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Economics AS > Theme 1 Key Terms > Flashcards

Theme 1 Key Terms Flashcards

1
Q

Adverse selection

A

A situation in which a person at risk is more likely to take out insurance.

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2
Q

Allocative efficiency

A

Achieved when society is producing an appropriate bundle of goods relative to consumer preferences.

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3
Q

Asymmetric information

A

A situation in which some participants in a market have better information about market conditions than others.

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4
Q

Cartel

A

An agreement between firms in a market on price and output with the intention of maximising their joint profits.

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5
Q

Ceteris paribus

A

A latin phrase meaning ‘other things being equal’; it is used in economics when we focus on changes in one variable while holding other influences constant.

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6
Q

Command economy

A

An economy in which decisions on resource allocation are guided by the state.

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7
Q

Comparative static analysis

A

Examines the effect on equilibrium of a change in the external conditions affecting a market.

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8
Q

Competitive market

A

A market in which individual firms cannot influence the price of the good or service they are selling, because of competition from other firms.

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9
Q

Complements

A

Two goods are said to be complements if an increase in the price of one good causes the demand for the other good to fall.

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10
Q

Consumer surplus

A

The value that consumers gain from consuming a good or service over and above the price paid.

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11
Q

Consumption externality

A

An externality that affects the consumption side of a market, which may be either positive or negative.

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12
Q

Cross-price elasticity of demand (XED)

A

A measure of the sensitivity of quantity demanded of a good or service to a change in the price of some other good or service.

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13
Q

Demand

A

The quantity of a good or service that consumers choose to buy at any possible price in a giver period.

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14
Q

Demand curve

A

A graph showing how much of a good will be demanded by consumers at any given price.

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15
Q

Diminishing marginal utility

A

Describes the situation where an individual gains less additional utility from consuming a product, the more of it is consumed.

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16
Q

Division of labour

A

A process whereby the production procedure is broken down into a sequence of stages, and workers are assigned to a particular stage.

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17
Q

Elasticity

A

A measure of the sensitivity of one variable to changes in another variable.

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18
Q

External cost

A

A cost associated with an individual’s (a firm or household’s) production or other economic activities, which is borne by a third party and is not reflected in market prices.

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19
Q

Factors of production

A

Resources used in the production process; inputs into production, particularly including labour, capital, land and entrepreneurship.

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20
Q

Firm

A

An organisation that brings together factors of production to produce output.

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21
Q

Free-rider problem

A

When an individual cannot be excluded from consuming a good, and thus has no incentive to pay for its provision.

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22
Q

Government failure

A

A misallocation of resources arising from government intervention that causes a divergence between marginal social benefit and marginal social cost.

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23
Q

Gross domestic product (GDP)

A

A measure of economic activity carried out in an economy over a period.

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24
Q

Incidence of a tax

A

The way in which the burden of paying a sales tax is divided between buyers and sellers.

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25
Q

Income elasticity of demand (YED)

A

A measure of the sensitivity of quantity demanded to a change in consumer incomes.

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26
Q

Indirect tax

A

A tax levied on expenditure on goods or services (opposed to direct tax, which is a tax charged directly to an individual based on a component of income).

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27
Q

Inferior good

A

One where the quantity demanded decreases in response to an increase in consumer incomes.

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28
Q

Internalising an externality

A

An attempt in dealing with an externality by bringing an external cost or benefit into the price system.

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29
Q

Law of demand

A

A law that states that there is an inverse relationship between the quantity demanded and the price of a good or service, ceteris paribus.

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30
Q

Luxury good

A

One for which the income elasticity of demand is positive, and greater than 1, such that as income rises, consumer spend proportionally more on the good.

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31
Q

Macroeconomics

A

The study of the interrelationships between economic variable at an aggregate (economy-wide) level.

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32
Q

Marginal analysis

A

An approach to economic decision making based on considering the additional (marginal) benefits and costs of a change in behaviour.

33
Q

Marginal cost

A

The cost of producing an additional unit of output.

34
Q

Marginal social benefit (MSB)

A

The additional benefit that society gains form consuming an extra unit of a good.

35
Q

Marginal social cost

A

The cost to society of producing an extra u it of a good.

36
Q

Market

A

A set of arrangements that allows transactions to take place.

37
Q

Market economy

A

An economy in which market forces are allowed to guide the allocation of resources.

38
Q

Market equilibrium

A

A situation that occurs I a market when the price is such that the quantity that consumers wish to buy is exactly balanced but the quantity that firms wish to supply.

39
Q

Market failure

A

A situation in which the free market mechanism does not lead to an optional allocation of resources, e.g. Where there is a divergence between marginal social benefit and marginal social cost.

40
Q

Merit good

A

A good that brings unanticipated benefits to consumers, such that society believes it will be underconsumed in a few market.

41
Q

Microeconomics

A

The study of economic decisions taken by individual economic agents, including households and firms.

42
Q

Mixed economy

A

An economy in which resources are allocated partly through price signals and partly on the basis of intervention by the state.

43
Q

Model

A

A simplified representation of reality used to provide insight into economic decisions and events.

44
Q

Moral hazard

A

A situation in which a person who has taken insurance is prone to taking more risk.

45
Q

Necessity

A

A good for which the income elasticity of demand is positive, and less than 1, such that as income rises, consumers spend proportionally less on the good.

46
Q

NIMBY (not in my back yard)

A

A syndrome under which people are happy to support the construction of an unsightly or unsocial facility, so long as it is not their own area.

47
Q

Non-renewable resources

A

Natural resources that once used cannot be replenished, such as coal or oil.

48
Q

Normal good

A

One where the quantity demanded increases in response to an increase in consumer incomes.

49
Q

Normative statement

A

A statement hat involves a value judgment about what ought to be.

50
Q

Opportunity cost

A

I ndecision making, the value of the next best alternative forgone.

51
Q

Positive statement

A

A statement about what is (I.e. About facts)

52
Q

Potential economic growth

A

An expansion in the productive capacity of the economy.

53
Q

Price elasticity of demand (PED)

A

A measure of the sensitivity of quantity demanded to a change in the price of a good or service.

54
Q

Price elasticity of supply (PES)

A

A measure of the sensitivity of quantity supplied of a good or service to a change in the price of that good or service.

55
Q

Private cost

A

A cost incurred by an individual (firm or consumer) as part of its production or other economic activities.

56
Q

Private good

A

A good that, once consumed by one person, cannot be consumed by somebody else; such a good has excludability and is rivalrous.

57
Q

Producer surplus

A

The different between the price received by firms for a good or service and the price at which they would have been prepared to supple that good or service.

58
Q

Production externality

A

An externality that affects the production side of a market, which may be either positive or negative.

59
Q

Production possibility frontier (PPF)

A

A curve showing the maximum combinations of goods and services that can be produced in a given period with available resources.

60
Q

Prohibition

A

An attempt to prevent the consumption of a demerit good by declaring it illegal.

61
Q

Public good

A

A good that is non-exclusive and non-rivalrous consumption - consumers cannot be excluded from consuming the good, and consumption by one person doesn’t affect the amount of the good available for others to consume.

62
Q

Relatively elastic

A

A term used when the price elasticity of demand is grater than 1 but less than infinity.

63
Q

Relatively I elastic

A

A term used when the PED is less that 1 but greater than 0

64
Q

Renewable resources

A

Natural resources that can be replenished, such as forests that can be replanted, or solar energy that does not get used up.

65
Q

Scarcity

A

A situation that arises then people have unlimited wants Kent eh face of limited resources

66
Q

Social cost

A

Private cost plus external cost

67
Q

Subsidy

A

A grant given by the government to producers to encourage production of a good or service

68
Q

Substitutes

A

Two good are said to be substitute is the demand of one good is likely to rise if the price of the other rises

69
Q

Shoot

A

The quantities of a good or service that firms choose to sell at any possibly price given

70
Q

Supply curve

A

A graph showing the quantity supplies at any given price

71
Q

Sustainable development

A

“Development which meets the need of the present without compromising the ability of future generations to meet their own needs”

72
Q

Unitary elastic

A

A term used when the price elasticity of demand is equal to 1.

73
Q

Tradable pollution permits

A

Pollution permits that can be bought and sold in a market. They are an attempt to solve the problem of pollution by creating a market for it.

74
Q

Guaranteed minimum price

A

Where the surplus output created is purchased by a government agency at the minimum price. The main aim of such a scheme is to protect producer incomes.

75
Q

Administration costs

A

The costs which arise in the formulation, monitoring and enforcing of government measures to correct market failure.

76
Q

Maximum price

A

A ceiling price set by the government on a good or service, above which it cannot rise. It may be enforced through government legislation.

77
Q

Minimum price

A

A floor price set by the government on a good or service, below which it cannot fall. It may be enforced through government legislation.

78
Q

Regulation

A

Government rules in markets to influence the behaviour of consumers and producers.

Economics AS (8 decks)

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