Key Words Chapter 1&2

Question 1

Market economy

Answer 1

Is when output and prices of goods and services are determined by the workings of supply and demand.

(Is an economic system where economic decisions and prices of goods and services are guided by the interactions of a country’s individual citizens and business)

Question 2

Command/planned economy

Answer 2

Is a system where factors of production are publicly owned and economic activity is controlled by central authority.

Question 3

Mixed economy

Answer 3

Is a system which has elements of a free market economy and of a command economy

Question 4

Finite resources

Answer 4

A nonrenewable resource that becomes increasingly scarce.

Question 5

Infinite resource

Answer 5

A renewable resource and can be a replenished as it is used.

Question 6

Choice

Answer 6

Is the selecting of one alternative and deciding how to allocate resources.

Question 7

Need

Answer 7

Something nessesary for human survivals

Question 8

Want

Answer 8

Something desired but not nescessary for human survival.

Question 9

Trade

Answer 9

The buying or selling of goods and services

Question 10

Signalling function of prices

Answer 10

Is when prices are used to inform sellers and buyers effecting their economic decisions

Question 11

Rationing function of prices

Answer 11

Is when prices increase to ration demand for goods

Question 12

Scarcity

Answer 12

Is the tension between infinite wants and finite resources.

Question 13

The fundamental economic problem

Answer 13

Is deciding how to best allocate resources to maximise overall welfare

Question 14

Economic Welfare

Answer 14

Is the economic satisfaction/well-being of individuals or households in an economy

Question 15

Imperfect information

Answer 15

Is when individuals lack the information to make the best decision

Question 16

Normative statement

Answer 16

Is a statement based on opinion and includes a value judgment and is influenced by beliefs and morals.

Question 17

Positive statement

Answer 17

Is one that is based on facts or can be tested

Question 18

Opportunity cost

Answer 18

Is the next best alternative forgone due choices made

Question 19

PPF

Answer 19

A curve that displays different combination of output of two goods or services that depend on the same finite resource

Question 20

Incentive price function

Answer 20

Price creates and incentive for people to alter their economic transactions/ decisions.

Question 21

Allocative efficiency/Pareto efficiency

Answer 21

Is when economic resources are utilised to produce a combination of goods and services that maximise economic welfare

Question 22

Allocative price function

Answer 22

Is when price allocates resources away from markets with excess supply to markets with excess demand

Question 23

Capital/ producer good

Answer 23

Goods used to produce other goods

Question 24

Consumer good

Answer 24

Goods that are consumed by individuals and households used to satisfy their wants and needs.

Question 25

Equilibrium

Answer 25

Supply = demand

Question 26

Equilibrium price

Answer 26

When planned supply matches planned demand

Question 27

Excess demand

Answer 27

Is when consumers are willing to buy more that what producers are willing to sell

Question 28

Excess supply

Answer 28

Is when sellers sell more than consumers are willing to buy

Question 29

Exchange

Answer 29

Trading objects of value using a median of exchange

Question 30

Income elasticity of demand (YED)

Answer 30

Measure of how responsive a good is in relation to change in consumer income

Question 31

Inferior good

Answer 31

Demand rises as income falls

Question 32

Joint supply

Answer 32

When one good is supplied another is also supplied from the same raw materials

Question 33

Normal good

Answer 33

As income rises demand rises

Question 34

Price elasticity of supply

Answer 34

A measure of how responsive a goods supply is to changes in price

Question 35

Producer sovereignty

Answer 35

Producers determine what is produced and the price changes

Question 36

Substitute good

Answer 36

A good which is in competing demands, and a good that can be used in place of a similar food

Question 37

Supply

Answer 37

The quantity of good or service a producer is willing and able to provide at a given price at a given time period.

Question 38

Elasticity

Answer 38

The proportionate responsiveness

Question 39

Effective demand

Answer 39

Desires for a good or service backed by the ability to pay for that said good or service.

Question 40

Disequilibrium

Answer 40

Excess supply or demand in the market

Question 41

Derived demand

Answer 41

Demand for a capital good that is results from an increased demand of a consumer good (aka lithium batteries for iPhones)

Question 42

Demand

Answer 42

The quantity of a good or service that a consumer is willing and able to buy at a given price at a given time.

Question 43

Cross elasticity of demand (XED)

Answer 43

A measure of how responsive the demand of a good is in response to a change in price of a different good.

Question 44

Consumer sovereignty

Answer 44

Consumers can collectively control production thorough exercising their spending power. This is strongest in a perfectly competitive market.

Question 45

Conditions of supply

Answer 45

A determinate of supply other than the price of the good/ service that sets the position of the supply curve

Question 46

Condition of demand

Answer 46

A determinate of demand for a good other than its price that sets the position of the demand curve.

Question 47

Composite demand

Answer 47

Demand for a multi-purpose good

Question 48

Complementary goods

Answer 48

Goods in joint demand and are often bought together

Question 49

Competitive markets

Answer 49

A market with a large number of buyers and sellers with low barriers to entry and exit

Question 50

Competing supply

Answer 50

When resources can be used to produce one good or another and not bother

Question 51

Individual demand

Answer 51

The quantity of good or service particular individual

Question 52

Veblen good

Answer 52

Goods where the high price is the attraction

Question 53

quality signalling goods

Answer 53

Goods where consumers take higher price as it indicated better quality

Question 54

Law of diminishing returns

Answer 54

Adding an additional factor of production results in a smaller increase in output in the short run

Question 55

Competing demand

Answer 55

Substitute goods when the price of one increases the demand for the other increase

Question 56

Elastic

Answer 56

Changes in price results to big changes in demand

Question 57

Unit (unitary) elasticity

Answer 57

A change in price leads to a corresponding change in demand

Question 58

Inelastic

Answer 58

Changes in price leads to a smaller or zero change in demand

Question 59

Market width

Answer 59

How widely a product can be defined

Question 60

Price mechanism/ market mechanism

Answer 60

When price is determined by the workings of supply and demand