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Economics Edexcel AS Level > Theme 1: An introduction to markets and market failure > Flashcards

Theme 1: An introduction to markets and market failure Flashcards

1
Q

Capital goods

A

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

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2
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 from whom

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3
Q

Normal goods

A

YED>0; demand increases as income increases

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4
Q

Renewable resources

A

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

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5
Q

Positive externalities of consumption

A

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

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6
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

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7
Q

Market forces

A

Forces in free markets which act to reduce prices when there is excess supply and increase them when there is excess demand

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8
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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9
Q

Social optimum position

A

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

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10
Q

Perfectly price inelastic good

A

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

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11
Q

Regulation

A

Laws to address market failure and promote competition between firms

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12
Q

Labour

A

One of the four factor of production; human capital

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13
Q

Externalities

A

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

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14
Q

Unitary price elastic good

A

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

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15
Q

Luxury goods

A

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

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16
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 larger change in quantity demanded/supplied

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17
Q

Habitual behaviour

A

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

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18
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

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19
Q

Opportunity cost

A

The value of the next best alternative forgone

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20
Q

Equilibrium price/quantity

A

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

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21
Q

Mixed economy

A

Both the free market mechanism and the government allocate resources

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22
Q

Subsidy

A

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

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23
Q

Model

A

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

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24
Q

Private goods

A

Goods that are rivalry and excludable

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25
Q

Command economy

A

All factors of production are allocated by the state, so they decide what, how and from whom to produce goods

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26
Q

Social cost/benefit

A

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

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27
Q

Normative statements

A

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

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28
Q

Utility

A

The satisfaction derived from consuming a good

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29
Q

Specific tax

A

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

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30
Q

Consumer goods

A

Goods bought and demanded by households and individuals

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31
Q

Indirect tax

A

Taxes levied on goods and services which increases production and leads to a fall in supply, although this is often partially, or fully, passed onto consumers

32
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

33
Q

Enterprise

A

One of the four factors of production the willingness and ability to take risk and combine the three other factors of production

34
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

35
Q

Supply

A

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

36
Q

Producer surplus

A

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

37
Q

Public good

A

Goods that are non-excludable, non-rivalry, non-resectable and have zero marginal cost

38
Q

Ceteris paribus

A

All else is equal

39
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

40
Q

Cross elasticity of demand (XED)

A

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

41
Q

Consumer surplus

A

The difference between the price the consumer is willing to pay and the price they actually pay

42
Q

Land

A

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

43
Q

Price mechanism

A

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

44
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

45
Q

Rationality

A

Decision-making that leads to economic agents maximising their utility

46
Q

inferior goods

A

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

47
Q

Non-excludability

A

A characteristic of public goods, someone cannot be prevent from using the good

48
Q

Economic problem

A

The problem of scarcity; wants are unlimited by recourse are finite so choices have to be made

49
Q

Division of labour

A

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

50
Q

Scarcity

A

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

51
Q

Substitutes

A

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

52
Q

Income elasticity of demand (YED)

A

The responsiveness of demand to a change in income

53
Q

Asymmetric information

A

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

54
Q

Negative externalities of production

A

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

55
Q

Excess supply

A

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

56
Q

Diminishing marginal utility

A

satisfaction or usefulness as additional units of a product are consumed; explains why the demand curve is downward sloping

57
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

58
Q

Price elasticity of demand

A

The responsiveness of demand to a change in price

59
Q

Price elasticity of supply

A

The responsive of supply to a change in price

60
Q

Government failure

A

When government intervention leads to a net welfare loss in society

61
Q

Symmetric information

A

Where buyers and sellers both have access to the same information

62
Q

State provision

A

When the government provides public goods or merit goods which are under provided in the free market

63
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

64
Q

Positive statements

A

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

65
Q

Minimum price

A

A floor price which a firm cannot charge below

66
Q

Non-rivalry

A

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

67
Q

Capital

A

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

68
Q

Perfectly price elastic good

A

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

69
Q

Complementary goods

A

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

70
Q

Efficiency

A

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

71
Q

Social science

A

The study of societies and human behaviour

72
Q

Private cost/benefit

A

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

73
Q

Information gaps

A

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

74
Q

Possibility production fortifier (PPF)

A

Depicts the maximum productive potential of an economy, using combination of two goods or services

75
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

76
Q

Incidence of tax

A

The tax burden on the taxpayer

77
Q

Excess demand

A

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

Economics Edexcel AS Level (1 decks)

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