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Economics definitions > Theme 1 > Flashcards

Theme 1 Flashcards

1
Q

ad valorem tax

A

a sale tax that is set at a percentage of the price

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2
Q

adverse selection

A

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

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3
Q

allocative efficiency

A

achieved when society is producing an appropriate bundle of goods relative to consumer preferences

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4
Q

asymmetric information

A

a situation in which some participants in a market have better information about marked conditions than others

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5
Q

bounded rationality

A

a situation in which people’s ability to take rational decisions is limited by a lack of information or an inability to interpret the information that is available, perhaps because of weakness at computation

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6
Q

capital goods

A

goods used as part of the production process, such as machinery or factory buildings

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7
Q

cartel

A

an agreement between firms in a market on price and output with the intention of maximising their joint profits

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8
Q

ceteris paribus

A

a Latin phrase meaning ‘other things being equal’; it is used in economics when we focus on changes in One variable while holding other influences constant

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9
Q

command economy

A

an economy in which decisions on resource allocation are guided by the state

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10
Q

competitive market

A

a market in which individual firms cannot influence the price of the good or service they are selling, because of competition from other firms

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11
Q

complements

A

two goods are said to be complements if an increase in the price of one good causes the demand for the other good to fall

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12
Q

consumer goods

A

goods produced for present use (consumption)

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13
Q

consumer surplus

A

the value that consumers gain from consuming a good or service over and above the price paid

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14
Q

consumption externality

A

an externality that affects the consumption side of a market, which may be either positive or negative

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15
Q

cross elasticity of demand (XED)

A

a measure of the sensitivity of quantity demanded of a good or service to a change in the price of another good

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16
Q

demand

A

the quantity of a good or service that consumers are willing and able to buy at any given price in a given period of time

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17
Q

demand curve

A

a graph showing how much of a good will be demanded by consumers at any given price

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18
Q

diminishing marginal utility

A

describes the situation where an individual gains less additional utility from consuming a product, the more of it is consumed

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19
Q

division of labour

A

labour a process whereby the production procedure is broken down into a sequence of stages, and workers are assigned to a particular stage

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20
Q

elastic

A

a term used when the price elasticity of demand is greater than 1 but less than infinity

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21
Q

elasticity

A

a measure of the sensitivity of one variable to changes in another variable

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22
Q

external benefit

A

the benefit the that society receives over and above those that accrue to the individual engaged in an economic activity

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23
Q

external cost

A

a cost associated with an individual’s (a firm or household’s) production or other economic activities, which is borne by a third party and is not reflected in market prices

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24
Q

externality

A

a cost or a benefit that is external to a market transaction, and is thus not reflected in market prices, which may affect third parties not involved in the transaction

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25
Q

factors of production

A

resources used in the production process; inputs into production, particularly including labour, capital, land and enterprise

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26
Q

firm

A

an organisation that brings together factors of production in order to produce output

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27
Q

free market economy

A

an economy in which market forces are allowed to guide the allocation of resources

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28
Q

free-rider problem

A

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

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29
Q

government failure

A

a misallocation of resources arising from government intervention to correct a market failure that
causes a less efficient allocation of resources and imposes a welfare loss on society

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30
Q

gross domestic product (GDP)

A

a measure of the economic activity carried out in an economy over a period

The total value of goods and services produced by an economy

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31
Q

habitual behaviour

A

where consumers persist in acting in a particular way even when conditions have changed

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32
Q

herding

A

where people take decisions based on the actions of others, rather than on a rational evaluation Of the situation that they face

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33
Q

incidence of a tax

A

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

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34
Q

income elasticity of demand (YED)

A

a measure of the sensitivity of quantity demanded to a change in consumer incomes

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35
Q

indirect tax

A

a tax levied on expenditure on goods or services (as opposed to a direct tax, which is a tax charged directly to an individual based on a component of income)

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36
Q

inelastic

A

a term used when the price elasticity of demand is less than 1 but greater than zero

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37
Q

inferior good

A

one where the quantity demanded decreases in response to an increase in consumer incomes

38
Q

internalising an externality

A

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

39
Q

law of demand

A

a law that states that there is an inverse relationship between quantity demanded and the price of a good or service, ceteris paribus

40
Q

luxury good

A

one for which the income elasticity of demand is positive, and greater that 1, such that as income rises, consumers spend proportionally more on the good

41
Q

macroeconomics

A

the study of the interrelationships between economic variables at an aggregate (economy-wide) level

42
Q

marginal analysis

A

an approach to economic decision making based on considering the additional (marginal) benefits and costs of a change in behaviour

43
Q

marginal cost

A

the cost of producing an additional unit of output

44
Q

marginal social benefit (MSB)

A

the additional benefit that society gains from consuming an extra unit of a good

45
Q

market

A

a set of arrangements that allow transactions to take place

46
Q

market-based policy

A

an approach to tackling market failure by using the market mechanism

47
Q

market equilibrium

A

a situation that occurs in a market when the price is such that the quantity demanded by consumers is exactly balanced by the quantity supplied by firms

48
Q

market failure

A

a situation in which the free market equilibrium does not lead to a socially optimal allocation of resources, such as that too much or too little of a good it being produced and/or consumed

49
Q

microeconomics

A

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

50
Q

mixed economy

A

an economy in which resources are allocated partly through price signals and partly on the basis of intervention by the side

51
Q

model

A

a simplified representation of reality used to provide insight into economic decisions and events

52
Q

moral hazard

A

a situation in which a person who has taken out insurance is prone to taking more risk

53
Q

necessity

A

a good for which the income elasticity of demand is positive, and less than 1, such that as income rises, consumers spend proportionally less on the good

54
Q

NIMBY (not in my back yard)

A

a syndrome under which people are happy to support the construction of an unsightly or unsocial facility, so long as it is not in their back yard

55
Q

non-excludability

A

a situation in which it is not possible to provide a product to one person without allowing others to consume it as well

56
Q

non-renewable resources

A

natural resources that once used cannot be replenished, such as coal or oil

57
Q

non-rivalry

A

a situation in which one person’s consumption of a good does not prevent others from consuming it as well

58
Q

normal good

A

one where the quantity demanded increases in response to an increase in consumer incomes

59
Q

normative statement

A

a statement that involves a value judgement about what ought to be

60
Q

nudge theory

A

analysis that suggests that people’s behaviour can be influenced by making desirable decisions easy to make

61
Q

opportunity cost

A

in decision making, the value of the next best alternative forgone

62
Q

perfectly elastic supply

A

a situation in which firms will supply any quantity of a good at the going price: elasticity of supply is infinite

63
Q

perfectly inelastic supply

A

a situation in which firms can supply only a fixed quantity, so cannot increase or decrease the amount available: elasticity of supply is zero

64
Q

‘polluter pays’ principle

A

an argument that a firm causing pollution should be charged the full external cost that they inflict on society

65
Q

positive statement

A

a statement about what is (i.e. about facts)

66
Q

potential economic growth

A

an expansion in the productive capacity of the economy

67
Q

price elasticity of demand (PED)

A

a measure of the sensitivity of quantity demanded to a change in the price of a good or service

68
Q

price elasticity of supply (PES)

A

a measure of the sensitivity of quantity supplied of a good or service to a change in the price of that good or service

69
Q

price mechanism

A

a process by which resource allocation is influenced through rationing, incentives and signalling

70
Q

price signal

A

where the price of a good carries information to producers or consumers that guides the market towards equilibrium and assists in resource allocation

71
Q

private benefit

A

the benefit from an individual’s (a firm or household’s) economic activity that accrue to that individual

72
Q

private cost

A

a cost incurred by an individual (firm or consumer) as part of its production or other economic activities

73
Q

private good

A

a good that, once consumed by one person, cannot be consumed by somebody else; such a good has excludability and is rivalrous

74
Q

producer surplus

A

the difference between the price received by firms for a good or service and the price at which they would have been prepared to supply that good or service

75
Q

production externality

A

an externality that affects the production side of a market, which may be either positive or negative

76
Q

production possibility frontier (PPF)

A

a curve showing the maximum combinations of goods or services that can be produced in a given period with available resources

77
Q

prohibition

A

an attempt to prevent the consumption of a good by declaring it illegal

78
Q

public good

A

a good that is non-exclusive and non-rivalrous in consumption - consumers cannot be excluded from consuming the good, and consumption by one person does not affect the amount of the good available for others to consume

79
Q

regulation

A

intervention to tackle market failure by direct action to command and control behaviour

80
Q

renewable resources

A

natural resources that can be replenished, such as forests that can be replanted, or solar energy that does not get used up

81
Q

scarcity

A

a situation that arises when people have unlimited wants in the face of limited resources

82
Q

social benefit

A

the sum of private benefits and external benefits

83
Q

social cost

A

the sum of private and external costs

84
Q

specific tax

A

a sales tax that is set at a constant amount per unit of sales

85
Q

subsidy

A

a grant given by the government to producers to encourage production of a good or service

86
Q

substitutes

A

two goods are said to be substitutes if the demand for one good is likely to rise if the price of the other rises

87
Q

supply

A

the quantity of a good or service that producers are willing and able to sell at any given price in a given period of time

88
Q

supply curve

A

a graph showing the quantity supplied at given price

89
Q

symmetric information

A

a situation in which all participants in a market (buyers and sellers) have the same information about market conditions

90
Q

tradable pollution

A

permit system a system for controlling pollution based on a market for permits that allow firms to pollute up to a limit

91
Q

unitary elastic

A

a term used when the price elasticity of demand is equal to 1

92
Q

value judgement

A

a statement based on your opinion or beliefs, rather than on facts

Economics definitions (3 decks)

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