Definitions year 1 Flashcards
Ad valorem tax
An indirect tax imposed on a good where the value of the tax is dependent on the value of the good.
Asymmetric information
Where one party has more information than another, leading to a market failure.
Capital
One of the four factors of production; goods which can be used in the production process.
Ceteris paribus
All other things remaining the same.
Command economy
All factors of production are allocated by the state, so they decide what, how and for whom to produce goods.
Complementary goods
Negative XED; if good B becomes more expensive, demand for good A falls.
Consumer goods
Goods bought and demanded by households and individuals.
Consumer surplus
The difference the price a consumer is willing to pay and they price they actually pay.
XED
The responsiveness of demand for one good (A) to a change in price in the price of another good (B).
%change in QD of A/%change in P of B
Demand
The quantity of a good/service that consumers are willing and able to buy at a given price at a given moment of time.
Diminishing marginal utility
The extra benefit gained from consumption of good generally declines as extra units are consume. This is why the demand curve is downwards sloping.
Division of labour
When labour becomes specialised during the production process do a specific task in cooperation with other workers.
Economic problem
The problem of scarcity; wants are unlimited but resources are finite so choice have to be made.
Efficiency
When resources are allocated optimally, so every consumer benefits and waste is minimised.
Enterprise
One of the four factors of production; the willingness and ability to take risks and combine the three other factors of production.
Equilibrium price/quantity
Where demand equals supply so there are no more market forces bringing about change to price of quantity demanded.
Excess demand
When price is set too low so demand is greater than supply.
Excess supply
When price is set too high so supply is greater than demand.
Externalities
The cost or benefit a third part receives from an economic transaction outside of the market mechanism.
External cost
The cost or benefit to a third party not involved in the economics activity; the difference between social cost/benefit and private cost/benefit.
Free market
An economy where the market mechanism allocates resources so consumers and producers make decision about what is produced, how to produce and for whom.
Free rider principle
People who do not pay for a public good still receives benefits from it so the private sector will under-provide the good as they cannot make a profit.
Government failure
When a government intervention leads to a net welfare loss in society.
Incidence of tax
The tax burden on the taxpayer.
YED
The responsiveness of demand to change in income.
%change in QD/%change in Y
Indirect tax
Taxes on expenditure which increase production costs and lead to a fall in supply.
Inferior goods
YED goods <0; goods which fall in demand as income increases.
Information gap
When an economic agent lacks the information needed to make a rational, informed decision.
Information provision
When the government intervenes to provide information to correct market failure.