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economics IAS U1 > u1 definations > Flashcards

u1 definations Flashcards

1
Q

positive economics

A

the scientific or objective study of how economies and markets actually work.

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2
Q

positive statements

A

statements about economics that can be proven true or false against evidence.

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3
Q

normative economics

A

deals with value judgements and is focused on the idea of fairness.

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4
Q

normative statements

A

statements about economics that cannot be supported or refuted, they are opinions.

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5
Q

scarcity

A

economic agents, like individuals and firms, can only obtain a limited amount of resources at any moment in time.

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6
Q

economic goods

A

resources that are scarce

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7
Q

free goods

A

resources that aren’t scarce, like air.

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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.

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9
Q

opportunity cost

A

the next best alternative forgone

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10
Q

renewable resources

A

Resources that can be exploited repeated
because they have potential to renew themselves such as fish, forest, wind

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11
Q

non-renewable resources

A

Resources that once exploited, it cannot be
replaced such as oil, coal

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12
Q

land

A

a Factor of Production that includes natural resources and physical space

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13
Q

labor

A

the effort expended by an individual to bring a product or service to the market.

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14
Q

capital

A

the machinery, tools and buildings humans use to produce goods and services.

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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.

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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

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17
Q

margin

A

a point of possible change

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18
Q

marginal cost

A

the change in total production cost that comes from making or producing one additional unit.

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19
Q

productive efficiency

A

producing the largest number of products and services based on the resources available

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20
Q

allocative efficiency

A

when markets use scarce resources to make the products and provide the services that society demands and desires

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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.

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22
Q

capital goods

A

goods that are used in producing other goods, rather than being bought by consumers.

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23
Q

consumer goods

A

goods bought and used by consumers, rather than by manufacturers for producing other goods.

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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

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25
Q

division of labor

A

where production is broken down into tasks and each worker specialises on one task

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26
Q
A
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27
Q

market mechanism / price mechanism

A

the situation where decisions on price and quantity in a market are made based on demand and supply alone.

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28
Q

free market economy

A

an economic system based on competition, with little or no government interference and a decentralized decision making process

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29
Q

mixed economy

A

An economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies.

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30
Q

command economy/planned economy

A

economy where a centralized government controls the means of production and determines output levels

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31
Q

framing and bias

A

involves how information is presented to influence perception and decision-making which makes it harder of consumers to make rational choices

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32
Q

principle-agent problem

A

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.

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33
Q

demand

A

quantity of a good or service that consumers are willing and able to purchase at various prices during a given period, ceteris paribus

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34
Q

extension and contraction of demand

A

quantity demanded rises, quantity demanded falls

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35
Q

effective demand

A

level of demand that exists in the economy at the market price, taking into account customers ability to buy a good or service

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36
Q

income effect

A

change in quantity demanded resulting from changes in consumers’ real income due to price changes, reflecting how purchasing behavior changes with purchasing power

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37
Q

substitution effect

A

change in quantity demanded of a good or service resulting from a change in its relative price compared to substitutes

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38
Q

diminishing marginal utility

A

additional satisfaction derived from consuming an additional unit of a good tends to decrease as consumption increases, ceteris paribus

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39
Q

consumer surplus

A

measures the difference between what customers are willing to pay and what they actually pay according to market price

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40
Q

price elasticity of demand (PED)

A

measures the responsiveness of quantity demanded to a change in price.

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41
Q

Income Elasticity of Demand (YED)

A

measures the responsiveness of quantity demanded to a change in income.

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42
Q

Cross Elasticity of Demand (XED)

A

measures the responsiveness of quantity demanded of one good to a change in the price of another good.

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43
Q

normal goods

A

goods that experience an increase in demand with a rise in a consumer’s income.

44
Q

inferior goods

A

a good whose demand drops when people’s incomes rise; “inferior” indicates affordability, not quality.

45
Q

luxury goods

A

discretionary goods whose demand increases as income increases

46
Q

substitute goods

A

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
Q

complimentary goods

A

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
Q

supply

A

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
Q

Market supply

A

the total amount of an item producers are willing and able to sell at different prices, over a given period of time

50
Q

price elasticity of supply

A

measure of the responsiveness of the quantity supplied of a good or service to a change in its price.

51
Q

short run

A

This refers to a period of time in which at least one factor of production is fixed

52
Q

long run

A

refers to a period of time in which all factors of production are variable

53
Q

elastic demand/supply

A

for changes in price/income there will be a proportionally greater change in quantity supplied/demanded (shallow slope)

54
Q

inelastic demand/supply

A

for changes in price/income there will be a proportionally smaller change in quantity supplied/demanded (steep slope)

55
Q

Market Equilibrium

A

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
Q

Free Market

A

economic system where prices
are determined by the forces of supply and demand, with minimal government intervention

57
Q

Disequilibrium

A

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
Q

Price Mechanism

A

when Prices coordinate economic activity by reflecting both demand and supply

59
Q

equilibrium price

A

The price in a market where the quantity demanded by consumers is equal to the quantity supplied by producers.

60
Q

equilibrium quantity

A

amount of a good or service that is both demanded by consumers and supplied by producers at the equilibrium price
in a market.

61
Q

excess demand

A

where the quantity demanded
by consumers is greater than the quantity supplied by producers at the prevailing price

62
Q

excess supply

A

where the quantity supplied by producers is greater than the quantity demanded by consumers at the prevailing price

63
Q

direct tax

A

tax levied directly on a person’s income, profit, or wealth.

64
Q

indirect tax

A

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
Q

excise tax

A

A fixed amount of tax levied per unit of a good or service, regardless of its price.

66
Q

ad valorem tax

A

percentage based tax on the assessed value of a good or service

67
Q

economic incidence

A

the final distribution of the economic burden of taxes

68
Q

progressive tax

A

The proportion of income tax
rises as income rises, like income tax

69
Q

proportional tax

A

tax system that levies the same percentage tax to everyone regardless of income.

70
Q

regressive tax

A

The proportion of income paid tax
rises as income falls. like sales tax.

71
Q

subsidies

A

Financial aid from government to producers to support certain industries and increase production or decrease price

72
Q

market failure

A

inefficient allocation of goods and services in the free market

73
Q

complete market failure

A

Market cannot allocate resources efficiently on its own (missing market).

74
Q

partial market failure

A

Market produces good/service, but not at optimal quantity or price, resulting in Over/underproduction or inefficient resource allocation

75
Q

Private Benefits

A

Direct gains to the parties involved in production

76
Q

External Benefits

A

positive spillover effects of production or consumption experienced by third parties not involved in the transaction

77
Q

external costs

A

negative spillover effects of production or consumption experienced by third parties not involved in the transaction

78
Q

Social Benefits

A

Total benefits to society from producing or consuming a good or service

79
Q

private cost

A

Direct expenses incurred by the consumer or producer in a market transaction.

80
Q

social cost

A

Total cost to society of producing or consuming a good or service

81
Q

marginal

A

the added cost / benefit of producing / consuming just one more unit

82
Q

welfare loss

A

caused by market failure as there is underproduction or
overconsumption in some goods and services.

83
Q

dead weight loss

A

the loss of economic efficiency when the optimal level of supply and demand are not achieved

84
Q

public goods

A

is non-rivalrous and non-excludable and it is under provided in the free market
e.g. road and street light

85
Q

private goods

A

goods whose ownership is restricted to the consumer that purchased the good for their own consumption, it is both rivalrous and excludable

86
Q

Common pool (access) resources

A

natural resources over which no private ownership has been established. They are non-excludable but rivalrous in consumption

87
Q

free rider problem

A

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
Q

non-pure public goods / quasi-public goods

A

non rival but excludable, such as tollway

89
Q

Symmetric information

A

when both buyers and sellers have access to the same level of information about the good or service being exchanged

90
Q

Asymmetric Information

A

one party (buyer or seller) has more or better information about the good or service being exchanged than the other party

91
Q

information failure

A

Market inefficiency due to unequal information between buyers and sellers.

92
Q

principle agent problem

A

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
Q

shirking

A

when agent avoids or neglects responsibilities

94
Q

merit goods

A

Goods or services that generate positive externalities, like education

95
Q

demerit goods

A

Goods or services that generate negative externalities, like alcohol

96
Q

moral hazard

A

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
Q

speculation

A

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
Q

market bubble

A

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
Q

Market power

A

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
Q

monopoly

A

A single seller controls the market for a particular good or service, making barriers to entry high and typically selling unique goods

101
Q

oligopoly

A

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
Q

Factor mobility

A

refers to how easily firms can switch between different factors of production

103
Q

government intervention

A

refers to actions taken by a government that influence economic activity and social issues

104
Q

extension of property rights

A

government intervention strategy that focuses on clearly defining and enforcing ownership rights over resources

105
Q

regulations

A

A wide range of legal and other restrictions by government in order to influence people
and business behaviours.

106
Q

Government failure

A

When government intervention leads to a net welfare loss/
a worse allocation of resources

economics IAS U1 (7 decks)

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