Markets in Action Definitions Flashcards
Specialisation
Specialisation is where individuals, firms, regions and nations concentrate on producing some goods and services rather than others.
Productivity
Output or production of a good/service per worker.
Subsidy
Payment by a governing body to encourage the production or consumption of a product.
Factor of production
The resource inputs that are available in an economy for the production of goods/services.
Land
Natural resources in an economy
Goods
Tangible products that can be seen/touched cars, washing machines, food
Services
Intangible products, that cannot be touched/seen. Insurance/banking ect
Labour
Quality and quantity if human resources
Entrepreneurship
The willingness of entrepreneurs to take risks and organise production
Capital
Man made aids to production.
Entrepreneur
Someone who bears the risk of the business and who organises production.
Choice
The selection of appropriate alternatives
Opportunity cost
The cost of the next best alternative, which is foregone when a choice is made.
Scarcity
A situation where there are insufficient resources to meet all wants.
Economics
The study of how to allocate scarce resources
Economic problem
How to allocate scarce resources among alternative uses or competing wants.
Household
A group of people whose spending decisions are connected.
Economic Growth
Change in the productive potential of an economy
Productive Potential
Maximum output that an economy is capable of producing.
Economic System
Way in which production is organised
Production Possibility curve
The allocation of resources between two products in production, given current resources and state of technology.
Productive Efficiency
Where production takes place using the least amount of resources.
Consumer Surplus
The difference between the price a consumer is willing and able to pay and the price that is required to make the purchase.
First Law of Demand
Inverse relationship between price and the quantity demanded for a goods/service.
Shift in Demand
When a non price factor leads to an increase/decrease in demand.
PED
The responsiveness of quantity demanded given a change in price. % change in quantity / % change in price.
Normal Good
Goods for which an increase in income leads to an increase in demand.
YED
The responsiveness of demand given a change in income. % change in quantity / % change in income.
Inferior Good
Goods for which an increase in income leads to a decrease in demand.
XED
The repsonsiveness of quantity demanded of one good given a change in price of another. % change in demand for good 1 / % change in price of good 2.
Complementary Goods
Goods for there is joint demand.
Substitute Good
Competing goods.
Producer Surplus
The difference in price a producer receives for a good / service and the actual price they are willing to accept for the good/service.
Indirect Tax
A tax levied on the consumption of a good/service.
Subsidy
A subsidy to encourage the production and consumption of a good/service.
PES
The responsiveness of supply given a change in price. % change in quantity supplied / % change in price.
Market Failure
Where the free market mechanism fails to achieve economic efficiency.
Allocative Efficiency / Opposite for Inefficiency.
Where scarce resources are used to produce goods/services that consumers actually demand in the quantities they desire so consumer welfare is maximised.
Positive / Negative Externality
When an action taken by one economic agent has a favourable / negative effect on a third party, not directly involved.
Private Cost
The costs directly incurred by those undertaking particular economic activity.
Private Benefit
The benefits directly accruing to those those undertaking a particular economic activity.
Social Cost
Private cost + external cost of an economic activity.
Social Benefit
Private benefit + external benefit of an economic activity.
Merit Good
A good of which its consumption is better for the consumer than they realise.
Demerit Good
A good of which its consumption os worse for the consumer than they realise.
Public Good
A good which is non excludable and non rival and not provided by the free market due to the free rider problem.
Non Rivalrous
A situation where the consumption of the goods doesn’t reduce its availability to others.
Private Goods
A good which is rivalrous and excludable.
Markets
Where buyers and sellers meet/come into contact for the purpose of trading.
