Definitions - Vital

Question 0

Economic activity

Answer 0

The process of combining resources to add value and produce goods and services demanded by consumers

Question 1

The economic problem

Answer 1

Unlimited wants but only limited resources to match these, leading to scarcity and the need to make choices about what is produced, how it is produced and for whom.

Question 2

Specialisation

Answer 2

The concentration of a worker, firm, region or country on a narrow range of goods and services.

Question 3

Opportunity cost

Answer 3

The value of the next best alternative which foregone when a decision is made.

Question 4

Production possibility curve

Answer 4

Shows the maximum output combinations of two goods or services that am economy can produce with all resources fully utilised.

Question 5

Demand

Answer 5

The quantity of a good or service that consumers are willing and able to to buy at a given market price over a specified period of time.

Question 6

Consumer surplus

Answer 6

The extra amount that consumers are willing to pay above the market price actually paid.

Question 7

Supply

Answer 7

The quantity of a good or service that producers are willing and able to supply at a given market price over a specified period of time.

Question 8

Producer surplus

Answer 8

The difference between the price a producer is willing to accept and the market price actually paid.

Question 9

Market equilibrium

Answer 9

Occurs where demand equals supply and the market clears (I.e there is no shortage or surplus)

Question 10

Price elasticity of demand (PED)

Answer 10

The responsiveness of the quantity demanded of a product relative to a change in price.

Question 11

Cross elasticity of demand (XED)

Answer 11

The responsiveness of demand for one product relative to a change in the price of another product.

Question 12

Income elasticity of demand (YED)

Answer 12

The responsiveness of demand to a change in consumers disposable income.

Question 13

Price elasticity in supply (PES)

Answer 13

The responsiveness of the quantity supplied relative to a change in price of a good or service.

Question 14

Allocative efficiency

Answer 14

Is achieved where supply equals demand and consumer satisfaction is maximised.

Question 15

Market failure

Answer 15

Occurs when a market fails to achieve allocative efficiency. Is evident when the market equilibrium in a market differs from the social optimum.

Question 16

Externalities

Answer 16

Spillover effects on third parties arising from production or consumption

Question 17

Information failure

Answer 17

Occurs when a lack of information causes consumers and/or producers to make decisions that don’t maximise their own welfare

Question 18

Merit good

Answer 18

A good that is better for consumers than they actually realise

Question 19

Demerit good

Answer 19

A good that is worse for consumers than they actually realise.

Question 20

Public good

Answer 20

A good that is both non rival and non-excludable in consumption

Question 21

Non- excludability

Answer 21

A consumer cannot be prevented from consuming the good

Question 22

Non - rivalry

Answer 22

Means that one consumer’s consumption does not reduce the amount available for consumption by others.

Question 23

Quasi-public good

Answer 23

A good or service that has one of the characteristics of a public good but not both of them.

Question 24

Private good

Answer 24

A good that is both rival and excludable in consumption.

Question 25

Indirect taxation

Answer 25

Refers to any tax placed on producers of a good or service that can be passed on to consumers of the good or service.

Question 26

Subsidy

Answer 26

A payment (usually paid by government) to encourage production or consumption of a good or service.

Question 27

Information provision

Answer 27

Aims to reduce information associated with the consumption of a good or service by increasing or decreasing demand as appropriate.

Question 28

Regulation

Answer 28

The setting of laws, standards and guidelines to influence production/consumption to correct potential market failures.

Question 29

Tradable permits

Answer 29

Property rights created to permit a specific activity that can be bought or sold, with the resulted market being manipulated to achieve the desired outcome.

Question 30

State provision

Answer 30

When a good or service is supplied by the central/local government, usually financed from general taxation and free at the point of consumption.

Question 53

Leakage

Answer 53

Withdrawals of possible spending from the circular flow of income

Question 54

Injections

Answer 54

Additions of extra spending into the circular flow of income

Question 55

Economic growth (short run)

Answer 55

An increase in real GDP | Also called actual economic growth

Question 56

Economic growth (long run)

Answer 56

An increase in productive capacity, that is, the maximum output that an economy can produce Also called potential economic growth

Question 57

Macroeconomic equilibrium

Answer 57

A situation where aggregate demand equals aggregate supply and real GDP is not changing

Question 67

Aggregate demand

Answer 67

Th total demand for goods and services produced in an economy at given price level in a given time period

Question 68

AD =

Answer 68

``` AD = C + I + G + (X-M) C= consumer expenditure I = Investment G = Government spending X = exports M = imports ```

Question 69

Consumer expenditure

Answer 69

Spending by households on consumer products

Question 70

Investment

Answer 70

Spending by firms on capital goods

Question 71

Government spending

Answer 71

Spending by central government and local government on goods and services

Question 72

Exports

Answer 72

Products sold abroad

Question 73

Imports

Answer 73

Products bought from abroad

Question 74

Circular flow of income

Answer 74

The movement of spending and wages throughout an economy

Question 75

Aggregate supply

Answer 75

The total amount producers in an economy are willing and able to supply at a given price level in a given time period

Question 81

Scarcity

Answer 81

A situation where there are insufficient resources to meet all wants