Unit 1 Definitions

Question 1

Demand

Answer 1

The quantity of a good or service that consumers are willing and able to buy at given prices in a given period of time.

Question 2

Supply

Answer 2

The quantity of a good firms are prepared to sell in a market at given prices in a given period of time

Question 3

Macroeconomics

Answer 3

Examines the economy as a whole

Question 4

Microeconomics

Answer 4

Examines individual consumers, firms and markets in an economy

Question 5

Normative statement

Answer 5

An opinion that cannot be scientifically be tested

Question 6

Positive statement

Answer 6

A statement that can be scientifically tested and possibly falsified

Question 7

The economic problem

Answer 7

Limited amount of resources to the unlimited quantity of goods and services that people desire

Question 8

Production possibility diagram

Answer 8

Shows different possible combinations of goods that can be produced using available resources

Question 9

Consumer good

Answer 9

Eg food or an ipod, is used by consumers to meet their needs or wantd

Question 10

Capital good

Answer 10

Eg machine, is used to produce other goods, including consumer goods

Question 11

Technical progress

Answer 11

Improved methods of producing existing goods and enables completely new types of good to be produced

Question 12

Opportunity cost

Answer 12

The cost of the next best alternative sacrificed

Question 13

Finite resource

Answer 13

A resource eg oil which is scarce and runs out as it is used

Question 14

Free good

Answer 14

Eg air- no costs of production and no scarcity

Question 15

Renewable resource

Answer 15

Eg timber- that with careful management can be renewed as it is used

Question 16

Production

Answer 16

A process, or set of processes, that converts inputs into outputs

Question 17

Factors of production

Answer 17

Inputs into the production process, such as land, labour, capital and enterprise

Question 18

Command economy

Answer 18

The planning mechanism allocates resources between competing uses

Question 19

Market economy

Answer 19

Markets and prices allocate resources between competing uses

Question 20

Market

Answer 20

A place where buyers and sellers meet

Question 21

Capitalism

Answer 21

The means of production are privately owned

Question 22

Socialism

Answer 22

The means of production are socially owned

Question 23

Mixed economy

Answer 23

Contains both market and non-market sectors and a substantial public sector as well as a private sector

Question 24

Market demand

Answer 24

The quantity of a good or service that all the consumers in a market are willing and able to buy

Question 25

Ceteris paribus

Answer 25

Other things being equal

Question 26

Condition of demand

Answer 26

A determinant of demand, other than the good's own price, that fixes the position of the demand curve

Question 27

Decrease in demand

Answer 27

Leftward shift of the demand curve

Question 28

Increase in demand

Answer 28

A rightward shift of the demand curve

Question 29

Inferior good

Answer 29

A good for which demand decreases as income rises

Question 30

Normal good

Answer 30

A good for which demand increases as income rises

Question 31

Composite demand

Answer 31

Demand for a good with more than one use

Question 32

Economics

Answer 32

The study of choice and decision making in the world with limited resources

Question 33

Derived demand

Answer 33

Demand for a good occurring when a good is necessary for the production of other goods

Question 34

Market supply

Answer 34

The quantity of a good or service that all the firms in a market are willing to sell

Question 35

Profit

Answer 35

The difference between total sales revenue and total costs of production

Question 36

Condition of supply

Answer 36

A determinant of supply, other than the good's own price, that fixes the position of the supply curve

Question 37

Decrease in supply

Answer 37

A leftward shift of the supply curve

Question 38

Increase in supply

Answer 38

A rightward shift of the supply curve

Question 39

Ad valorem tax

Answer 39

A percentage expenditure tax such as VAT

Question 40

Expenditure tax

Answer 40

A tax levied by the government on spending by consumers. The firms selling the good pay the tax to the government, but consumers indirectly pay via the resulting price

Question 41

Unit/specific tax

Answer 41

A tax levied on a unit of a good, irrespective of the good's price

Question 42

Subsidy

Answer 42

Money given by the government to firms to reduce the price and offset some of the costs of production.

Question 43

Joint supply

Answer 43

Supply occurring when production of one good leads also to the supply of a by-product

Question 44

Competitive market

Answer 44

A market in which the large number of buyers and sellers possess good market information and easily enter or leave the market

Question 45

Equilibrium

Answer 45

A state of rest or balance between opposing forces

Question 46

Market equilibrium

Answer 46

When planned demand equals planned supply in the market

Question 47

Excess supply

Answer 47

When firms wish to sell more than consumers wish to buy, with the price above equilibrium

Question 48

Market disequilibrium

Answer 48

When the market fails to clear. The market plans of consumers and firms are inconsistent with each other

Question 49

Excess demand

Answer 49

When consumers wish to buy more than firms wish to sell, with the price below the equilibrium price

Question 50

Incentive function of price

Answer 50

Prices create incentives for consumers and firms to behave in certain ways

Question 51

Rationing and or allocative function of price

Answer 51

Prices allocate scarce resources between competing uses

Question 52

Signalling function of price

Answer 52

Prices provide information to buyers and sellers