definitions theme 1 Flashcards
who are economic agents
consumers
producers
shareholders
employees
the government?
what are capital goods
goods produced in order to aid production of consumer goods in the future
what’re complementary goods
negative XED
what’re consumer goods
goods bought/demanded by households and individuals
what is an ad valorem tax
an indirect tax on a good where the value of the tax is dependent on the value of the good
what is consumer surplus
the difference between the price consumers are willing to pay and the price they actually pay
what is XED
responsiveness in demand for good A to a change in the price of good B
%change in QD of A
/
%change in P of B
what is demand
the quantity of a good/service that consumers are able and willing to buy at a given price at a given moment of time
what is diminishing marginal utility
the extra benefit gained from consumption of a good generally declines as extra units are consumed; explains the downward D slope
what is division of labour
when labour becomes specialised during the production process so do a specific task in cooperation with other workers
what is efficiency
when resources are allocated optimally, so every consumer benefits and waste is minimised
what is excess demand
when price is set too low so demand > supply
what is excess supply
when the price is set too high so supply > demand
what’re external costs/benefits
the cost/benefit to a 3rd party not involved in the economic activity; the difference between social cost/benefit and private cost/benefit
what’re externalities
the cost or benefit a 3rd party receives from an economic transaction outside of the market mechanism
what is the free market
an economy where the market mechanism allocated resources so consumers and producers make decisions about what is produced, how to produce them and for whom
what is government failure
when government intervention leads to a net welfare loss in society
what is incidence of tax
the tax burden on the taxpayer
what is YED
responsiveness of demand to a change in income (Y)
%change in QD
/
%change in Y
what is an indirect tax
taxes on expenditure which increases production costs and lead to a fall in supply
what’re inferior goods
YED <0; goods which see a fall in demand as income rises, vice versa
what’re luxury goods
YED>1; an increase in incomes causes an even bigger increase in demand
what is a veblen good
a good for which it’s demand increases with its price
what is the market failure
when the free market fails to allocate recourses to the best interest of society, leading to inefficient allocation of scarce resources
what’re market forces
forces in free markets which act to reduce prices when there is excess supply and increase when excess demand
what is a mixed economy
both the free market mechanism and the government allocate resources
what is an example of a free market economy
Singapore
what is an example of a mixed market economy
the UK
what is an example of a command economy
NK
what is a normal good
YED>0; demand increases as income increases
what is a normative statement
subjective statements based on value judgements; cannot be falsified
what is opportunity cost
the value of the next best alternative forgone
what is a perfectly price elastic good
PED/PES=Infinity; quantity demanded/supplied falls to 0 when price changes
what is a perfectly price inelastic good
PED/PES = 0; quantity demanded/supplied doesn’t change when price changes
what is a positive statement
objective statements which can be tested with factual evidence to be proven or disproven
what is a PPF
shows the maximum productive potential of an economy, using a combination of 2 goods or services, when resources are fully efficiently employed
what is PED
the responsiveness of demand to a change in price
%changeQD
/
%changeP
what is PES
the responsiveness of supply to a change in price
%changeQD
/
%changeP
what’re private goods
goods that are rivalrous and excludable
what is producer surplus
the difference between the price the producer is willing to charge and the price they actually charge
what’re the 2 functions of regulation
address market failure
promote competition between firms
what is a relatively price elastic good
PED/PES>1; demand/supply is relatively responsive to a change in price
what is a relatively price inelastic good
PED/PES<1; demand/supply is relatively unresponsive to a change in price
what is scarcity
the shortage of resources in relation to the quantity demanded by humans
what is the social optimum position
where social costs = social benefits; the amount which should be produced/consumed in order to maximise social welfare
what is a specific tax
a tax on a good where the value of the tax is dependant on the quantity that is bought
what’re substitutes
Positive XED; if good B becomes more expensive, demand for good A rises
what is utility
the satisfaction of consuming a good
what’re trade pollution permits
licenses allowing businesses to pollute up to a certain amount; quantity and details controlled by the government and can be sold/bought by businesses meaning there may be incentive to reduce the amount they pollute
what is a unitary price elastic good
PED/PES=1; a change in price leads to a change in output by the same proportion
