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Economics key terms > Theme 1 > Flashcards

Theme 1 Flashcards

A#

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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1
Q

Asymmetric information

A

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

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2
Q

Capital

A

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

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3
Q

Capital goods

A

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

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4
Q

Ceteris paribus

A

All other things remaining the same

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5
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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6
Q

Complementary goods

A

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

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7
Q

Consumer goods

A

Goods bought and demanded by households and individuals

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8
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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9
Q

Cross elasticity of
demand (XED)

A

The responsiveness of demand for one good (A) to a change in
price of another good (B)
%change in QD of A
%change in P of B

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10
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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11
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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12
Q

Division of labour

A

When labour becomes specialised during the production process so
do a specific task in cooperation with other workers

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13
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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14
Q

Efficiency

A

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

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15
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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16
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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17
Q

Excess demand

A

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

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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

Externalities

A

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

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20
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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21
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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22
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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23
Q

Government failure

A

When government intervention leads to a net welfare loss in society

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24
Q

Habitual behaviour

A

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

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25
Q

Incidence of tax

A

The tax burden on the taxpayer

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26
Q

Income elasticity of
demand (YED)

A

The responsiveness of demand to a change in income
%change in QD
%change in Y

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27
Q

Indirect tax

A

Taxes on expenditure which increase production costs and lead to a
fall in supply

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28
Q

Inferior goods

A

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

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29
Q

Information gap

A

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

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30
Q

Information provision

A

When the government intervenes to provide information to correct
market failure

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31
Q

Labour

A

One of the four factors of production; human capital

32
Q

Land

A

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

33
Q

Luxury goods

A

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

34
Q

Market failure

A

When the free market fails to allocate resources to the best interest of society, so there is an inefficient allocation of scarce resources

35
Q

Market forces

A

the economic factors that influence the price and quantity of goods and services in a market.

36
Q

Maximum price

A

A ceiling price which a firm cannot charge above

37
Q

Minimum price

A

A floor price which a firm cannot charge below

38
Q

Mixed economy

A

Both the free market mechanism and the government allocate
resources

39
Q

Model

A

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

40
Q

Negative externalities of
production

A

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

41
Q

Non-excludable

A

A characteristic of public goods; someone cannot be prevented from
using the good

42
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

43
Q

Non-rivalry

A

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

44
Q

Normal goods

A

YED>0; demand increases as income increases

45
Q

Normative statement

A

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

46
Q

Opportunity cost

A

The value of the next best alternative forgone

47
Q

Perfectly price elastic
good

A

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

48
Q

Perfectly price inelastic
good

A

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

49
Q

Positive externalities of
consumption

A

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

50
Q

Positive statement

A

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

51
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

52
Q

Price elasticity of
demand (PED)

A

The responsiveness of demand to a change in price
%change in QD
%change in P

53
Q

Price elasticity of
supply (PES)

A

The responsive of supply to a change in price
%change in QD
%change in P

54
Q

Price mechanism

A

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

55
Q

Private cost/benefit

A

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

56
Q

Private goods

A

Goods that are rivalry and excludable

57
Q

Producer surplus

A

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

58
Q

Public goods

A

Goods that are non-excludable and non-rivalry

59
Q

Rationality

A

Decision-making that leads to economic agents maximising their
utility

60
Q

Regulation

A

Laws to address market failure and promote competition between
firms

61
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

62
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

63
Q

Renewable resources

A

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

64
Q

Scarcity

A

The shortage of resources in relation to the quantity of human wants

65
Q

Social cost/benefit

A

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

66
Q

Social optimum position

A

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

67
Q

Social science

A

The study of societies and human behaviour

68
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

69
Q

Specific tax

A

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

70
Q

State provision of
goods

A

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

71
Q

Subsidy

A

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

72
Q

Substitutes

A

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

73
Q

Supply

A

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

74
Q

Symmetric information

A

Where buyers and sellers both have access to the same information

75
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

76
Q

Unitary price elastic
good

A

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

77
Q

Utility

A

The satisfaction derived from consuming a good

78
Q

Weakness at
computation

A

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

Economics key terms (4 decks)

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