Key Terms

Question 1

Ad Valorem Tax

Answer 1

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

Question 2

Asymmetric Information

Answer 2

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

Question 3

Capital

Answer 3

One of the 4 factors of production; goods which can be used in the production process

Question 4

Capital Goods

Answer 4

Goods used in order to aid production of consumer goods in the future e.g machinery

Question 5

Ceteris Paribus

Answer 5

All other things remaining the same

Question 6

Command Economy

Answer 6

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

Question 7

Complementary Goods

Answer 7

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

Question 8

Consumer Goods

Answer 8

Goods bought and demanded by households and individuals

Question 9

Consumer Surplus

Answer 9

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

Question 10

Cross Elasticity of Demand

Answer 10

The responsiveness of demand for one good to a change in the price of another good

Question 11

Demand

Answer 11

The quantity of a good/service that consumers are able and willing to buy at a given price at a given moment in time

Question 12

Diminishing Marginal Utility

Answer 12

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

Question 13

Division of Labour

Answer 13

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

Question 14

Invisible Hand

Answer 14

The self-regulating behaviour of the market place

Question 15

Profit Maximisation

Answer 15

Firms will seek to attain the highest level of profit available in their production of goods and servvices

Question 16

Short Run

Answer 16

It is difficult to change factor inputs such as land, labour, capital and entrepreneurship

Question 17

Externalities

Answer 17

The costs and benefits to a third party created by an economic activity

Question 18

Ceteris Paribus

Answer 18

Assuming all other factors remain the same

Question 19

Positive Statements

Answer 19

Objective, factually based comments that can be tested

Question 20

Free Market Economy

Answer 20

An economy where firms decide what goods and services to produce with limited intervention from the government

Question 21

PPF

Answer 21

A curve illustrating the different combinations of output for two products when all resources are used efficiently

Question 22

Wants

Answer 22

Things that are desired but are not essential to survival

Question 23

Tradeoff

Answer 23

This occurs when an economic agent substitutes the production of one good or service for another

Question 24

Economic Growth

Answer 24

The percentage change in total output (GDP) of a country

Question 25

Economic Welfare

Answer 25

The benefits gained by individuals, firms or society in the production of goods and services

Question 26

Disequilibrium

Answer 26

This occurs when there is an imbalance in the quantity demanded and quantity supplied of a product i.e there is no excess demand or supply

Question 27

Economic Agents

Answer 27

Individuals, firms and Gov. that partake in economic activity

Question 28

Producers

Answer 28

People that create and supply goods and services to a market

Question 29

Specific Tax

Answer 29

A set amount per unit added to a product leading to a parallel shift in the supply curve

Question 30

Opportunity Cost

Answer 30

The benefit lost of choosing an alternative option

Question 31

Producer Surplus

Answer 31

The difference between what the producer is willing to supply a good for and the price they receive for the good

Question 32

Bounded Rationality

Answer 32

Suggests when people make decisions they are limited by the info available to them, their intellectual limitations and at the time available to make decisions

Question 33

Veblen Goods

Answer 33

The "snob effect" where people pay more for certain products as their price increases due to "status"