Economics Markets Definitions Flashcards
Allocative Efficiency
Where supply equals demand and consumer welfare is maximised.
Allocative Inefficiency
Where there is an unequal distribution of resources that doesn’t maximise consumer welfare.
Market Failure
When the free market mechanism fails to achieve allocative efficiency.
Consumer Surplus
The difference between the price a consumer is both willing and able to buy at and the actual market price.
Producer Surplus
The difference between the price the producer is both willing and able to supply at and the actual price
Regulation
Standards, Law and guidelines intended to influence the behaviour of consumers and producers.
Subsidy
A payment made by a governing body in order to influence the production/consumption of a good/service
Indirect Tax
A tax levied on firms/retailers of which can be passed onto the consumer.
State Provision
Where the state provides the good/service, free at the point of consumption.
Tradable Permits
A market based approach for correcting market failure, by creating property rights for a particular activity of which can be manipulated to achieve the desired outcome.
Government Failure
This occurs when the government when trying to correct market failure, creates further problems.
Information Provision
Aims to provide people with accurate information in order to reduce information failure from the consumption of a good/service by increasing/decreasing demand.
Information Failure
When people are provided with inaccurate information not maximising consumer welfare.
Merit Good
A good/service of which is better for the consumer than they realise.
Demerit Good
A good/service of which is worse for the consumer than they realise.
Public Good
A good of which is both non rival and non excludable.
Quasi-Public Good
A good of which has an aspect of a public good but noth the other.
Markets
An interaction between consumers and producers to exchange goods/services.
Specialisation
Concentration of an individual, firm, nation, region to produce a narrow range of gods/services.
PPC
The maximum combinations of two goods and services that can be produced.
Economic Problem
The need to make choices regarding the allocation of limited and finite resources amongst infinite and competing wants.
Scarcity
The need to make decision concerning what to produce, how it is produced and for whom. Unlimited wants, but limited resources.
Economic Activity
The process of combining and adding value to resources to produce goods/services demanded by consumers.
