the means of production are owned by the state

The state provide all the goods and services

28
Q

Factors of production (resources)

A

Land
Labour
Capital
Enterprise

29
Q

Returns to factors of production

A

Rent
Wages
Interest
Profit or loss

30
Q

Equilibrium

A

Where supply and demand in a market are equal

The market is stable

31
Q

Division of labour

A

Production is broken down into different tasks and labour is allocated to different tasks
Leads to greater productivity
Adam Smith’s pin factory

32
Q

Subsidy

A

A government grant that makes a product cheaper
Good is underproduced by the market
MSB>MPB

33
Q

Tradable permits

A

Licences that are tradable to, for example, allow firms to produce pollution

34
Q

Scarcity

A

limited supply or finite amount so unable to meet human wants.

Economics theme 1 (18 decks)

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