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econ theme 1 Flashcards

1
Q

What is an ad valorem tax?

A

An indirect tax imposed on a good where the value of the tax is dependent on the value of the good

Commonly applied to goods like VAT.

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2
Q

Define asymmetric information.

A

Where one party has more information than the other, leading to market failure

Often seen in insurance and used car markets.

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3
Q

What is capital in economics?

A

One of the four factors of production; goods which can be used in the production process

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4
Q

What are capital goods?

A

Goods produced in order to aid production of consumer goods in the future

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5
Q

What does ceteris paribus mean?

A

All other things remaining the same

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6
Q

Define a command economy.

A

All factors of production are allocated by the state, so they decide what, how and for whom to produce goods

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7
Q

What are complementary goods?

A

Negative XED; if good B becomes more expensive, demand for good A falls

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8
Q

What are consumer goods?

A

Goods bought and demanded by households and individuals

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9
Q

What is consumer surplus?

A

The difference between the price the consumer is willing to pay and the price they actually pay

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10
Q

Define cross elasticity of demand (XED).

A

The responsiveness of demand for one good (A) to a change in price of another good (B)

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11
Q

Fill in the blank: Demand is the quantity of a good/service that consumers are _____ and _____ to buy at a given price at a given moment of time.

A

able, willing

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12
Q

What is diminishing marginal utility?

A

The extra benefit gained from consumption of a good generally declines as extra units are consumed; explains why the demand curve is downward sloping

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13
Q

What does division of labour refer to?

A

When labour becomes specialised during the production process so do a specific task in cooperation with other workers

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14
Q

Define the economic problem.

A

The problem of scarcity; wants are unlimited but resources are finite so choices have to be made

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15
Q

What is efficiency in economics?

A

When resources are allocated optimally, so every consumer benefits and waste is minimised

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16
Q

What is enterprise in the context of production?

A

One of the four factors of production; the willingness and ability to take risks and combine the three other factors of production

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17
Q

What is equilibrium price/quantity?

A

Where demand equals supply so there are no more market forces bringing about change to price or quantity demanded

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18
Q

What is excess demand?

A

When price is set too low so demand is greater than supply

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19
Q

What is excess supply?

A

When price is set too high so supply is greater than demand

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20
Q

Define externalities.

A

The cost or benefit a third party receives from an economic transaction outside of the market mechanism

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21
Q

What are external costs/benefits?

A

The cost/benefit to a third party not involved in the economic activity; the difference between social cost/benefit and private cost/benefit

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22
Q

What characterizes a free market?

A

An economy where the market mechanism allocates resources so consumers and producers make decisions about what is produced, how to produce and for whom

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23
Q

True or False: The free rider principle refers to individuals receiving benefits from public goods without paying for them.

A

True

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24
Q

What is government failure?

A

When government intervention leads to a net welfare loss in society

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25
What is habitual behaviour in economic terms?
A cause of irrational behaviour; when consumers are in the habit of making certain decisions
26
What is the incidence of tax?
The tax burden on the taxpayer
27
Define income elasticity of demand (YED).
The responsiveness of demand to a change in income
28
Fill in the blank: Indirect tax increases production costs and leads to a fall in _____ .
supply
29
What are inferior goods?
YED<0; goods which see a fall in demand as income increases
30
What is an information gap?
When an economic agent lacks the information needed to make a rational, informed decision
31
What is information provision?
When the government intervenes to provide information to correct market failure
32
What does land refer to in economics?
One of the four factors of production; natural resources such as oil, coal, wheat, physical space
33
Define luxury goods.
YED>1; an increase in incomes causes an even bigger increase in demand
34
What is market failure?
When the free market fails to allocate resources to the best interest of society, so there is an inefficient allocation of scarce resources
35
What are market forces?
Forces in free markets which act to reduce prices when there is excess supply and increase them when there is excess demand
36
What is a maximum price?
A ceiling price which a firm cannot charge above
37
What is a minimum price?
A floor price which a firm cannot charge below
38
Define a mixed economy.
Both the free market mechanism and the government allocate resources
39
What is a model in economics?
A hypothesis which can be proven or tested by evidence; it tends to be mathematical whilst a theory is in words
40
What are negative externalities of production?
Where the social costs of producing a good are greater than the private costs of producing the good
41
What does non-excludable mean?
A characteristic of public goods; someone cannot be prevented from using the good
42
Define non-renewable resources.
Resources which cannot be readily replenished or replaced at a level equal to consumption; the stock level decreases over time as they are consumed
43
What does non-rivalry refer to?
A characteristic of public goods; one person’s use of the good does not prevent someone else from using it
44
What are normal goods?
YED>0; demand increases as income increases
45
Define a normative statement.
Subjective statements based on value judgements and opinions; cannot be proven or disproven
46
What is opportunity cost?
The value of the next best alternative forgone
47
What is a perfectly price elastic good?
PED/PES=Infinity; quantity demanded/supplied falls to 0 when price changes
48
What is a perfectly price inelastic good?
PED/PES=0; quantity demanded/supplied does not change when price changes
49
Define positive externalities of consumption.
Where the social benefits of consuming a good are larger than the private benefits of consuming that good
50
What is a positive statement?
Objective statements which can be tested with factual evidence to be proven or disproven
51
What is a possibility production frontier (PPF)?
Depicts the maximum productive potential of an economy, using a combination of two goods or services, when resources are fully and efficiently employed
52
Define price elasticity of demand (PED).
The responsiveness of demand to a change in price
53
Fill in the blank: Price mechanism is the system of resource allocation based on the free market movement of _____ , determined by the demand and supply curves.
prices
54
What are private costs/benefits?
The cost/benefit to the individual participating in the economic activity
55
What are private goods?
Goods that are rivalry and excludable
56
What is producer surplus?
The difference between the price the producer is willing to charge and the price they actually charge
57
Define public goods.
Goods that are non-excludable and non-rivalry
58
What is rationality in economics?
Decision-making that leads to economic agents maximising their utility
59
What is regulation?
Laws to address market failure and promote competition between firms
60
What does relatively price elastic good mean?
When PED/PES>1; demand/supply is relatively responsive to a change in price so a small change in price leads to a large change in quantity demanded/supplied
61
What does relatively price inelastic good mean?
When PED/PES<1; demand/supply is relatively unresponsive to a change in price so a large change in price leads to a large change in quantity demanded/supplied
62
Define renewable resources.
Resources which can be replenished, so the stock of resources can be maintained over a period of time
63
What is scarcity?
The shortage of resources in relation to the quantity of human wants
64
What are social costs/benefits?
The cost/benefit to society as a whole due to the economic activity
65
What is the social optimum position?
Where social costs equals social benefits; the amount which should be produced/consumed in order to maximise social welfare
66
Define social science.
The study of societies and human behaviour
67
What does specialisation refer to?
The production of a limited range of goods by a company/country/individual so they aren’t self-sufficient and have to trade with others
68
What is a specific tax?
A tax imposed on a good where the value of the tax is dependent on the quantity that is bought
69
What is state provision of goods?
Through taxation, the government provides public goods or merit goods which are underprovided in the free market
70
What is a subsidy?
Government payments to a producer to lower their costs of production and encourage them to produce more
71
What are substitutes in economics?
Positive XED; if good B becomes more expensive, demand for good A rises
72
What is supply?
The ability and willingness to provide a particular good/service at a given price at a given moment in time
73
Define symmetric information.
Where buyers and sellers both have access to the same information
74
What are trade pollution permits?
Licenses which allow businesses to pollute up to a certain amount; the government controls the number of licenses and so can control the amount of pollution
75
What is a unitary price elastic good?
When PED/PES=1; a change in price leads to a change in output by the same proportion
76
Define utility in economics.
The satisfaction derived from consuming a good
77
What is weakness at computation?
A cause of irrational behaviour; when consumers are bad at making calculations, estimating probabilities and working out future benefits/costs

Economics theme (4 decks)

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