Key terms

Question 1

rational behaviour

Answer 1

occurs when a consumer seeks to maximise the utility gained from a good or service consumed. acting in self interest

Question 2

regulation

Answer 2

the implementation of rules to restrict economic action

Question 3

regulatory capture

Answer 3

when regulatory agencies act in the interest of regulated firms rather than the interest of consumer they are trying to protect

Question 4

relative poverty

Answer 4

occurs when income received is 60% lower than median income

Question 5

absolute poverty

Answer 5

when income is so low that basic necessities such as such as food, shelter and housing can’t be bought

Question 6

rule of thumb

Answer 6

a rough and practical method that can be easily applied when making decisions

Question 7

satisficing

Answer 7

when a satisfactory outcome is achieved rather than the best possible outcome

sacrificing profit to satisfy as many key stakeholders as possible.

Question 8

social norms

Answer 8

forms of patterns of behaviours which are considered acceptable by a society

Question 9

substitution effect

Answer 9

eg higher hourly wages may make working more attractive so workers substitute labour for leisure

Question 10

sunk costs

Answer 10

costs that cannot be recovered

eg rent or cost of machinery

Question 11

trade union

Answer 11

a group of workers who come together to maintain and improve working conditions and pay

Question 12

utility

Answer 12

the satisfaction or economic welfare an individual gains for consuming a good or a service

Question 13

wealth

Answer 13

stock of everything which has value and a person or household owns at a particular point in time

Question 14

private good

Answer 14

one which is excludable and rival

Question 15

excludability

Answer 15

the degree to which a good can be limited to paying consumers. (eg sea defences can’t be limited to paying consumers)

Question 16

rival good

Answer 16

when consumption of one good prevents other consumer from being able to consume the good.
(food)

Question 17

privatisation

Answer 17

is the transfer of assets from the public sector into the private sector

Question 18

producer surplus

Answer 18

the difference between the price a firm succeeds in charging and the minimum price it would be prepared to accept

Question 19

consumer surplus

Answer 19

the difference in price the consumer is willing to pay compared to the price it does pay

Question 20

productive efficiency

Answer 20

the level of output at which average costs of production are minimised

Question 21

productivity

Answer 21

refers to output per unit of input (output per worker)

Question 22

property rights

Answer 22

confer legal control or ownership of a good

Question 23

public good

Answer 23

a good which is non excludable and non rival

sea defences

Question 24

free rider problem

Answer 24

This occurs when people can benefit from a good/service without paying anything towards it.

This problem suggests that the government should provide them using tax revenue.

if private firms can’t make money (exclude consumers from benefitting without paying)

Question 25

monopsony

Answer 25

when there is only one buyer in the market (such as the NHS for labour)

Question 26

national living wage

Answer 26

an adult wage rate that must be by law paid to employees

Question 27

non excludability

Answer 27

if a product is provided for one it is provided for all

Question 28

Supernormal profit

Answer 28

Supernormal profit is all the excess profit a firm makes above the minimum return necessary to keep a firm in business.

Question 29

normal profit

Answer 29

the minimum profit required to keep the entrepreneur in the market

and the opportunity cost to the entrepreneur of running this business.

Question 30

sub normal profit

Answer 30

Sub-normal profit is any profit less than normal profit – where price < average cost

Question 31

natural monopoly

Answer 31

occurs when an industry can only sustain one firm. more than one firm may be loss making and inefficient

Question 32

what is tech change

Answer 32

Tech change is the improvements in various forms of technology, such as making robotics, machines, and software more efficient, increasing output and productivity at a fraction of the time and costs

Question 33

static efficiency

Answer 33

when both productive and allocative efficiency is achieved

Question 34

state provision

Answer 34

direct provision of goods and services free at the point of consumption

Question 35

where are sales maximised

Answer 35

where AR=AC

Question 36

why may a public good be non excludable

Answer 36

the social benefit can’t be confined to the individual who paid for it
(eg if someone pays for a streetlight the rest of the street can benefit from lit up streets

Question 37

quasi public good

Answer 37

a good that can be semi excludable and semi rivalrous

Question 38

example of quasi public good

Answer 38

eg tolled roads (m6 toll). makes drivers pay for use of motorway. Improving tech may mean cameras can be used instead of physical toll booths

eg beaches

Question 39

what is a common access resource

Answer 39

a natural resource which has no private ownership

Question 40

demerit good

Answer 40

one that creates negative externalities in consumption

you must consider the the private cost (impact to the individual)

and the external cost (cost to society)

Question 41

what is a contestable market

Answer 41

A contestable market occurs when there is freedom of entry and exit into the market.
In a contestable market, there will be low sunk costs.

as a result profits are kept low otherwise new firms enter

Question 42

trade union

Answer 42

a group of workers that come together to bargain for better working conditions and higher wages

around 20% of UK are in trade unions which has decreased over the years

declined by 2.9 million since 1983

CAIWU (TU for cleaners)