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Economics RCN > Definitions > Flashcards

Definitions Flashcards

1
Q

Opportunity Cost

A

The loss of other alternatives when one option is chosen

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2
Q

Factors of Production

A
  1. Land
  2. Labour
  3. Capital
  4. Enterprise
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3
Q

Land

A

Everything in nature that is ready-made

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4
Q

Labour

A

Human resources, the ability to put something into production

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5
Q

Capital

A

Anything that is man-made

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6
Q

Enterprise

A

Organiser of production, to bring the factors of production together and take the risks.

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7
Q

Law of Demand

A

If a price of a good or service increases, the consumer demand for that good or service will decrease.

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8
Q

Demand

A

The want, need or desire for a product backed by the money to purchase it. Always based on willingness and ability to pay for a product, not merely the want or need for the product.

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9
Q

Marginal Utility

A

The increase in satisfaction a consumer derives from the use of consumption of one more unit of a good or service over a particular time period.

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10
Q

Non-price Determinants of Demand

A
  1. Income and number of buyers
  2. Preference of consumers
  3. Alternatives
  4. Expectations
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11
Q

Ceteris Paribus

A

‘Other things being equal’. Allows us to isolate the relationship between two variables, and assumes that other factors remain unchanged.

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12
Q

Entrepreneurship

A

The capacity and willingness to develop, organise and manage a business venture along with any of its risks in order to make a profit.

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13
Q

Free Good

A

Goods which are abundant and thus not regarded as scarce economic goods e.g air and water

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14
Q

Wages

A

The price paid to labour for its contribution to the process of production.

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15
Q

Supply

A

The total amount of a specific good made available for sale by firms.

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16
Q

Non-price determinants of supply

A
  1. Number of sellers
  2. Price of other products
  3. Taxes and subsidies
  4. Technology
  5. Expectations and resources
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17
Q

Rationality

A

We pick the best decision (most useful or beneficial) with the lowest cost

18
Q

Bonded rationality

A

The understanding that we have limited knowledge and we have to make rational decisions based on this

19
Q

Consumer surplus

A

When a consumer pays less for something that they think is worth more e.g if I buy an apple for £20, but I would have paid £30, then the consumer surplus is £10.
Like profit without companies

20
Q

Producer surplus

A

The excess of actual earnings that a producer makes from a given quantity or output, over and above the amount the producer would be prepared to accept for that output.

21
Q

Cross elasticity of Demand

A

The responsiveness of quantity demanded to a change in price.
Also percentage change of quantity/percentage change of price

22
Q

Substitute good

A

Goods which may replace each other in use/consumption.

23
Q

Complementary good

A

A good’s demand that increases when the price of another good is decreased. Products that are in joint supply.

24
Q

Examples of complementary goods

A
  1. DVD Player and a DVD
  2. Beef and Potatoes
  3. Bread and Butter
25
Q

Examples of substitute goods

A
  1. Margerine for butter
  2. Soy milk for dairy milk
  3. Pepsi for Coca-Cola
26
Q

What is YED?

A

Income elasticity of demand: the responsiveness of demand for a particular good to changes in consumer income.

27
Q

Equation for YED

A

Percentage change in quantity demanded/percentage change in income

28
Q

What is the primary sector?

A

Extraction sector - involves taking raw materials.

- Can be renewable or non-renewable resources.

29
Q

Examples of primary sector products

A

Fish, wood, wind power, coal, oil (any raw material)

30
Q

What is the secondary sector?

A

Manufacturing sector - combining raw materials to produce a higher value finished product.

31
Q

Examples of secondary sector products

A

Small workshops producing pots, factories producing steel/chemicals/plastic

32
Q

What is the tertiary sector?

A

Service sector - retail of the manufactured goods and providing services. In a developed economy, the service sector is the biggest component.

33
Q

What is price elasticity of supply?

A

The responsiveness of quantity supplied to a change in price.

34
Q

What are indirect taxes?

A

Taxes that are imposed on producers (suppliers) by the government.

35
Q

Examples of goods that are indirectly taxed

A

Cigarettes, alcohol, fuel

36
Q

Why would the government apply an indirect tax?

A
  1. If the government needs revenue for something (maybe to provide services)
  2. If the government don’t want consumers to buy that product so they tax it.
37
Q

What is a stakeholder?

A

A party that has a particular interest in a company and can either affect or be affected by the business.

38
Q

What does it mean when we say incidence of a tax?

A

The incidence of a tax indicates to the extent to which someone is made worse off by the tax e.g if the government puts an extra tax of £1.00 on each cigarette packet, the legal incidence is on the cigarette smoker.

39
Q

What is a deadweight loss?

A

A deficiency caused by inefficient allocation of resources/a cost to society created by market inefficiency.

40
Q

What is a subsidy?

A

An indirect tax - money supplied by the government to keep the price of a product or commodity low. Lowers the supply curve vertically (increases real life supply)

41
Q

What is a specific tax?

A

Defined as a fixed amount for each unit of a good or service sold. Shifts the supply curve up by the full amount of the tax.

42
Q

What is an ad valorem tax?

A

A percentage tax based on the value of the product that is being taxed. VAT is an example. Shifts supply curve up by a certain percentage.

Economics RCN (4 decks)

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