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Economics AS > Definitions > Flashcards

Definitions Flashcards

Dunknoe, these are the easy marks ygm

1
Q

Economic resources/Factors of Production

A

The resource inputs that are available in an economy for the production of goods and services. These are: Capital, enterprise, land, labour

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2
Q

The economic problem

A

Because wants are infinite but resources are scarce, choices must be made as of how to allocate resources. These choices include what to produce, how to produce and for whom to produce to

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3
Q

Scarcity

A

We have limited resources which are insufficient to meet infinite wants

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4
Q

Opportunity cost

A

The value of the next best alternative foregone when a choice is made

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5
Q

Production possibility curve

A

Represents the maximum output combinations of 2 goods that can be produced given the current level of resources, the current state of technology and assuming all resources are working at optimum efficiency

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6
Q

Economic Growth

A

Increase in the productive potential of an economy. Can be shown by an outwards shift in the PPC

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7
Q

Productive potential/capacity

A

The maximum output that an economy is capable of achieving

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8
Q

Pareto efficiency

A

Where one person cannot be made better off without someone else being made worse off. All points on a PPC are pareto efficient

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9
Q

Productive efficiency

A

Where the production takes place using the least amount of scarce resources.

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10
Q

Division of labour

A

Where the production process is broken down into separate tasks and individual workers will specialise in one task.

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11
Q

Specialisation

A

The concentration of a worker, group of workers, firm, region or whole economy on the production of a narrow range of goods and services

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12
Q

Exchange

A

The process by which goods and services are traded

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13
Q

Want

A

Anything a consumer would like irrespective of whether they have the means to purchase it

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14
Q

Need

A

The things we actually need to survive. Basic needs are food, water, shelter, and warmth. Everything else we may wish to purchase is a want

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15
Q

Economic system

A

The way in which production is organised by a country or group of countries.
Economic decisions can be made entirely by the state (planned economy) [example on what to produce, how to produce or for whom to produce], entirely by the market (market economy) [example] or a mixture of both

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16
Q

Positive statement

A

A statement based on fact

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17
Q

Normative statement

A

A statement which is based upon opinion

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18
Q

Economic Good

A

Goods and services which use up resources in order to be produced. They therefore have an opportunity cost- in order for one economic good to be produced, another must be foregone. As resources are limited , so is the number of economic goods that can be produced

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19
Q

Free good

A

A good with zero opportunity cost as it requires no use of economic resources in order to be able to consume it eg. air

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20
Q

Trade off

A

The calculation involved in deciding whether to give up one good or another

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21
Q

Capital goods/Producer goods

A

Man-made goods aids to production and are goods that will be used up over and over again in production processes such as machinery or factory buildings

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22
Q

Consumer goods

A

Goods and services used for immediate consumption. They do not add to the productive capacity and can be ‘single use’ or ‘long use consumer durables’

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23
Q

Gross investment

A

Total value of capital goods created in an economy in a given time period

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24
Q

Capital consumption

A

Reduction in value of capital goods created in an economy due to depreciation becoming obsolete in a given time period

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25
Q

Net investment

A

Gross investment - capital consumption in a given time period

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26
Q

Effective demand

A

The quantity of a product that consumers are willing and able to purchase at different market prices over a period of time

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27
Q

consumer surplus

A

The difference between the value a consumer is prepared to pay for a good or service and the price that is actually required to make the purchase (market price)

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28
Q

First law of demand

A

There is an inverse relationship between price and quantity demanded: The lower the price, the higher quantity demanded; the higher the price, the lower quantity demanded

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29
Q

Ceteris paribus

A

All other things being equal

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30
Q

Movement along the demand curve

A

The response to a change in price. An increase shows an extension of quantity demanded and a decrease shows a contraction of quantity demanded

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31
Q

Conditions/detriments of demand

A

Non price factors that affect the level of demand for a good or service

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32
Q

Shift in the demand curve

A

When a change in a non price factor leads to an increase or decrease in demand

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33
Q

Increase in demand

A

Shift outwards; quantity demanded will increase at each and every price

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34
Q

Decrease in demand

A

Shift to the left (inwards); quantity demanded will be less at each and every price

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35
Q

PED

A

The responsiveness of quantity demanded of a good to a change in price

eg. %change in quantity demanded
—————————————
%change in price

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36
Q

Price elastic demand

A

When quantity demanded is very responsive to a change in price.

eg. A 1% change in price will lead to a >1% change in quantity demanded

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37
Q

Price inelastic demand

A

When quantity demanded is not very responsive to to a change in price

eg. A 1% change in price will lead to a <1% change in quantity demanded

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38
Q

YED

A

The responsiveness of quantity demanded to a change in income

eg. % change in quantity demanded
—————————————–
% change in income

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39
Q

Normal good

A

Goods for which an increase income leads to an increase in demand

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40
Q

Income elastic demand

A

When quantity demanded is very responsive to a change in income

eg. A 1% change in income will lead to a >1% change in quantity demanded

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41
Q

Income inelastic demand

A

When quantity demanded is not very responsive to to a change in income

eg. A 1% change in price will lead to a <1% change in quantity demanded

42
Q

Inferior good

A

Goods for which an in income leads to a fall in demand

43
Q

XED

A

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

44
Q

Complementary good

A

Goods for which there is joint demand

45
Q

Substitute good

A

Substitute goods are goods which, as a result of changed conditions, may replace each other in use (or consumption). A substitute good, in contrast to a complementary good, is a good with a positive cross elasticity of demand. This means a good’s demand is increased when the price of another good is increased.

46
Q

Total revenue

A

The price X the quantity sold

47
Q

Effective supply

A

The quantity of a product that producers are willing and able to supply at different market prices over a period of time

48
Q

Producer surplus

A

The difference between the price actually received (the market price) by producers for a good/service and the price they are willing to accept

49
Q

Movement along the supply curve

A

The response to a change in price.
An increase shows an extension of quantity supplied
A decrease shows a contraction of quantity supplied

50
Q

Conditions of supply

A

Non-Price factors that affect the level of supply for a good or service

51
Q

conditions of supply

A

non-price factors that affect the level of supply for a good or service

52
Q

indirect (ad valorem tax)

A

a tax levied on the consumption of goods and services eg. VAT, APD

53
Q

Incidence of taxation

A

The way in which the burden of taxation is divided between the buyers and the sellers

The more price inelastic the demand curve, the higher the tax incidence on the consumer

54
Q

Subsidy

A

A payment (usually from government) to encourage production or consumption by lowering the costs of production per unit

55
Q

Price elasticity of supply (PES)

A

The responsiveness of a quantity supplied of a good/service to a change in its price

eg.%change in quantity supplied
—————————————
%change in price

56
Q

Determinants of PES

A

Factors that affect the extent to which quantity supplied is responsive to price

Such as availability of stocks of the product, availability of factors of production and the time period

57
Q

Market

A

Any situation which brings together buyers and sellers (consumers and producers) for the purpose of trading (exchanging) goods and/or services

58
Q

Price system

A

A method of allocating resources by the free movement of prices

59
Q

Equilibrium quantity

A

The quantity that is demanded and supplied at the equilibrium price.

60
Q

Equilibrium price/market clearing price

A

The price where quantity demanded and supplied are equal

61
Q

Market equilibrium

A

The price where quantity supplied and demanded are equal

62
Q

Disequilibrium

A

Any situation position in a market where demand and supply are not equal

63
Q

Shortage

A

An excess of demand over supply

When quantity demanded > quantity supplied

64
Q

surplus

A

An excess of supply over demand

When quantity supplied > quantity supplied

65
Q

Market failure

A

where the free market mechanism fails to achieve economic efficiency.

66
Q

Allocative efficiency

A

Where scarce resources are used to produce the goods and services that consumers actually demand in the quantities they desire, so consumer welfare is maximised

67
Q

Economic efficiency

A

where allocative and productive efficiency are achieved

68
Q

Allocative inefficiency

A

Where resources are over or under-allocated to the production of a particular good or service

69
Q

Externality

A

Where an action taken by one economic agent has an effect on a third party not directly involved in the activity

70
Q

Negative externality (external cost)

A

When the actions of of one group result in a negative side effect /impact on a third party
OR
When the social costs of an activity are greater than the private costs

71
Q

Positive externality (external benefit)

A

A benefit to a third party
OR
when social benefits of an economic activity are greater than the private benefits

72
Q

Third party

A

Person/group of people not directly involved in making a decision

73
Q

Private cost

A

The costs directly incurred by those undertaking a particular economic activity

74
Q

Private benefit

A

The benefits directly accruing to those undertaking a particular economic activity

75
Q

Social cost

A

Private cost + external cost of an economic activity

76
Q

Social benefit

A

Private benefit + external benefit of an economic activity

77
Q

Socially optimum output

A

The output quantity where full social cost is equal to full social benefit

78
Q

Information failure

A

When some, or all, of the participants in an economic exchange do not have perfect knowledge. Or when one participant in an economic exchange has more knowledge than another participant. This leads to the misallocation of scarce resources, resulting in consumers paying too much or too little and/or firms producing too much or too little

79
Q

Asymmetric information

A

Where information is not equally shared between two parties and therefore one participant in an economic exchange has more knowledge than another.

80
Q

Merit good

A

A good whose consumption is better for consumers than they actually realise.
Hence consumers underestimate the private benefits of consumption and will under-consume this good in a free market

81
Q

Demerit good

A

A good whose consumption is more harmful than consumers actually realise
OR
A good that brings less private benefits to consumers than they expect , such that too much will be consumed in a free market

82
Q

Public good

A

A good which is non excludable and non rivalrous in consumption and will therefore not be provided by the free market due to the free rider problem

83
Q

Non-excludable

A

Situation where it is technically impossible or financially unviable for individual consumers to be excluded from consuming a good or service (even if they havent paid)

84
Q

Private good

A

A good which is rivalrous and excludable in consumption

85
Q

Non-rivalrous

A

Situation where consumption by one person does not reduce its availability for consumption by others

86
Q

Quasi public good

A

goods that have some, but not all, of the characteristics of a public good

87
Q

Free rider problem

A

When someone directly benefits from the consumption of a public good without contributing towards its provision

88
Q

Direct provision

A

The government steps in to supply a good or service

89
Q

Internalising an externality

A

An attempt to deal with an externality by bringing it within the price system (eg. the polluter pays)

90
Q

Green tax/carbon tax

A

A tax on emissions of greenhouse gasses

91
Q

Tradable pollution permits

A

A permit which allows the owner to emit a certain amount of pollution and which can be sold to another polluter if it is not required

92
Q

provision of information

A

When the government aims to inform consumers in order to correct market failure eg. providing information on the benefits of merit good/problems of consuming demerit goods and perhaps by advertising or via the curriculum of schools. The government may also try to correct the asymmetric information in this way so that consumers have more power to make more effective choices

93
Q

Regulation

A

Use of the legal system to place restrictions/ basic standards on producers/consumers.
Possible legal restrictions include complete ban, requirement for permit/license or compulsory consumption.
This may require enforcement such as fines for non-compliance

94
Q

Property rights system

A

A system which grants ownership to third parties so that they have the right to sue those creating negative externalities for compensation in order to internalise the externality.

95
Q

Minimum price

A

A price below which goods and services cannot be sold by law. (eg. the lowest price a unit of alcohol can be sold at.

96
Q

Government failure

A

A market failure that is the result of a government intervention.
For example due to a lack of accurate information, political leaning, need to raise revenue/reduce budget deficit or where costs of administering policy outweigh benefits

97
Q

Consumer expenditure

A

The total amount that households spend on goods and services to satisfy their current wants and needs

98
Q

Credit

A

Loans and borrowings

99
Q

Public good

A

Non-rival and non excludable

Can be used by everyone (eg. Not benefits)

100
Q

Market failure

A

When free market forces, using the price mechanism, fail to produce the products that people want, in the quantities they desire and at prices that reflect consumer’s satisfaction.
In other words, market failure occurs when productive, allocative and thus economic and pareto efficiency are not achieved

Economics AS (13 decks)

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