Topic 2: The allocation of resources Flashcards
Define demand
The amount of a good/service bought at given prices over a period of time
Define quantity demanded
The amount of a good/service bought at a specific price over a period of time
Define a substitute
A good/service that satisfies the same needs and wants as another good/service (i.e. Coke and Pepsi)
Define supply
The amount of a good or service produced/provided at a given price/all prices over a period of time
Define quantity supplied
The amount of a good or service provided/produced at a specific price over a period of time
List the 6 non-price determinants of supply
1: cost of raw materials
2: wages
3: rent
4: tax + subsidies
5: new technology
6: price of related goods
Define market equilibrium
The price and quantity at which quantity demanded and quantity supplied can equal
Define excess supply
When quantity supplied of a good exceeds the quantity demanded
Define excess demand
When quantity demanded exceeds quantity supplied
Define price elasticity of demand
The price elasticity of demand is a measure of responsiveness of quantity demanded to a change in price
Define total revenue
The total amount generated from sales
What are the three factors affecting PED?
1: Availability of substitutes
2: Price as a proportion of income
3: Time
Define price elasticity of supply
A measurement of the responsiveness of quantity supplied to a change in price
What are the four factors affecting PES?
1: Time
2: The availability of resources
3: Stock levels
4: Mobility of factors of production
Define the market system
The way in which an economy is structured & organised
Define free market
An economic system which relies on the market forces of demand & supply to allocate goods and services
Define private sector
The economic activity of privately owned firms and individuals
Define planned economy
An economic system which relies on direct involvement from the government to allocate goods & services (i.e. North Korea and Cuba)
Define public sector
Economic activity which directly involved the government
Define free market
minimal government intervention
Define mixed economy
an economic system where resources are allocated by bother the private and public sectors
Define market failure
when a market fails to allocate resources in the most socially desirable way
Define private benefit
The benefit of an economic activity to those involved in the activity (i.e. satisfaction, profit, utility)
Describe private cost
The cost of an economic activity to those individuals in that activity (i.e. price paid by consumers, cost of production, health costs)
Define a rational consumer
A rational consumers will consume the quantity of a good where the private cost equals the private benefit
Define a rational producer
Rational producers will produce the quantity of a good where the private cost equals the private benefit.
Define an external cost
The cost of an economic activity on third parties
Define an external benefit
The benefit of an economic activity on third parties
Define a social cost
cost of an economic activity on society (i.e. those involved & those not involved in the activity)
Define a social benefit
benefit of an economic activity on society
Define a demerit good
goods that are overconsumed and overproduced
Define a merit good
goods that are underconsumed and underproduced
Define minimum price
A price below which a good cannot legally be sold
Define maximum price
a price above which a good cannot legally be sold
Define indirect taxation
a payment/tax taken indirectly through the consumption of goods/services (taken indirectly from income)
List the 6 responses to market failure
1: Minimum Price
2: Maximum Price
3: Indirect Tax
4: Subsidies
5: Social Advertising
6: Regulations
Define a subsidy
A payment from a government to a firm to lower the costs of production
Define social advertising
When governments attempt to influence consumption behaviour through public advertisement
