Key Words Week 1 Revision

Question 1

Scarcity

Answer 1

Where there is a limited amount of natural resources available to produce goods for the unlimited amount of demands from costumers. Therefore, choices need to be made

Question 2

Spare capacity

Answer 2

Where a firm or economy can produce more with existing resources. When there is a lot of spare capacity, the elasticity of supply is usually high

Question 3

Stakeholder

Answer 3

A group or individual who has an interest in the business. This could be shareholders, employees, customers, owners, the community where the business operates etc. These stakeholders have different objectives that they want to see the business achieve.

Question 4

Subsidy

Answer 4

An amount of money that is given to a company to keep the price of the good or service low

Question 5

Trade-off

Answer 5

The process of making a choice between two items, such as buying a car instead of paying your taxes

Question 6

Ad valorem tax

Answer 6

An indirect tax based on a percentage of the sales price of a good or service

Question 7

Allocative efficiency

Answer 7

Allocative efficiency is when the value that the customers place on a good or service which will gradually go down the more they consume.

Question 8

Basic Problem

Answer 8

There are infinite wants but finite resources which satisfy the infinite wants

Question 9

Black Market

Answer 9

An illegal market where the market price is higher than a legally imposed price ceiling. These markets develop when there is an excess demand of something

Question 10

Capacity utilisation

Answer 10

The measure of how a business is using its resources. 70% capacity utilisation means that there is 30% of capacity in a business is not being used

Question 11

Capital goods

Answer 11

Goods sold between businesses to make different goods. Such as steel for making a chair frame or machinery

Question 12

Capital-intensive

Answer 12

A production method that uses a high proportion of capital to labour

Question 13

Command economy

Answer 13

Economic system where resources are allocated by government. Businesses are controlled by the government

Question 14

Free market

Answer 14

Where scarce resources are allocated entirely by the price mechanism (demand and supply)

Question 15

Collusion

Answer 15

Collusion is any agreement between suppliers in a market to avoid competition. This is to avoid market uncertainty and achieve a level of joint profits which would be similar to a monopolist.

Question 16

Competitive market

Answer 16

Market where no firm has a clear dominant position such as a higher market share. This means the consumer has plenty of choice as many new competitors are able to join the market

Question 17

Consumer surplus

Answer 17

The difference between the total amount that consumers are willing to pay for a good or service than the actual market price

Question 18

Demand

Answer 18

Quantity of a good or service

Question 19

Automation

Answer 19

Where machinery is used to create productis to increase productivity levels. This replaces labour

Question 20

Barriers to entry

Answer 20

Factors making it expensive for firms to enter a market such as copyright policies, cost of equipment and brand loyalty among consumers.

Some companies may lower the prices of their product or service when a new business enters the market to retain their customers.

Question 21

De-merit goods

Answer 21

A demerit good is a good or service whose consumption is considered to have negative effects on the consumers themselves. Such as cigarettes, the government usually seeks to reduce consumption of de-merit goods by passing laws to have higher prices or warnings about the goods.

Question 22

Derived demand

Answer 22

When the demand of one product or service relies on the demand of another product or service.

E.g. Some fancies restaurants have a dress code which means that the demand for renting a suit increases

Question 23

Equilibrium

Answer 23

Where there is a state of balance where nothing needs to be changed due to supply and demand being perfectly balanced as all things should be

Question 24

Disequilibrium

Answer 24

Where there is a state of imbalance so change is needed. E.g. Demand exceeds supply so prices increase

Question 25

Economy of scale

Answer 25

Benefits in the form of lower cost per unit due to the size of operations increasing. E.g bulk buying is much cheaper which achieves economies of scale

Question 26

Externalities

Answer 26

External effects arising from production and consumption of goods and services where no compensation is paid

Question 27

Globalisation

Answer 27

A process where economies and cultures have been drawn together through a global network of trade, investment, capital flows and advancements in technology

Question 28

Income

Answer 28

A flow of earnings from using factors of production to generate an output of goods and services. E.g salaries

Question 29

Indirect tax

Answer 29

An indirect tax is imposed on goods and services rather than revenue and profits

Question 30

Mixed economy

Answer 30

Where resources are allocated partly by the price mechanism (consumers and producers, demand and supply) and partly by the government.

Question 31

Market equilibrium

Answer 31

State of balance between the supply and demand which means there will be no change in market price.

Question 32

Monopoly

Answer 32

Single seller in one market or industry, this means they can set their own prices if in a free market

Question 33

Nationalisation

Answer 33

When a business goes from the private sector to the public sector

Question 34

Merit good

Answer 34

Products that are deemed as a necessity for the population. This means that the government is obliged to provide them to the whole population. Such as healthcare and education

Question 35

Oligopoly

Answer 35

Market dominated by few businesses making competition extremely difficult

Question 36

Price mechanism

Answer 36

The price mechanism describes the means by which millions of decisions taken by consumers and businesses interact to determine the allocation of scarce resources between competing uses