u1 definations Flashcards
1
Q
positive economics
A
the scientific or objective study of how economies and markets actually work.
2
Q
positive statements
A
statements about economics that can be proven true or false against evidence.
3
Q
normative economics
A
deals with value judgements and is focused on the idea of fairness.
4
Q
normative statements
A
statements about economics that cannot be supported or refuted, they are opinions.
5
Q
scarcity
A
economic agents, like individuals and firms, can only obtain a limited amount of resources at any moment in time.
6
Q
economic goods
A
resources that are scarce
7
Q
free goods
A
resources that aren’t scarce, like air.
8
Q
basic economic problem
A
humans have unlimited wants but there are limited resources to provide the goods and services that fulfill these wants, thus choices must be made.
9
Q
opportunity cost
A
the next best alternative forgone
10
Q
renewable resources
A
Resources that can be exploited repeated
because they have potential to renew themselves such as fish, forest, wind
11
Q
non-renewable resources
A
Resources that once exploited, it cannot be
replaced such as oil, coal
12
Q
land
A
a Factor of Production that includes natural resources and physical space
13
Q
labor
A
the effort expended by an individual to bring a product or service to the market.
14
Q
capital
A
the machinery, tools and buildings humans use to produce goods and services.
15
Q
enterprise
A
the factor of production that organises the other factors of production into a production unit to produce a good/service, takes the risks of the firm.
16
Q
ppc / ppf
A
a curve that shows the maximum possible combinations of two goods that can be produced with existing resources and technology
17
Q
margin
A
a point of possible change
18
Q
marginal cost
A
the change in total production cost that comes from making or producing one additional unit.
19
Q
productive efficiency
A
producing the largest number of products and services based on the resources available
20
Q
allocative efficiency
A
when markets use scarce resources to make the products and provide the services that society demands and desires
21
Q
pareto efficiency
A
a situation where no action or allocation is available that makes one individual better off without making another worse off.
22
Q
capital goods
A
goods that are used in producing other goods, rather than being bought by consumers.
23
Q
consumer goods
A
goods bought and used by consumers, rather than by manufacturers for producing other goods.
24
Q
specialization
A
the process wherein a firm decides to focus their labor on a specific type of production, producing goods which they have a production advantage over others
25
division of labor
where production is broken down into tasks and each worker specialises on one task
26
27
market mechanism / price mechanism
the situation where decisions on price and quantity in a market are made based on demand and supply alone.
28
free market economy
an economic system based on competition, with little or no government interference and a decentralized decision making process
29
mixed economy
An economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies.
30
command economy/planned economy
economy where a centralized government controls the means of production and determines output levels
31
framing and bias
involves how information is presented to influence perception and decision-making which makes it harder of consumers to make rational choices
32
principle-agent problem
when one party, called the principal, delegates decision-making authority or tasks to another party, known as the agent. The problem arises because the interests of the principal and the agent may not align perfectly.
33
demand
quantity of a good or service that consumers are willing and able to purchase at various prices during a given period, ceteris paribus
34
extension and contraction of demand
quantity demanded rises, quantity demanded falls
35
effective demand
level of demand that exists in the economy at the market price, taking into account customers ability to buy a good or service
36
income effect
change in quantity demanded resulting from changes in consumers' real income due to price changes, reflecting how purchasing behavior changes with purchasing power
37
substitution effect
change in quantity demanded of a good or service resulting from a change in its relative price compared to substitutes
38
diminishing marginal utility
additional satisfaction derived from consuming an additional unit of a good tends to decrease as consumption increases, ceteris paribus
39
consumer surplus
measures the difference between what customers are willing to pay and what they actually pay according to market price
40
price elasticity of demand (PED)
measures the responsiveness of quantity demanded to a change in price.
41
Income Elasticity of Demand (YED)
measures the responsiveness of quantity demanded to a change in income.
42
Cross Elasticity of Demand (XED)
measures the responsiveness of quantity demanded of one good to a change in the price of another good.
43
normal goods
goods that experience an increase in demand with a rise in a consumer's income.
44
inferior goods
a good whose demand drops when people's incomes rise; "inferior" indicates affordability, not quality.
45
luxury goods
discretionary goods whose demand increases as income increases
46
substitute goods
Goods that fulfill a similar function or satisfy the same want, leading consumers to switch between them based on relative price changes.
When the price of one good increases, demand for the substitute good increases.
47
complimentary goods
goods where The consumption of one good enhances the consumption of the other.
increase in the price of one good leads to a decrease in the demand for the other good, and vice versa.
48
supply
total amount of a good or service that producers are willing and able to sell at a specific price in a given market during a specific time period
49
Market supply
the total amount of an item producers are willing and able to sell at different prices, over a given period of time
50
price elasticity of supply
measure of the responsiveness of the quantity supplied of a good or service to a change in its price.
51
short run
This refers to a period of time in which at least one factor of production is fixed
52
long run
refers to a period of time in which all factors of production are variable
53
elastic demand/supply
for changes in price/income there will be a proportionally greater change in quantity supplied/demanded (shallow slope)
54
inelastic demand/supply
for changes in price/income there will be a proportionally smaller change in quantity supplied/demanded (steep slope)
55
Market Equilibrium
where the quantity demanded by consumers is equal to the quantity supplied by producers at a specific equilibrium price (represented by the intersection point of the supply and demand curves)
56
Free Market
economic system where prices
are determined by the forces of supply and demand, with minimal government intervention
57
Disequilibrium
where the quantity demanded is not equal to the quantity supplied at the prevailing price. This can lead to a shortage (excess demand) or a surplus (excess supply).
58
Price Mechanism
when Prices coordinate economic activity by reflecting both demand and supply
59
equilibrium price
The price in a market where the quantity demanded by consumers is equal to the quantity supplied by producers.
60
equilibrium quantity
amount of a good or service that is both demanded by consumers and supplied by producers at the equilibrium price
in a market.
61
excess demand
where the quantity demanded
by consumers is greater than the quantity supplied by producers at the prevailing price
62
excess supply
where the quantity supplied by producers is greater than the quantity demanded by consumers at the prevailing price
63
direct tax
tax levied directly on a person's income, profit, or wealth.
64
indirect tax
levied on the consumption or purchase of goods and services. The tax is often collected by an intermediary (like a store) and then remitted to the government.
65
excise tax
A fixed amount of tax levied per unit of a good or service, regardless of its price.
66
ad valorem tax
percentage based tax on the assessed value of a good or service
67
economic incidence
the final distribution of the economic burden of taxes
68
progressive tax
The proportion of income tax
rises as income rises, like income tax
69
proportional tax
tax system that levies the same percentage tax to everyone regardless of income.
70
regressive tax
The proportion of income paid tax
rises as income falls. like sales tax.
71
subsidies
Financial aid from government to producers to support certain industries and increase production or decrease price
72
market failure
inefficient allocation of goods and services in the free market
73
complete market failure
Market cannot allocate resources efficiently on its own (missing market).
74
partial market failure
Market produces good/service, but not at optimal quantity or price, resulting in Over/underproduction or inefficient resource allocation
75
Private Benefits
Direct gains to the parties involved in production
76
External Benefits
positive spillover effects of production or consumption experienced by third parties not involved in the transaction
77
external costs
negative spillover effects of production or consumption experienced by third parties not involved in the transaction
78
Social Benefits
Total benefits to society from producing or consuming a good or service
79
private cost
Direct expenses incurred by the consumer or producer in a market transaction.
80
social cost
Total cost to society of producing or consuming a good or service
81
marginal
the added cost / benefit of producing / consuming just one more unit
82
welfare loss
caused by market failure as there is underproduction or
overconsumption in some goods and services.
83
dead weight loss
the loss of economic efficiency when the optimal level of supply and demand are not achieved
84
public goods
is non-rivalrous and non-excludable and it is under provided in the free market
e.g. road and street light
85
private goods
goods whose ownership is restricted to the consumer that purchased the good for their own consumption, it is both rivalrous and excludable
86
Common pool (access) resources
natural resources over which no private ownership has been established. They are non-excludable but rivalrous in consumption
87
free rider problem
an economic concept of a market failure that occurs when people are benefiting from resources, goods, or services that they do not pay for.
88
non-pure public goods / quasi-public goods
non rival but excludable, such as tollway
89
Symmetric information
when both buyers and sellers have access to the same level of information about the good or service being exchanged
90
Asymmetric Information
one party (buyer or seller) has more or better information about the good or service being exchanged than the other party
91
information failure
Market inefficiency due to unequal information between buyers and sellers.
92
principle agent problem
when one party (the principal) hires another party (the agent) to act on their behalf, but there's a conflict of interests and information asymmetry. The agent may prioritize their own goals over the principal's best interests.
93
shirking
when agent avoids or neglects responsibilities
94
merit goods
Goods or services that generate positive externalities, like education
95
demerit goods
Goods or services that generate negative externalities, like alcohol
96
moral hazard
when an economic agent makes a decision in their own best interests knowing that there are potential negative risks that will be paid by another party. // increased risk-taking behavior due to the reduced personal cost is moral hazard.
97
speculation
Investing in an asset based on the expectation that its price will rise in the future, often due to factors other than its intrinsic value
98
market bubble
occurs when the price of an asset is above its true value, it is likely to have a sharp decrease in value once people start selling
99
Market power
refers to the ability of a firm to influence and control the conditions in a specific market, allowing them to have a significant impact on price, output, and other market variables
100
monopoly
A single seller controls the market for a particular good or service, making barriers to entry high and typically selling unique goods
101
oligopoly
A small number of sellers (usually 2-4) dominate the market. These firms are interdependent, meaning each seller's actions are influenced by the actions of the others.
102
Factor mobility
refers to how easily firms can switch between different factors of production
103
government intervention
refers to actions taken by a government that influence economic activity and social issues
104
extension of property rights
government intervention strategy that focuses on clearly defining and enforcing ownership rights over resources
105
regulations
A wide range of legal and other restrictions by government in order to influence people
and business behaviours.
106
Government failure
When government intervention leads to a net welfare loss/
a worse allocation of resources
