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Economics Theme 1 > Key Words > Flashcards

Key Words Flashcards

1
Q

Adverse selection

A

A situation in which a person at risk is more likely to take out insurance

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2
Q

Allocative efficiency

A

Achieved when society is producing an appropriate bundle of goods relative to consumer preferences

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3
Q

Asymmetric information

A

A situation in which some participants in a market have better information about market conditions than others

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4
Q

Cartel

A

An agreement between firms in a market on price and output with the intention of maximising their joint profits

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5
Q

Ceteris paribus

A

A Latin phrase meaning ‘other things being equal’; it is used when we focus on changes in one variable while holding other influences constant

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6
Q

Command economy

A

An economy in which decisions on resource allocation are guided by the state

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7
Q

Comparative statistic analysis

A

Examines the effect on equilibrium of a change in the external conditions affecting a market

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8
Q

Competitive market

A

A market in which individual firms cannot influence the price of the good or service they are selling, because of competition from other firms

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9
Q

Complements

A

Two goods are said to be complements if an increase in the price of one good causes the demand for the other good to fall

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10
Q

Consumer surplus

A

The value that consumers gain from consuming a good or service over and above the price paid

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11
Q

Consumption externality

A

An externality that affects the consumption side of a market, which may be either positive or negative

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12
Q

Cross-price elasticity of demand (XED)

A

A measure of the sensitivity of quantity demanded of a good or service to a change in the price of some other good or service

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13
Q

Demand

A

The quantity of a good or service that consumers choose to buy at any possible price in a given period

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14
Q

Demand curve

A

A graph showing how much of a good will be demanded by consumers at any given price

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15
Q

Diminishing marginal utility

A

Describes the situation where an individual gains less additional utility from consuming a product, the more of it is consumed

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16
Q

Division of labour

A

A process whereby the production procedure is broken down into a sequence of stages, and different workers are assigned to a particular stage

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17
Q

Elasticity

A

A measure of the sensitivity of one variable to changes in another variable

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18
Q

External cost

A

A cost associated with an individual’a production or other economic activities, which is borne by a third party and is not reflected in market prices

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19
Q

Externality

A

A cost or a benefit that is external to a market transaction, and is therefore not reflected in market prices

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20
Q

Factors of production

A

Resources used in the production process; inputs into production, including labour, capital, land and entrepreneurship

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21
Q

Firm

A

An organisation that brings together factors of production in order to produce output

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22
Q

Free-rider problem

A

When an individual cannot be excluded from consuming a good, and therefore has no incentive to pay for its provision

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23
Q

Government failure

A

A misallocation of resources arising from government intervention that causes a divergence between marginal social benefit and marginal social cost

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24
Q

Gross domestic product (GDP)

A

A measure of the economic activity carried out in an economy over a period

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25
Q

Incidence of tax

A

The way in which the burden of paying a sales tax is divided between buyers and sellers

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26
Q

Income elasticity of demand (YED)

A

A measure of the sensitivity of quantity demanded to a change in consumer incomes.

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27
Q

Indirect tax

A

A tax levied on expenditure on goods and services

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28
Q

Inferior good

A

One where the quantity demanded decreases in response to an increase in consumer incomes

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29
Q

Internalising an externality

A

An attempt to deal with an externality by bringing an external cost of benefit into the price system

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30
Q

Law of demand

A

A law that states that there is an inverse relationship between quantity demanded and the price of a good or service, ceteris paribus

31
Q

Luxury good

A

One for which income elasticity of demand is positive, and greater than 1, such that as income rises, consumers spend proportionally more on the good

32
Q

Macroeconomics

A

The study of the interrelationships between economic variables at an aggregate (economy-wide) level

33
Q

Marginal analysis

A

An approach to economic decision making based considering additional (marginal) benefits and costs of a change in behaviour

34
Q

Marginal cost

A

The cost of producing an additional unit of output

35
Q

Marginal social benefit (MSB)

A

The additional benefit that society gains from consuming an extra unit of a good

36
Q

Marginal social cost (MSC)

A

The cost to society of producing an extra unit of a good

37
Q

Market

A

A set of arrangements that allows transactions to take place

38
Q

Market economy

A

An economy in which market forces are allowed to guide the allocation of resources

39
Q

Market equilibrium

A

A situation that occurs in a market when the price is such that the quantity that consumers wish to buy is exactly balanced by the quantity that firms wish to supply

40
Q

Market failure

A

A situation in which the free market mechanism does not lead to an optimal allocation of resources (e.g. there is a divergence between MSB and MSC

41
Q

Merit good

A

A good that brings unanticipated benefits to consumers, such that society believes it will be under consumed in a free market

42
Q

Microeconomics

A

The study of economic decisions taken by individual economic agents, including households and firms

43
Q

Mixed economy

A

An economy in which resources are allocated partly through price signals and partly on the basis of intervention by the state

44
Q

Model

A

A simplified representation of reality used to provide insight into economic decisions and events

45
Q

Moral hazard

A

A situation in which a person who has taken out insurance is prone to taking more risk

46
Q

Necessity

A

A good for which the income elasticity of demand is positive, and less than 1, such that as income rises, consumers spend proportionally less on the good

47
Q

NIMBY (not in my back yard)

A

A syndrome under which people are happy to support the construction of an unsightly or unsocial facility, so long as it is not in their own area

48
Q

Non-renewable resources

A

Natural resources that once used cannot be replenished, such as coal or oil

49
Q

Normal good

A

One where the quantity demanded increases in response to an increase in consumer incomes

50
Q

Normative statement

A

A statement that involves a value judgement about what ought to be

51
Q

Opportunity cost

A

In decision making, the value of the nest-best alternative forgone

52
Q

Positive statement

A

A statement about what is (i.e. about facts)

53
Q

Potential economic growth

A

An expansion in the productive capacity of the economy

54
Q

Price elasticity of demand (PED)

A

A measure of the sensitivity of quantity demanded to a change in price of a good or service.

55
Q

Price elasticity of supply (PES)

A

A measure of the sensitivity of quantity supplied of a good or service to a change in the price of that good or service

56
Q

Private cost

A

A cost incurred by an individual or (firm or consumer) as part of its production or other economic activities

57
Q

Private good

A

A good that, once consumed by one person, cannot be consumed by somebody else; such a good has excludability and is rivalrous

58
Q

Producer surplus

A

The difference between the price received by firms for a good or service and the price at which they would have been prepared to supply that good or service

59
Q

Production externality

A

An externality that affects the production side of a market, which may be either positive or negative

60
Q

Production possibility frontier (PPF)

A

A curve showing the maximum combinations of goods or services that can be produced in a given period with available resources

61
Q

Prohibition

A

An attempt to prevent the consumption of a demerit good by declaring it illegal

62
Q

Public good

A

A good that is non-exclusive and non-rivalrous in consumption

63
Q

Relatively elastic

A

A term used when the price elasticity of demand is greater than 1, but less than infinity

64
Q

Relatively inelastic

A

A term used when the price elasticity of demand is less than 1 but greater than zero

65
Q

Renewable resources

A

Natural resources that can be replenished, such as forests that can be replanted, or solar energy that does not get used up

66
Q

Scarcity

A

A situation that arises from when people have unlimited wants in the face of limited resources

67
Q

Social cost

A

Private costs plus external costs

68
Q

Subsidy

A

A grant given by the government to producers to encourage production of a good or service

69
Q

Substitutes

A

Two goods that are said to be substitutes if demand for one good is likely to rise if the price of the other good rises

70
Q

Supply

A

The quantity of a good or service that firms choose to sell at any possible price in a given period

71
Q

Supply curve

A

A graph showing the quantity supplied at any given price

72
Q

Sustainable development

A

‘Development which meets the needs of the present without compromising the ability of future generations to meet their own needs’ (Brundtland Commission, 1987)

73
Q

Unitary elastic

A

A term used when the price elasticity of demand is equal to 1

Economics Theme 1 (1 decks)

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