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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
Q

Habitual behaviour

A

A cause of irrational behaviour; when consumers are in the habit of making certain decisions

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26
Q

Incidence of tax

A

The tax burden on the taxpaye

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27
Q

Indirect tax

A

Taxes on a good which doesn’t go directly to the government, but instead goes to another company, who then pays the government.

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28
Q

Income elasticity of demand (YED)

A

The responsiveness of demand to a change in income.

%change in QD divided by %change in Y

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29
Q

Inferior goods

A

YED<0; goods which see a fall in demand as income increases

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30
Q

Information gap

A

When an economic agent lacks the information needed to make a rational, informed decision

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31
Q

Information provision

A

When the government intervenes to provide information to correct market failure

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32
Q

Labour

A

One of the four factors of production; human capital

33
Q

Land

A

One of the four factors of production; natural resources such as oil, coal, wheat, physical space

34
Q

Luxury goods

A

YED>1; an increase in incomes causes an even bigger increase in demand

35
Q

Market failure

A

When the free market fails to allocate resources efficiently

36
Q

Market forces

A

Forces in free markets which act to reduce prices when there is excess supply and increase them when there is excess demand

37
Q

Maximum price

A

A ceiling price which a firm cannot charge above

38
Q

Minimum price

A

A floor price which a firm cannot charge below

39
Q

Mixed economy

A

Both the free market mechanism and the government allocate resources

40
Q

Model

A

A hypothesis which can be proven or tested by evidence; it tends to be mathematical whilst a theory is in words

41
Q

Negative externalities of production

A

Where the social costs of producing a good are greater than the private costs of producing the good

42
Q

Non-excludable

A

Where someone cannot be prevented from using the good.

  • A characteristic of public goods
43
Q

Non-renewable resources

A

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
Q

Non-rivalry

A

A characteristic of public goods; one person’s use of the good does not prevent someone else from using it

45
Q

Normal goods

A

YED>0; demand increases as income increase

46
Q

Normative statement

A

Subjective statements based on value judgements and opinions; cannot be proven or disproven

47
Q

Opportunity cost

A

The value of the next best alternative forgone

48
Q

Perfectly price elastic good

A

PED/PES=Infinity; quantity demanded/supplied falls to 0 when price changes

49
Q

Perfectly price inelastic good

A

PED/PES=0; quantity demanded/supplied does not change when price changes

50
Q

Positive externalities of consumption

A

Where the social benefits of consuming a good are larger than the private benefits of consuming that good

51
Q

Positive statement

A

Objective statements which can be tested with factual evidence to be proven or disproven

52
Q

Possibility production frontier (PPF)

A

Depicts the maximum productive potential of an economy, using a combination of two goods or services, when resources are fully and efficiently employed

53
Q

Price elasticity of demand (PED)

A

The responsiveness of demand to a change in price

%change in QD divided by %change in P

54
Q

Price elasticity of supply (PES)

A

The responsive of supply to a change in price.

%change in QD divided by %change in P

55
Q

Price mechanism

A

The system of resource allocation based on the free market

movement of prices, determined by the demand and supply curves

56
Q

Private cost/benefit

A

The cost/benefit to the individual participating in the economic activity

57
Q

Private goods

A

Goods that are rivalry and excludable

58
Q

Producer surplus

A

The difference between the price the producer is willing to charge and the price they actually charge

59
Q

Public goods

A

Goods that are non-excludable and non-rivalry

60
Q

Rationality

A

Decision-making that leads to economic agents maximising their utility

61
Q

Regulation

A

Laws to address market failure and promote competition between firms

62
Q

Relatively price elastic good

A

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
Q

Relatively price inelastic good

A

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
Q

Renewable resources

A

Resources which can be replenished, so the stock of resources can be maintained over a period of time

65
Q

Scarcity

A

A shortage of resources in relation to the quantity of human wants.

(More people want a good than is available)

66
Q

Social cost/benefit

A

The cost/benefit to society as a whole due to the economic activity

67
Q

Social optimum position

A

Where social costs equals social benefits; the amount which should be produced/consumed in order to maximise social welfare

68
Q

Social science

A

The study of societies and human behaviour

69
Q

Specialisation

A

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
Q

Specific tax

A

A tax imposed on a good where the value of the tax is dependent on the quantity that is bought

71
Q

State provision of goods

A

Through taxation, the government provides public goods or merit goods which are underprovided in the free market

72
Q

Subsidy Government payments to a producer to lower their costs of production and encourage them to produce more

A
73
Q

Subsidy

A

Government payments to a producer to lower their costs of production and encourage them to produce more

74
Q

Substitutes

A

Alternative goods.

Positive XED; if good B becomes more expensive, demand for good A rises

75
Q

Supply

A

The ability and willingness to provide a particular good/service at a given price at a given moment in time

76
Q

Symmetric information

A

Where buyers and sellers both have access to the same information

77
Q

Trade pollution permits

A

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
Q

Unitary price elastic good

A

When PED/PES=1; a change in price leads to a change in output by the same proportion

79
Q

Utility

A

The satisfaction derived from consuming a good

Economics Edexcel A A level (24 decks)

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