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Eco: Micro > Theme 1 - Intro to Markets and Market Failure > Flashcards

Theme 1 - Intro to Markets and Market Failure Flashcards

1
Q

Define ‘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

Define ‘Assymetric Info’

A

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

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3
Q

Define ‘Capital’

A

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

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4
Q

Define ‘Capital goods’

A

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

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5
Q

Define ‘Ceteris paribus’

A

All other things remaining the same

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6
Q

Define ‘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

Define ‘Complementary Goods’

A

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

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8
Q

Define ‘Consumer goods’

A

Goods bought and demanded by households and individuals

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9
Q

Define ‘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

Define ‘Cross elasticity of Demand (XED)’

A

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

%change in QD of A (divided by)
%change in P of B

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11
Q

Define ‘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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12
Q

Define ‘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

Define ‘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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14
Q

Define ‘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

Define ‘Efficiency’

A

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

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16
Q

Define ‘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

Define ‘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

Define ‘Excess Demand’

A

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

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19
Q

Define ‘Excess Supply’

A

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

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20
Q

Define ‘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

Define ‘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

Define ‘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

Define ‘Freedom 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

Define ‘Govt Failure’

A

When government intervention leads to a net welfare loss in society

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25
Define ‘Habitual Behaviour’
A cause of irrational behaviour; when consumers are in the habit of making certain decisions
26
Define ‘Incidence of Tax’
The tax burden on the taxpayer
27
Define ‘Income Elasticity of Demand’
The responsiveness of demand to a change in income %change in QD (divided by) %change in Y
28
Define ‘Indirect Tax’
Taxes on expenditure which increase production costs and lead to a fall in supply
29
Define ‘Inferior Goods’
YED<0; goods which see a fall in demand as income increases
30
Define ‘Info Gap’
When an economic agent lacks the information needed to make a rational, informed decision
31
Define ‘Info Provision’
When the government intervenes to provide information to correct market failure
32
Define ‘Labour’
1 of the 4 factors of production; human capital
33
Define ‘Land’
1 of the 4 factors of production; natural resources such as oil, coal, wheat, physical space
34
Define ‘Luxury Goods’
YED>1; an increase in incomes causes an even bigger increase in demand
35
Define ‘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
36
Define ‘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
Define ‘Maximum Price’
A ceiling price which a firm cannot charge above
38
Define ‘Minimum Price’
A floor price which a firm cannot charge below
39
Define ‘Mixed Economy’
Both the free market mechanism and the government allocate resources
40
Define ‘Model’
A hypothesis which can be proven or tested by evidence; it tends to be mathematical whilst a theory is in words
41
Define ‘Negative Externalities of Production’
Where the social costs of producing a good are greater than the private costs of producing the good
42
Define ‘Non-excludable’
A characteristic of public goods; someone cannot be prevented from using the good
43
Define ‘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
44
Define ‘Non-rivalry’
A characteristic of public goods; one person’s use of the good does not prevent someone else from using it
45
Define ‘Normal goods’
YED>0; demand increases as income increases
46
Define ‘Normative Statement’
Subjective statements based on value judgements and opinions; cannot be proven or disproven
47
Define ‘Opportunity Cost’
The value of the next best alternative forgone
48
Define ‘Perfectly price Elastic good’
PED/PES=Infinity; quantity demanded/supplied falls to 0 when price changes
49
Define ‘Perfectly price Inelastic good’
PED/PES=0; quantity demanded/supplied does not change when price changes
50
Define ‘Positive Externalities of Consumption’
Where the social benefits of consuming a good are larger than the private benefits of consuming that good
51
Define ‘Positive Statement’
Objective statements which can be tested with factual evidence to be proven or disproven
52
Define ‘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
53
Define ‘Price Elasticity of Demand (PED)’
The responsiveness of demand to a change in price %change in QD (divided by) %change in P
54
Define ‘Price Elasticity of Supply (PES)’
The responsive of supply to a change in price %change in QD (divided by) %change in P
55
Define ‘Price Mechanism’
The system of resource allocation based on the free market movement of prices, determined by the demand and supply curves
56
Define ‘Private cost/benefit’
The cost/benefit to the individual participating in the economic activity
57
Define ‘Private goods’
Goods that are rivalry and excludable
58
Define ‘Producer Surplus’
The difference between the price the producer is willing to charge and the price they actually charge
59
Define ‘Public goods’
Goods that are non-excludable and non-rivalry
60
Define ‘Rationality’
Decision-making that leads to economic agents maximising their utility
61
Define ‘Regulation’
Laws to address market failure and promote competition between firms
62
Define ‘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
63
Define ‘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
64
Define ‘Renewable Resources’
Resources which can be replenished, so the stock of resources can be maintained over a period of time
65
Define ‘Scarcity’
The shortage of resources in relation to the quantity of human wants
66
Define ‘Social cost/benefit’
The cost/benefit to society as a whole due to the economic activity
67
Define ‘Social Optimum Position’
Where social costs equals social benefits; the amount which should be produced/consumed in order to maximise social welfare
68
Define ‘Social Science’
The study of societies and human behaviour
69
Define ‘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
70
Define ‘Specific Tax’
A tax imposed on a good where the value of the tax is dependent on the quantity that is bought
71
Define ‘State Provision of Goods’
Through taxation, the government provides public goods or merit goods which are underprovided in the free market
72
Define ‘Subsidy’
Government payments to a producer to lower their costs of production and encourage them to produce more
73
Define ‘Substitutes’
Positive XED; if good B becomes more expensive, demand for good A rises
74
Define ‘Supply’
The ability and willingness to provide a particular good/service at a given price at a given moment in time
75
Define ‘Symmetric Information’
Where buyers and sellers both have access to the same information
76
Define ‘Trade Pollution Permits’
Licenses which allow businesses to pollute up to a certain amount, controlled by the Govt. Permits can be bought and sold between businesses with an incentive to reduce pollution
77
Define ‘Unitary Price Elastic good’
When PED/PES=1; a change in price leads to a change in output by the same proportion
78
Define ‘Utility‘
The satisfaction derived from consuming a good
79
Define ‘Weakness at Computation’
A cause of irrational behaviour; when consumers are bad at making calculations, estimating probabilities and working out future benefits/costs

Eco: Micro (1 decks)

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