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ALevel Economics (Edexcel A) > Theme 1 > Flashcards

Theme 1 Flashcards

1
Q

Ad valorem tax

A

An indirect tax imposed on a good where the value of the tax is dependant 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 faliure

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3
Q

Capital

A

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

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4
Q

capital goods

A

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

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5
Q

ceteris paribus

A

all other things remaining the same

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6
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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7
Q

complementary goods

A

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

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8
Q

consumer goods

A

goods bought and demanded by households and individuals

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9
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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10
Q

Cross elasticity of demand (XED)

A

the responsiveness of demand for one good to a change in the price of another good

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11
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 in time

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12
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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13
Q

division of labour

A

when labour becomes specialised during the production process so each worker does a specific task in cooperation with other workers

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14
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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15
Q

efficiency

A

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

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16
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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17
Q

equilibrium price/quantity

A

where demand equals supply so there are no more market forces bringing about change to price or quantity sold

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18
Q

excess demand

A

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

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19
Q

excess supply

A

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

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20
Q

externalities

A

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

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21
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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22
Q

free market

A

an economy where the market mechanism allocates resources so consumers and producers make decision about what is produced, how to produce it and for whom

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23
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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24
Q

government failiure

A

when government intervention leads to a net welfare loss in society

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25
habitual behaviour
a cause of irrational behavior; when consumers are in the habit of making certain decisions
26
incidence of tax
the tax burden on the taxpayer
27
income elasticity of demand (YED)
the responsiveness of demand to a change in income
28
indirect tax
taxes on expenditure which increase production costs and lead to a fall in supply
29
inferior goods
YED<0; goods which see a fall in demand as income increases
30
information gaps
when an economic agent lacks the information needs to make a rational, informed decision
31
labour
one of the four factors of production; human capital
32
land
one of the four factors of production; natural resources such as oil, coal, wheat, physical space
33
luxury goods
YED>1; an increase in incomes cause even bigger increase in demand
34
market failiure
when the free market fails to allocate resources to the best interest of society, so there is an inefficeint allocation of scarce resources
35
market forces
forces in free markets which act to reduce prices when there is excess supply and increase them when there is excess demand
36
mimimum price
a floor price which a firm cannot charge below
37
mixed economy
both the free market mechanism and the government allocate resources
38
model
a hypothesis which can be proven or tested by evidence; it tends to be mathematical whilst a theory is in words
39
negative externalitites of production
where the social costs of producing a good are greater than the private costs of producing the good
40
non-excludability
a characteristic of public goods; someone cannot be excluded from using the good
41
non-renewable resources
resources which cannot be readily replenished or replaced at a level equal to consumption; the stock level decreases over time as they are consumed
42
non-rivalry
a characteristic of public goods; one person's use of the good does not prevent someone else from using it
43
normal goods
YED>0; demand increases as income increases
44
normative statements
subjective statements based on value judgements and opinions; cannot be proven or disproven
45
opportunity cost
the value of the next best alternative forgone
46
perfectly price elastic good
PED/PES=infinity; quantity demanded/supplied falls to 0 when price changes
47
perfectly price inelastic good
PED/PES=0; quantity demanded/ supplied does not change when price changes
48
positive externalities of consumption
where the social benefits of consuming a good are larger than the private benefits of consuming that good
49
positive statements
objective statements which can be tested with factual evidence to be proven or disproven
50
production possibility frontier (PPF)
depicts the maximum productive potential of an economy, using a combination of two goods or services
51
price elasticity of demand
the responsiveness of demand to a change in price
52
price elasticity of supply
the responsiveness of supply to a change in price
53
price mechanism
the system of resource allocation based on the free market movement of prices, determined by the demand and supply curves
54
private cost/benefit
the cost/benefit to the individual participating in the economic activity
55
private goods
goods that are rivalry and excludable
56
producer surplus
the difference between the price the producer is willing to charge and the price they actually charge
57
public good
goods that are non-excludable, non-rivalry, non-rejectable and have zero marginal cost
58
rationality
decision-making that leads to economic agents maximising their utility
59
regulation
laws to address market failure and promote competition between firms
60
relatively price elastic good
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
61
relatively price inelastic good
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
62
renewable resources
resources which can be replenished, so the stock of resources can be maintained over a period of time
63
scarcity
the shortage of resources in relation to the quantity of human wants
64
social cost/benefit
the cost/benefit to society as a whole due to the economic activity
65
social optimum position
where social costs equal social benefits; the amount which should be produced/consumed in order to maximise social welfare
66
social science
the study of societies and human behaviour
67
specialisation
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
68
specific tax
a tax imposed on a good where the value of the tax is dependant on the quantity that is brought
69
state provision
when the government provides public goods or merit goods which are underprovided in the free market
70
subsidy
government payments to a producer to lower their costs of production and encourage them to produce more
71
substitutes
positive XED; if good B becomes more expensive, demand for good A rises
72
supply
the ability and willingness to provide a particular good/service at a given price at a given moment in time
73
symmetric information
where buyers and sellers both have access to the same information
74
trade pollution permits
licenses which allow businiesses 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
75
unitary price elastic good
when PED/PES=1; a change in price leads to a change in output by the same proportion
76
utiltity
the satisfaction derived from consuming a good
77
weakness at computation
a cause of irrational behavior; when consumers are bad at making calculations, estimating probablities and working out future benefits/costs

ALevel Economics (Edexcel A) (4 decks)

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