Other Definitions

Question 1

Ad valorem tax

Answer 1

A tax levied on a commodity set as a percentage of the selling price

Question 2

Adverse selection

Answer 2

A situation in which a person at risk is more likely to take out insurance

Question 3

Allocative efficiency

Answer 3

Achieved when consumer satisfaction is maximised

Question 4

Buffer stock

Answer 4

A scheme intended to stabilise the price of a commodity by buying excess supply in periods when supply is high and selling when supply is low

Question 5

Capitalism

Answer 5

A system of production in which there is private ownership of productive resources, and individuals are free to pursue their objectives with minimal interference from the gov

Question 6

Comparative static analysis

Answer 6

Examines the effect on equilibrium of a change in the external conditions affecting a market

Question 7

Composite demand

Answer 7

Demand for a good that has multiple uses

Question 8

Composite supply

Answer 8

Where a product produced by a firm serves more than one market

Question 9

Cost efficiency

Answer 9

Appropriate combination of inputs of factors of production, given the relative prices of those factors

Question 10

Derived demand

Answer 10

Demand for a factor of production or a good which derives not from the factor or good itself but from the good it produces

Question 11

Economic efficiency

Answer 11

Where both productive and allocative efficiency have been reached

Question 12

Economies of scale

Answer 12

When an increase in the scale of production leads to production at lower long run average cost

Question 13

Excess burden of a sales tax

Answer 13

Deadweight loss to society following the imposition of a sales tax

Question 14

Firm

Answer 14

An organisation that brings together factors of production in order to product output

Question 15

Free-rider problem

Answer 15

When an individual cannot be excluded from consuming a good and thus has no incentive to pay

Question 16

Gross domestic product

Answer 16

Measure of the economic activity carried out in an economy during a period

Question 17

Incidence of a tax

Answer 17

The way in which the burden of paying a sales tax is divided between buyers and sellers

Question 18

Inferior good

Answer 18

Quantity demanded decreases in a response to an increase in consumer income

Question 19

Internalising an externality

Answer 19

An attempt to deal with an externality by bringing an external cost or benefit into the price system

Question 20

Invisible hand

Answer 20

Term used by Adam smith to describe the way in which resources are allocated in a market economy

Question 21

Joint demand

Answer 21

Demand for goods which are interdependent, such that they are demanded together

Question 22

Joint supply

Answer 22

Where a firm produces more than one product together

Question 23

Macroeconomics

Answer 23

Study of interrelationships between economic variables at an aggregate level

Question 24

Microeconomics

Answer 24

Study of the economic decisions taken by individual economic agents including households and firms

Question 25

Pareto optimum

Answer 25

An allocation of resources is said to be Pareto optimum if no reallocation of resources can make an individual better off without making some other individual worse off

Question 26

Resource allocation

Answer 26

The way in which a society’s productive assets are used amongst their alternative uses

Question 27

Sunk goods

Answer 27

Costs incurred by a firm that cannot be recovered if the firm ceased trading

Question 28

Technical efficiency

Answer 28

Attaining the maximum possible output from a given set of inputs