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Theme 1 definitions Flashcards

1
Q

What is an 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

What is asymmetric information?

A

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

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3
Q

What is capital?

A

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

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4
Q

What are capital goods?

A

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

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5
Q

What does ceteris paribus mean?

A

All other things remaining the same.

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6
Q

What is a 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

What are complementary goods?

A

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

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8
Q

What are consumer goods?

A

Goods bought and demanded by households and individuals.

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9
Q

What is 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

What is 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

What is 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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12
Q

What is the economic problem?

A

The problem of scarcity; wants are unlimited but resources are finite so choices have to be made.

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13
Q

What is efficiency?

A

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

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14
Q

What is cross elasticity of demand (XED)?

A

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

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15
Q

What is 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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16
Q

What is 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

What is 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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18
Q

What is excess demand?

A

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

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19
Q

What is excess supply?

A

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

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20
Q

What are 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

What are external costs/benefits?

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

What is a 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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23
Q

What is the 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

What is government failure?

A

When government intervention leads to a net welfare loss in society.

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

Microeconomics (13 decks)

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