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Economics DEFINITIONS > Theme 1 > Flashcards

Theme 1 Flashcards

1
Q

Ad Valorem Tax

A

An Indirect tax levied on goods and services where the value of the tax is dependent on the value of the good or service.

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2
Q

Assymetric Information

A

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

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3
Q

Capital

A

Goods which can be used in the production process.

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4
Q

Ceteris Paribus

A

All other things being constant.

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5
Q

Command Economy

A

Factors of production are allocated by the Government to prevent market failure.

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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 Surplus

A

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

The responsiveness of the Demand for good A to a change in price of good B. (%change demand good A / %change of price of good B)

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9
Q

Demand

A

The quantity of a Good or service that consumers are willing and able to buy at a given price.

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10
Q

Diminishing Marginal Utility

A

Additional benefit decreases as consumption of a good increases.

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11
Q

Division of Labour

A

When labour is given specific, specialised tasks during the production process in cooperation with other workers.

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12
Q

Economic Problem

A

The problem of Scarcity; wants are unlimited but resources are finite.

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13
Q

Efficiency

A

Optimal Allocation of Resources

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14
Q

Enterprise

A

The willingness and ability to rake risks and combine the three other factors of production.

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15
Q

Equilibrium Price / Quantity

A

Where Demand equals supply so there are no more market forces bringing about change.

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16
Q

Excess Demand

A

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

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17
Q

Excess Supply

A

When price is set too high so supply is greater than demand.

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18
Q

Externalities

A

The cost or benefit a third party receives from an economic transaction outside of the market mechanism. (Difference between Social cost/benefit and Private cost/benefit)

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19
Q

Free Market

A

An economy where the market mechanism allocates resources.

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20
Q

Free Rider Principle

A

People who do not pay for a public good but still receive the benefits so the private sector will under provide the good as they cannot make a profit.

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21
Q

Government Failure

A

When Government intervention leads to a net welfare loss in society due to misallocation of resources.

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22
Q

Habitual Behaviour

A

A cause of irrational behaviour. When consumers repeat certain decisions.

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23
Q

Incidence of Tax

A

The tax burden on the taxpayer

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24
Q

Income Elasticity of Demand (XEY)

A

The responsiveness of Demand to a change in income. (%change in Demand / %change in Income)

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25
Q

Indirect Taxes

A

Taxes levied on expenditure.

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26
Q

Inferior Goods

A

Goods which see a fall in demand when incomes rise.

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27
Q

Information Gap

A

Lack of information preventing a rational and informed decision from being made.

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28
Q

Information Provision

A

When the Government provides information in order to correct market failure.

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29
Q

Labour

A

Human Capital

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30
Q

Land

A

Natural resources: oils gas etc.

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31
Q

Luxury Goods

A

When an increase in income also leads to an even bigger increase in demand.

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32
Q

Market Failure

A

When the market mechanism fails to efficiently allocate scarce resources.

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33
Q

Market Forces

A

Forces in the market mechanism which act to reduce prices when there is excess supply and increase prices when there is excess demand.

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34
Q

Maximum Prices

A

A ceiling price which a firm cannot charge above.

35
Q

Minimum Prices

A

A floor price which a firm cannot charge below.

36
Q

Mixed Economy

A

Both the free market and the government allocate resources.

37
Q

Model

A

A hypothesis that tends to be mathematical and can be proven with evidence.

38
Q

Negative externalities of production

A

Where the social costs of producing a good is greater than the private costs of producing a good.

39
Q

Non-excludable

A

When someone cannot be prevented from using the good. (Public Goods)

40
Q

Non renewable Resources

A

Resources cannot be readily replenished or replaced.

41
Q

Non rivalry

A

One persons use of a good does not prevent someone else from using it.

42
Q

Normal Good

A

Demand increases as incomes increase.

43
Q

Normative Statement

A

Subjective statements based on value judgements. (Cannot be proven or disproven)

44
Q

Opportunity Cost

A

The value of the next best foregone alternative.

45
Q

PerfectlyPrice Elastic

A

PED / PES = infinity. Quantity demanded / supplied falls to zero when there is a change of price.

46
Q

Perfectly price inelastic

A

PED / PES = 0. Quantity demanded / supplied does not change with a change of price.

47
Q

Positive externality of consumption

A

When the social benefit of consuming a good are greater than the private benefits.

48
Q

Positive Statement

A

Objective statement that can be proven or disproven with factual evidence.

49
Q

Possibility Production Frontier

A

The maximum productive potential of an economy using the combination of two goods or services.

50
Q

Price Elasticity of Demand

A

The responsiveness of a change in demand due to a change in price. (% change in QD / % change in price)

51
Q

Price elasticity of supply

A

The responsiveness of supply due to a change in price. (% change in supply / % change in price)

52
Q

Price mechanism

A

Allocation of resources based on the free market movement of prices determined by demand and supply curves.

53
Q

Private Costs / Benefits

A

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

54
Q

Private Goods

A

Goods that are rivalry and Excludable.

55
Q

Producer Surplus

A

The difference between the price the producer was willing to charge and the price actually charged.

56
Q

Public Good

A

Goods that are non excludable and non rival.

57
Q

Rationality

A

A decision made that maximises utility.

58
Q

Regulation

A

Laws to address market failure and promote competition between firms.

59
Q

Relatively price Elastic

A

PES / PED > 1. A small change in price can lead to a large change in quantity supplied / demanded

60
Q

Relatively Price Inelastic

A

PES / PED < 1. A change in price will lead to a small change in quantity supplied / demanded.

61
Q

Renewable resources

A

Can be replenished at the same rate at which they are being used.

62
Q

Scarcity

A

The shortage of resources in relation to human wants.

63
Q

Social cost / benefit

A

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

64
Q

Social optimum position

A

Social costs = social benefits. Social welfare is maximised.

65
Q

Social Science

A

Study of societies and human behaviour

66
Q

Specialisation

A

The production of a limited range of goods and services. Preventing self sufficiency and forcing trade with others.

67
Q

Specific tax

A

A tax levied on a good that is dependent on the quantity bought.

68
Q

State Provision of goods.

A

Through taxation the government provides goods which are under provided by the free market.

69
Q

Subsidy

A

Government payment to a producer in order to lower their costs which encourages increased production.

70
Q

Substitutes

A

Positive XED. If good B becomes more expensive, quantity of demand for good A rises.

71
Q

Supply

A

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

72
Q

Symmetric Information

A

When both sellers and buyers have access to the same information.

73
Q

Trade Pollution Permits

A

Licences which allow a firm to pollute up to a certain point. Number of permits limited by the Government. Can be traded which incentivises lowered emissions.

74
Q

Unitary Price Elasticity of Deman

A

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

75
Q

Utility

A

The satisfaction derived from consuming a good

76
Q

Weakness at computation

A

A cause of irrational behaviour. When consumers are bad at making judgements, calculations and future predictions.

77
Q

PES Question

A 
T - Time
E - Economy State
A - Availability 
S - Stockpiles / Perishability
S - Spare Capacity
78
Q

PED Question

A 
N - Necessity / Luxury
A - Addiction / Habit
S - Substitutes
B - Branding
I - Income
T - Time
79
Q

Evaluating Externalities Question

A

O - Opposite Externalities
Q - Quantify
T - Time

80
Q

MATES Framework

A 
M - Missing Info
A - Apply to all
T - Time
E - Elasticity
S - Scale
81
Q

Pollution Permits

A

Pro:

Permits can be traded
Government can set a cap on pollution
Incentive to Invest in technology

Con:
Hard to Quantify how many permits to supply
Admin Costs may be greater

82
Q

Tradable Pollution Permits

A

Permits which allow firms to pollute up to a certain point. These can then be traded between firms.

83
Q

XED

A

Positive Value - Substitutes
Negative Value - Complements

(Negative Complements)

Economics DEFINITIONS (2 decks)

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