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Economics Edexcel A A level > Microeconomic key terms > Flashcards

Microeconomic key terms Flashcards

1
Q

Ad valorem tax

A

An indirect tax imposed on a good where the value of the tax is dependent on the value of the good

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2
Q

Asymmetric information

A

Where one party has more information than the other, leading to market failure

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3
Q

Capital

A

One of the four factors of production; goods which can be used in the production process

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4
Q

Capital goods

A

Goods produced in order to aid production of consumer goods in the future

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5
Q

Ceteris paribus

A

All else remains equal

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6
Q

Command economy

A

All factors of production are allocated by the state, so they decide what, how and for whom to produce goods

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7
Q

Complementary goods

A

Negative XED; if good B becomes more expensive, demand for good A falls

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8
Q

Consumer goods

A

Goods bought and demanded by households and individuals

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9
Q

Consumer surplus

A

The difference between the price the consumer is willing to pay and the price they actually pay

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10
Q

Cross elasticity of demand (XED)

A

The sensitivity of demand for one good (A) to a change in price of another good (B).

%change in QD of good A / %change in P of B

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11
Q

Demand

A

The quantity of a good/service that consumers are able and willing to buy at a given price at a given moment of time

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12
Q

Diminishing marginal utility

A

The extra benefit gained from consumption of a good generally declines as extra units are consumed; explains why the demand curve is downward sloping

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13
Q

Division of labour

A

When labour becomes specialised during the production process so production becomes more efficient.

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14
Q

Economic problem

A

Scarcity. Infinite wants and needs but finite resources.

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15
Q

Efficiency

A

When resources are allocated optimally, so every consumer benefits and waste is minimised

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16
Q

Enterprise

A

One of the four factors of production; the willingness and ability to take risks and combine the three other factors of production

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17
Q

Equilibrium price/quantity

A

Where demand equals supply so there are no more market forces bringing about change to price or quantity demanded

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18
Q

Excess supply

A

When price is set too high so supply is greater than demand

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19
Q

Excess demand

A

When price is set too low so demand is greater than supply

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20
Q

Externalities

A

The cost or benefit a third party receives from an economic transaction outside of the market mechanism

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21
Q

External cost/benefit

A

The cost/benefit to a third party not involved in the economic activity; the difference between social cost/benefit and private cost/benefit

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22
Q

Free market

A

An economy where the market mechanism allocates resources so
consumers and producers make decisions about what is produced,
how to produce and for whom

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23
Q

Free rider principle

A

People who do not pay for a public good still receive benefits from it so the private sector will under-provide the good as they cannot make a profit

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24
Q

Government failure

A

When government intervention leads to a net welfare loss in society

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25
Habitual behaviour
A cause of irrational behaviour; when consumers are in the habit of making certain decisions
26
Incidence of tax
The tax burden on the taxpaye
27
Indirect tax
Taxes on a good which doesn't go directly to the government, but instead goes to another company, who then pays the government.
28
Income elasticity of demand (YED)
The responsiveness of demand to a change in income. %change in QD divided by %change in Y
29
Inferior goods
YED<0; goods which see a fall in demand as income increases
30
Information gap
When an economic agent lacks the information needed to make a rational, informed decision
31
Information provision
When the government intervenes to provide information to correct market failure
32
Labour
One of the four factors of production; human capital
33
Land
One of the four factors of production; natural resources such as oil, coal, wheat, physical space
34
Luxury goods
YED>1; an increase in incomes causes an even bigger increase in demand
35
Market failure
When the free market fails to allocate resources efficiently
36
Market forces
Forces in free markets which act to reduce prices when there is excess supply and increase them when there is excess demand
37
Maximum price
A ceiling price which a firm cannot charge above
38
Minimum price
A floor price which a firm cannot charge below
39
Mixed economy
Both the free market mechanism and the government allocate resources
40
Model
A hypothesis which can be proven or tested by evidence; it tends to be mathematical whilst a theory is in words
41
Negative externalities of production
Where the social costs of producing a good are greater than the private costs of producing the good
42
Non-excludable
Where someone cannot be prevented from using the good. - A characteristic of public goods
43
Non-renewable resources
Resources which cannot be readily replenished or replaced at a level equal to consumption; the stock level decreases over time as they are consumed
44
Non-rivalry
A characteristic of public goods; one person’s use of the good does not prevent someone else from using it
45
Normal goods
YED>0; demand increases as income increase
46
Normative statement
Subjective statements based on value judgements and opinions; cannot be proven or disproven
47
Opportunity cost
The value of the next best alternative forgone
48
Perfectly price elastic good
PED/PES=Infinity; quantity demanded/supplied falls to 0 when price changes
49
Perfectly price inelastic good
PED/PES=0; quantity demanded/supplied does not change when price changes
50
Positive externalities of consumption
Where the social benefits of consuming a good are larger than the private benefits of consuming that good
51
Positive statement
Objective statements which can be tested with factual evidence to be proven or disproven
52
Possibility production frontier (PPF)
Depicts the maximum productive potential of an economy, using a combination of two goods or services, when resources are fully and efficiently employed
53
Price elasticity of demand (PED)
The responsiveness of demand to a change in price | %change in QD divided by %change in P
54
Price elasticity of supply (PES)
The responsive of supply to a change in price. %change in QD divided by %change in P
55
Price mechanism
The system of resource allocation based on the free market | movement of prices, determined by the demand and supply curves
56
Private cost/benefit
The cost/benefit to the individual participating in the economic activity
57
Private goods
Goods that are rivalry and excludable
58
Producer surplus
The difference between the price the producer is willing to charge and the price they actually charge
59
Public goods
Goods that are non-excludable and non-rivalry
60
Rationality
Decision-making that leads to economic agents maximising their utility
61
Regulation
Laws to address market failure and promote competition between firms
62
Relatively price elastic good
When PED/PES>1; demand/supply is relatively responsive to a | change in price so a small change in price leads to a large change in quantity demanded/supplied
63
Relatively price inelastic good
When PED/PES<1; demand/supply is relatively unresponsive to a change in price so a large change in price leads to a large change in quantity demanded/supplied
64
Renewable resources
Resources which can be replenished, so the stock of resources can be maintained over a period of time
65
Scarcity
A shortage of resources in relation to the quantity of human wants. (More people want a good than is available)
66
Social cost/benefit
The cost/benefit to society as a whole due to the economic activity
67
Social optimum position
Where social costs equals social benefits; the amount which should be produced/consumed in order to maximise social welfare
68
Social science
The study of societies and human behaviour
69
Specialisation
The production of a limited range of goods by a company/country/individual so they aren’t self-sufficient and have to trade with others
70
Specific tax
A tax imposed on a good where the value of the tax is dependent on the quantity that is bought
71
State provision of goods
Through taxation, the government provides public goods or merit goods which are underprovided in the free market
72
Subsidy Government payments to a producer to lower their costs of production and encourage them to produce more
73
Subsidy
Government payments to a producer to lower their costs of production and encourage them to produce more
74
Substitutes
Alternative goods. Positive XED; if good B becomes more expensive, demand for good A rises
75
Supply
The ability and willingness to provide a particular good/service at a given price at a given moment in time
76
Symmetric information
Where buyers and sellers both have access to the same information
77
Trade pollution permits
Licenses which allow businesses to pollute up to a certain amount. The government controls the number of licenses and so can control the amount of pollution. Businesses are allowed to sell and buy the permits which means there may be incentive to reduce the amount they pollute
78
Unitary price elastic good
When PED/PES=1; a change in price leads to a change in output by the same proportion
79
Utility
The satisfaction derived from consuming a good

Economics Edexcel A A level (24 decks)

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