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Economics a level > THEME 1 > Flashcards

THEME 1 Flashcards

definitions

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

Ceteris Paribus

A

All other things remaining the same

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4
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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5
Q

Complementary goods

A

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

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6
Q

consumer goods

A

goods bought and demanded by households and individuals

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7
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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8
Q

cross elasticity of demand

A

(XED) the responsiveness of demand for one good (A) to a change in price of another good

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9
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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10
Q

Economic problem

A

the problem of scarcity; wants are unlimited but resources are finite so choices have to be made

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11
Q

efficiency

A

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

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12
Q

enterprise

A

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

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13
Q

excess supply

A

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

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14
Q

excess demand

A

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

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15
Q

externalities

A

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

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16
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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17
Q

free rider principle

A

people who don’t pay for a public good still receive benefits from it so the private sector will under-provide the good as they can’t make a profit

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18
Q

gov failure

A

when gov intervention leads to a net welfare loss in society

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19
Q

habitual behaviour

A

a cause of irrational behaviour: when consumers are in the habit of making certain decisions

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20
Q

incidence of tax

A

the tax burden on the taxpayer

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21
Q

income elasticity of demand

A

(YED) The responsiveness of demand to a change in income %change in QD/%change in Y

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22
Q

Indirect tax

A

taxes on expenditure which increase population costs and lead to a fall in supply

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23
Q

inferior goods

A

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

24
Q

market failure

A

when the free market fails to allocate resources to the best interest

25
Q

mixed economy

A

both the free market mechanism and the gov allocate resources

26
Q

negative externalities of production

A

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

27
Q

non-excludable

A

a characteristic of a public good; someone can’t be prevented from using the good

28
Q

non-rivalry

A

a characteristic of a public good; one person’s use of the good doesn’t prevent someone else from using it

29
Q

Normal goods

A

YED>0; demand increases as income rises

30
Q

Normative statements

A

subjective statements based on value judgements and opinions; can’t be proven or disproven

31
Q

opportunity cost

A

the value of the next best alternative forgone

32
Q

perfectly price elastic good

A

PED/PES = infinity; quantity demanded/supplied fall to 0 when price changes

33
Q

Perfectly price inelastic good

A

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

34
Q

Positive externalities of consumption

A

where the social benefits of consuming a good is larger than the private benefits of consuming that good

35
Q

Positive statement

A

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

36
Q

PPF

A

Possibility production frontier - depicts the max productive potential of an economy, using a combination of two goods or services, when resources are fully and efficiently employed

37
Q

Price elasticity of demand (PED)

A

the responsiveness of demand to a change in price

38
Q

Price elasticity of supply (PES)

A

The responsiveness of supply to a change in price

39
Q

price mechanism

A

the system of resource allocation based on the free market movement of prices determined by the demand and supply curve

40
Q

private goods

A

goods that are rivalry and excludable

41
Q

producer surplus

A

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

42
Q

public good

A

goods that are non-excludable and non-rivalry

43
Q

Rationality

A

decision-making that leads to economic agents maximising their utility

44
Q

regulation

A

laws to address market failure and promote competition between firms

45
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

46
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

47
Q

social cost/benefit

A

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

48
Q

social optimum position

A

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

49
Q

specialisation

A

The production of a limited range of goods by a firm/individual/country so they aren’t self-sufficient and have to trade with others

50
Q

specific tax

A

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

51
Q

state provision of goods

A

through taxation, the gov provides public goods or merit goods which are underprovided in the free market

52
Q

subsidy

A

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

53
Q

trade pollution permits

A

licenses which allow firms to pollute up to a certain amount. The gov controls num of licenses and so can control the amount of pollution. Firms can sell their permits

54
Q

Unitary price elastic good

A

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

55
Q

Utility

A

the satisfaction derived from consuming a good

56
Q

Weakness at consumption

A

A cause of irrational behaviour; when consumers are bad at making calculations, estimating probabilities and working out future benefits/costs

Economics a level (3 decks)

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