Keywords with exam definitions

Question 1

Define the term income elasticity of demand.

Answer 1

Percentage change of quantity demanded over percentage change of income.

Question 2

Define the term subsidy.

Answer 2

A payment of money from a government to a producer of a good/service to lower the cost of production in order to increase consumption of a good/service.

Question 3

Define the term normal good

Answer 3

A good for which demand increases as incomes increase and has an income elasticity of demand value between 0 and 1.

Question 4

Define the term social cost.

Answer 4

The private cost plus the external cost of any decision or action undertaken by, for example, a firm or a consumer.

Question 5

Define the term equilibrium price.

Answer 5

The price at which quantity demanded is equal to quantity supplied.

Question 6

Define the term market failure.

Answer 6

When a market results in the misallocation of resources.

Question 7

Define the term composite demand.

Answer 7

The demand for a good which is involved in the production of multiple others. For example, Crude oil.

Question 8

Define the term external costs.

Answer 8

The negative effects the production and or consumption of a good/service has upon an uninvolved third party.

Question 9

Define the term positive cross elasticity of demand

Answer 9

Positive cross elasticity of demand is a measure of the percentage increase in the quantity demanded of one good resulting from a percentage decrease in the price of another.

Question 10

Define the term marginal private costs.

Answer 10

The cost borne by the parties involved in the consumption and or production of an extra unit of the good in question.

Question 11

Define the term marginal social costs.

Answer 11

The cost borne by an uninvolved third party from the consumption and or production of an extra unit of the good in question.

Question 12

Define the term demerit good.

Answer 12

A good which generates negative externalities in consumption.

Question 13

Define the term negative externality.

Answer 13

The negative effects felt by an uninvolved third party as a result of the production and or consumption of a good

Question 14

Define economies of scale.

Answer 14

Falling costs of production as firms increase in size.

Question 15

Define the term positive externality.

Answer 15

The positive effects the production and or consumption of a good/service has upon an uninvolved third party.

Question 16

Define the term factor of production.

Answer 16

A resource employed in the production of a good/service and falls under one of four categories, Capital, Enterprise, Land and Labour.

Question 17

Define the term scarce resources.

Answer 17

A factor of production that is limited in supply.

Question 18

Define the term productive efficiency.

Answer 18

When it is impossible to produce more of one good without producing less of another.

Question 19

Define the term private good.

Answer 19

Goods that are rivalrous and excludable.

Question 20

Define the term income inequality.

Answer 20

When there is an uneven distribution of income in society.

Question 21

Define the term technical economies of scale.

Answer 21

Falling costs of production as a firm increases in size as a result of improvements in the process of production.

Question 22

Define the term social benefits.

Answer 22

The private benefit plus the external benefit of the production and or consumption of a good.