key words

Question 1

what is excess demand

Answer 1

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

Question 2

what is excess supply

Answer 2

when price is set too high so supply is greater then demand

Question 3

what are externalities

Answer 3

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

Question 4

what are external costs/benefits

Answer 4

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

Question 5

what is free market

Answer 5

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

Question 6

what is the free rider principal

Answer 6

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

Question 7

what is government failure

Answer 7

when government intervention leads to a net welfare loss in society

Question 8

what is habitual behaviour

Answer 8

a cause of irrational behaviour, when consumers are in habit of making certain decisions

Question 9

what is incidence of tax

Answer 9

the tax burden on the payer

Question 10

what is income elasticity of demand (YED)

Answer 10

the responsiveness of demand to a change in income

Question 11

what is indirect tax

Answer 11

taxes on expenditure which increase production costs and leads to a fall in supply

Question 12

what are inferior goods

Answer 12

YED<0; goods which see a fall in demand as income increases

Question 13

what is information gap

Answer 13

when an economic agent lacks the information needed to correct market failure

Question 14

what is labour

Answer 14

one of the four factors of production; human capital

Question 15

what is land

Answer 15

one of the four factors of production; natural resources such as oil, coal, wheat and physical space

Question 16

what are luxury goods

Answer 16

YED>1; an income causes an even bigger increase in demand

Question 17

what is market failure

Answer 17

when the free market fails to allocate resources to the best interest

Question 18

what is ad valorem tax

Answer 18

an indirect tax imposed on a good where the value of the tax is dependant on the value of their good

Question 19

what is asymmetric information

Answer 19

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

Question 20

what is capital

Answer 20

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

Question 21

what are capital goods

Answer 21

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

Question 22

what is ceteris paribus

Answer 22

all other things remaining the same

Question 23

what is a command economy

Answer 23

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

Question 24

what are complementary goods

Answer 24

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

Question 25

what are consumer goods

Answer 25

goods bought and demanded by household individuals

Question 26

what is consumer surplus

Answer 26

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

Question 27

what is cross elasticity of demand (XED)

Answer 27

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

Question 28

what is demand

Answer 28

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

Question 29

what is diminishing marginal utility

Answer 29

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

Question 30

what is division of labour

Answer 30

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

Question 31

what is the economic problem

Answer 31

the problem is scarcity; wants are unlimited but resources are finite so choices have to be made

Question 32

what is efficiency

Answer 32

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

Question 33

what is enterprise

Answer 33

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