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Economics Revision Hard > Theme 1 definition > Flashcards

Theme 1 definition Flashcards

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

When an economic agent has more information than another which may lead to market failure

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3
Q

Capital

A

A factor of productions; goods which can be used in the production process

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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 owned by the state, the state decides how resources are allocated, what and whom to produce for

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6
Q

complementary goods

A

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

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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 the 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 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, this is why demand 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 limited

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15
Q

Enterprise

A

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

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16
Q

Equilibrium of price/quantity

A

When demand equals supply so there are no 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 to a third party due to an economic transaction between agents; highlights the difference between social cost/benefit and private cost/benefits

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20
Q

Free market

A

An economy where the market mechanism allocated resources so consumers and producers make decisions about what is produced and how and for whom

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21
Q

Free rider problem

A

People who do not pay for a public good still receives benefits from it so the private sector will under provide the good as they cannot make a profit

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22
Q

Government failure

A

When government intervention leads to a net welfare loss in society

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23
Q

Habitual behaviour

A

A cause of irrational behaviour; when consumers are in a habit of making a certain decision

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24
Q

Incidence of tax

A

The tax burden on the tax payer

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25
Q

Income elasticity (YED)

A

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

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26
Q

indirect tax

A

A levy on expenditure which increases production cost, leading to a fall in supply

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27
Q

inferior goods

A

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

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28
Q

Information gap

A

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

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29
Q

Information provision

A

When the government provides information to correct market failure

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30
Q

Labour

A

One of the factors of production; human capital

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31
Q

Land

A

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

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32
Q

Luxury goods

A

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

33
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

34
Q

Market forces

A

Forces in the free market which acts to reduce prices when there is excess supply and increases them when there is excess demand

35
Q

Maximum price

A

A price ceiling below market equilibrium that firms cannot charge above

36
Q

Minimum price

A

A price floor set above equilibrium that firms cannot charge below

37
Q

Mixed economy

A

Both the free market mechanism and the government allocation of resources

38
Q

Model

A

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

39
Q

Negative externalities of production

A

Where the social cost of producing a good are greater than the private cost, this is a overproduction of demerit goods that cause negative externalities like pollution and health issues

40
Q

Non-excludable

A

Characteristic of public goods; where someone cannot prevent you from using the good as everyone has access to the good.

41
Q

Non-renewable resources

A

Resources that cannot be readily replenished or replaced at equal levels of its consumption, so general stock decreases over time e.g fossil fuel

42
Q

Non-rivalry

A

A characteristic of public goods; one persons use does not prevent someone else from using it

43
Q

Normal goods

A

YED>0, demand increases as income increases

44
Q

Normative statements

A

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

45
Q

Opportunity cost

A

The value of the next best alternative forgone

46
Q

Perfectly price elastic good

A

PED/PES = infinity, quantity demand/supply falls to zero when price change

47
Q

Perfectly price inelastic good

A

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

48
Q

Positive externalities of consumption

A

Where social benefits of consuming a good are larger than the private benefits; merit/public goods that are underproduced

49
Q

Positive statements

A

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

50
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; demonstrates opportunity cost

51
Q

Price elasticity of demand

A

The responsiveness of demand to a change in price

%change in QD / %change in price

52
Q

Price elasticity of supply

A

The responsiveness of supply to a change in price

%change in QD / %change in p

53
Q

Price mechanism

A

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

54
Q

Private cost/benefit

A

Cost/benefit to the individual participating in the economic activity

55
Q

Private goods

A

Goods that are rivalry and excludable

56
Q

Producer surplus

A

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

57
Q

Public goods

A

Goods that are non-excludable and non-rivalrous

58
Q

Rationality

A

Decision-making that leads to economic agents maximising their utility

59
Q

Regulation

A

Laws to address market failure and promote competition among firms

60
Q

Relatively price elastic goods

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 demand/supplied

61
Q

Relatively inelastic goods

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

62
Q

Renewable resources

A

Resources that can be replenished, so stock can be maintained over time

63
Q

Scarcity

A

The shortage of resources in relation to quantity of human wants

64
Q

Social cost/benefit

A

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

65
Q

Social optimum position

A

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

66
Q

Social science

A

The study of societies and human behaviour

67
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

68
Q

Specific tax

A

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

69
Q

State provision of goods

A

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

70
Q

Subsidy

A

Government payments to a producer to lower their cost of production and encourage them to produce more; grants given to firms

71
Q

Substitutes

A

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

72
Q

Supply

A

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

73
Q

Symmetric information

A

Where buyers and sellers both have access to the same information

74
Q

Trade pollution permits

A

Licenses which allow businesses to pollute up to a certain amount. Government controls amount of licenses. Businesses are allowed to sell and buy permits which means there is incentive to reduce pollution

75
Q

Unitary price elastic good

A

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

76
Q

Utility

A

The satisfaction derived from consuming a good

77
Q

Weakness at computation

A

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

78
Q
A

Economics Revision Hard (17 decks)

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