Unit 1 Defintions Flashcards
Asymmetric Information
Where one party in an economic relationship has more information than another, there is an imbalance of information
Ad Valorem Tax? (VAT)
A tax levied as a percentage of the value of the good
Buffer stocks
In agricultural markets the government uses bugger stocks and other forms of intervention to keep prices within a fixed band
Cartels
A group of firms, which agree to limit output in order to keep prices higher than they would be if there was free competition
Collusion
Occurs when firms act together in an informal way to avoid strong competition with each other
Commodity market
In its narrow sense this term refers to the market for raw materials and foodstuffs. Commodities are usually homogeneous e.g wool rubber coffee tea sugar and oil. These tend to be exchanged in the international stage
Consumer surplus
The difference between what consumers are willing to pay for a good and service and what they do pay aka market price
Cross price elasticity of demand (XED)
Measures responsiveness of the quantity demanded on one good when the price of another good changes (substitutes and complimentary)
Demand
Demand is the quantity of a good or service that a consumer is willing and able to buy at a given price in a given time period
Movement along a demand curve
Price causes a movement along the demand curve all other determinants shift it
Shifts in demand
Other non price determinants can cause the demand curve to shift e.g income price of substitute or complementary good seasonal changes trends fashion advertising media and publicity
Demerit good
Goods that if left to the free market would be over consumed. The government intervenes in the market because they deem them to be socially undesirable and linked to negative externalities
Derived demand
Not demanded for its own sake but for what it can produce. E.g bricks for house
Division of labour
Specialisation of workers into performing a narrow range of tasks. This means that workers are not trained to complete the whole operation themselves instead they concentrate on a small section of the production process and repeat it.
Externalities
Defined as third party effects arising from the production or consumption of goods and services there will be a divergence from social costs/benefits and private costs/benefits
External benefits
Those accruing to third parties not involved in the transaction difference between social benefits and private benefits
External costs
Costs to third parties not involved in the transaction difference between social costs and private costs
Free market
Where the competitive interaction of many producers and consumers without the intervention of government provides the forces of supply and demand to allocate resources through the price mechanism
Free rider problem
A person or business that receives the benefit of a product but who can avoid paying for it. The free rider problem is often associated with the provision of public goods where people cannot be excluded from consumption.
Geographical Immobility
Occurs when people who are no longer employed are unable to move to areas in which jobs are available and therefore remain unemployed
Government failure
When the gov intervenes in the market but this intervention leads to a loss of economics welfare rather than a gain. Net welfare loss.
Incidence of taxes
Where the tax burden settles, who pays tax
Income elasticity of demand (YED)
Measures responsiveness of the quantity demanded of a good to a change in real income
Indirect taxes
Imposed by gov on producers. It’s indirect as you only pay for it when you purchase a product
Inferior goods
Have a negative YED. Demand falls as real I come of consumers rises
Market failure
When an unregulated market (no gov intervention) does not achieve an efficient allocation of resources
Merit goods
These goods if left to the free market would be under provided and under consumed. The gov intervenes because they deem them to be socially desirable
Minimum price guarantee
A minimum price is a price floor below that the free market price cannot fall. To be effective the minimum price has to be set above the normal equilibrium price
Mixed economies
A combination of free market and government intervention to allocate resources
National minimum wage
A pay floor introduced by the gov that sets a wage level which producers cannot legally undercut
Non renewable resources
Are resources which once exploited cannot be replaced e.g coal oil good and copper
Non sustainable resources
Resources being economically exploited in such a way that it is being reduced over time. Oil is non sustainable because it can’t be replaced
Normal goods
Have a positive YED. Demand increases as real income of consumers rises
Normative statement
They contain value judgements. They’re subjective meaning that they’re based on individuals opinions or moral attitudes. They cannot be proved or disproved by a scientific approach.
Occupational immobility
When people have been trained in a skill which is no longer demanded and has difficulty in retraining in a skill which is demanded (structural unemployment)
Opportunity cost
The cost of a choice measured in terms of the next best alternative forgone
Positive statement
Factual can be tested. Can be proved or disproved by a scientific approach. They’re objective.
Price elasticity of demand (PED)
Measure the responsiveness of quantity demanded to a change in price
Price elasticity of supply (PES)
Measures the responsiveness of quantity supplied to a change in price
Price mechanism
When resources are allocated and reallocated within a market based economic system. Forces of supply and demand determine the equilibrium price
Private costs
Costs to them internal to the exchange, paid for directly by firms/consumers only
Private benefits
Benefits to consumers and producers who are internal to the exchanges / part of the transaction.
Producer surplus
Difference between what producers are willing and able to supply and the price they actually receive
Production possibility frontier
Different combinations of economic goods that an economy can produce if all resources are fully and efficiently employed
Property rights
Property rights confer legal control or ownership of a good. For markets to operate efficiently property rights must be clearly defined and protected.
Public good
A good that has characteristics of non excludability and non rivalry in consumption
Renewable resources
Can be exploited over and over again because they have the potential to renew themselves e.g fish
Road pricing
Makes the use of roads a private good e.g toll roads
Scarcity
Fundamental economic problem. Factor inputs are insufficient to meet the unlimited needs and wants of the population.
Social benefits
Private benefit + external benefit = social benefits
Social costs
Private costs + external costs = social costs
Specialisation
System of organisation where economic units such as households or nations are not self sufficient but concentrate on producing certain foods and services and trading the surplus with others
Specific tax
Tax levied on volume. E.g £5 per bottle of wine
Subsidies
Payments to producers by the gov which reduce costs and encourages them to increase output.
Supply
The willingness and ability of producers to supply an output on to a market at a given price in a given time period.
Movement along a supply curve
Price cause movement along the supply curve
Shifts in supply
Non price determinants e.g tax, subsidies, unexpected changes in agricultural and commodity markets, technology, time period, and speculation of furrier events
Sustainable resources
Resources which can be exploited economically and which will not diminish or run out
Taxation
Range of taxes those individuals and organisations are legally liable to pay in order to finance gov expenditure
Tradeable permits
Sometimes known as pollution permits. Gov sets a limit on the amount of pollution permitted and allocates permits to producers
Wage determination
Wages are determined by the interaction of supply and demand
