Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

Economics Definitions > Theme 1: Introduction to Markets and Market Failure > Flashcards

Theme 1: Introduction to Markets and Market Failure Flashcards

1
Q

Ad valorem tax

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Asymmetric information

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Ceteris Paribus

A

All other things remain constant

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Command economy

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Complementary goods

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Consumer surplus

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

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 / %Change in P of B

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Division of Labour

A

When labour is specialised during the production process

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Economic problem

A

The problem of scarcity; wants are unlimited but resources are finite

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Efficiency

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Excess demand

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Excess supply

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Externalities

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

External cost/benefit: (2)

A
  • The cost/benefit to a third party not involved in the economic activity;
  • The difference between social cost/benefit and private cost/benefit
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Free rider principle (2)

A
  • People who do not pay for a public good but still receive benefits from it
  • The private sector will under-provide the good as they cannot make a profit
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Government failure

A

When government intervention leads to a net welfare loss in society

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Habitual behaviour

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Incidence of tax

A

The tax burden on the taxpayer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Income elasticity of demand (YED)

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Indirect tax

A

Taxes on expenditure which increase production costs and lead to a fall in supply

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Inferior goods

A

YED < 0
Goods which see a fall in demand as income rises

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Information gap

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Information provision
When the government intervenes to provide information to correct market failure
26
Luxury goods
YED > 1 An increase in incomes causes an even bigger increase in demand
27
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
28
Market forces
Forces in free markets which act to reduce prices when there is excess supply and increase them when there is excess demand
29
Maximum price
A ceiling price which a firm cannot charge above
30
Minimum price
A floor price which a firm cannot charge below
31
Mixed economy
Both the free market mechanism and the government allocate resources
32
Negative externalities of production
Where the social costs of producing a good are greater than the private costs of producing the good
33
Non-excludable
A characteristic of public goods; someone cannot be prevented from using the good
34
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
35
Non-rivalry
A characteristic of public goods; one person's use of the good does not prevent someone else from using it
36
Normal goods
YED > 0 Demand increases as income increases
37
Normative statement
Subjective statements based on value judgements and opinions; cannot be proven or disproven
38
Opportunity cost
The value of the next best alternative forgone
39
Positive statement
Objective statements which can be tested with factual evidence to be proven or disproven
40
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
41
Price elasticity of demand (PED):
The responsiveness of demand to a change in price % change in QD / % change in P
42
Price elasticity of supply (PES)
The responsiveness of supply to a change in price % change in QS / % change in P
43
Price mechanism
The system of resource allocation based on the free market movement of prices, determined by the demand and supply curves
44
Private cost/benefit
The cost/benefit to the individual participating in the economic activity
45
Private goods
Goods that are rivalrous and excludable
46
Producer surplus
The difference between the price the producer is willing to charge and the price they actually charge
47
Public goods
Goods that are non-excludable and non-rivalry
48
Rationality
Decision-making that leads to economic agents maximising their utility
49
Regulation
Laws to address market failure and promote competition between firms
50
Renewable resources
Resources which can be replenished, so the stock of resources can be maintained over a period of time
51
Scarcity
The shortage of resources in relation to the quantity of human wants
52
Social cost/benefit
The cost/benefit to society as a whole due to the economic activity
53
Social Optimum position
Where social costs equal social benefits; the amount which should be produced/consumed in order to maximise social welfare
54
Specialisation
The process of an organisation concentrating its labour and resources on a certain type of production to be more efficient and create a comparative advantage for an economy.
55
Specific tax
A tax imposed on a good where the value of a tax is dependent on the quantity that is bought
56
State provision of goods
Through taxation, the government provides public goods or merit goods which are underprovided in the free market
57
Subsidy
Government payments to a producer to lower their costs of production and encourage them to produce more
58
Substitutes
Positive XED; if good B becomes more expensive, demand for good A rises
59
Symmetric information
Where buyers and sellers both have access to the same information
60
Tradable pollution permits
Licences which allow businesses to pollute up to a certain amount. The government controls the number of licences 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
61
Utility
The satisfaction derived from consuming a good
62
Weakness at computation
A cause of irrational behaviour; when consumers are bad at making calculations, estimating probabilities and working out future benefits/costs

Economics Definitions (6 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions