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51 Cards in this Set
- Front
- Back
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Scarcity |
Where wants for a product (or factor of production) exceed amount available |
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Factor of Production |
A productive resource; Land, Labour, Capital, Entrepreneurship |
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Capital |
Man made aids to production |
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Enterprise (Entrepreneurship) |
The risk taking role undertaken by owners of a business as they combine other factors of production in the pursuit of profit |
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Investment |
Spending by firms on new capital stock or repair of existing stock |
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Depreciation |
The rate at which capital loses value over time |
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Opportunity Cost |
The value (benefit) of the next best preffered option which is foregone when a choice is made |
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Production Possibility Curve |
The combinations of two goods which an economy is capable of producing using all its resources in the most efficient way |
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Allocative Efficiency |
Where resources are used to produce what consumers actually want to buy i.e where resources are allocated such that no consumer should be made better off without another consumer becoming worse off |
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Pareto Efficiency |
Where resources are allocated such that it is impossible to make someone better off without making someone else worse off |
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Specialisation |
Where a factor of production is devoted to a specific job in the production process |
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Division of labour |
Where labour specialises in the performance of a particular part of the production process |
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Money |
Whatever is generally acceptable in exchange for goods and services or labour |
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Unit Cost (Average Cost) |
Cost per unit output |
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Positive Economics |
The study of propositions which can be verified by data from the rest of the world |
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Normative Economics |
The study of propositions which cannot be verified by data from the rest of the world and require value judgements |
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Demand |
The quantity of a good consumers are willing and able to buy at a given price in a given time period |
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Supply |
The quantity of a good produces are willing and able to sell at a given price in a given time period |
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Market |
Institutions where buys are in contact with sellers to arrange sale of products |
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Equilibrium |
The price and quantity traded which is acceptable to both buyers and sellers so long as conditions of demand and supply stay constant i.e neither excess demand or excess supply exists at this market price with these D and S curves |
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Ceteris Paribus |
All other factors remain constant |
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Disequilibrium |
A combination of price and quantity traded which has a tendency to change for the given demand and supply conditions (curves) |
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Joint Demand |
When demand for one good involves demand for another good (complement) |
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Joint supply |
Where supply of one good necessarily involves supply of another |
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Consumer surplus |
Measure of consumer welfare: the maximum price a consumer is willing to pay for a good above the market price |
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Producer surplus |
Measure of producer welfare: the surplus of market price received over the minimum price the producer would be prepared to accept |
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Elasticity of Demand (PeD) |
The responsiveness of quantity demanded to a change in price |
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Income Elasticity of Demand (YeD) |
The responsiveness of quantity demanded to a change in income |
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Cross Elasticity of Demand (XeD) |
The responsiveness of quantity demanded of one good to a change in price of another |
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Elasticity of Supply (PeS) |
The responsiveness of quantity supplied to a change in price |
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Normal Good |
Good whose demand rises as income rises |
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Inferior Good |
Good whose demand falls as income rises |
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Substitute |
Good which is an alternative to a particular good from the consumers point of view |
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Sales tax |
Tax levied on the sale of goods |
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Subsidy |
Government payment to producer for production of goods intended to lower the market price |
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Economic System |
The institutional means for resolving the problems of resource allocation in an economy |
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Mixed Economy |
Where resource allocation is undertaken by state planning and market forces, depending on the product |
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Free Market Economy |
Where markets determine resource allocation with minimal state intervention |
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Invisible Hand |
Where resources are allocated by the decentralised decision making of consumers and producers acting through markets, without any centralised planning |
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Consumer Sovereignty |
The production of goods is directed by consumer demand |
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Market Failure |
Where free market outcomes lead to major problems for society, usually inefficiency |
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Public Good |
A good with non-excludability and non-rivalry |
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Merit Good |
A good which consumers underconsume at market prices because they underestimate the long term benefits to themselves |
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Demerit Good |
A good which consumers over consume at market price because they underestimate the long term harm to themselves |
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Asymmetric Information |
Situation where buyers know more about the value of a product than sellers or vice versa |
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Negative Externality |
A side effect of a market activity which harms third parties without compensation |
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Positive Externality |
A side effect of a market activity which benefits third parties without them having to pay |
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Optimal Tax |
Tax equal to marginal external cost (persuading profit maximising firms to choose socially optimal production) |
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Regulation |
Rules from government requiring firms to modify their production techniques, output or price |
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Tradable Permit |
A legal right to pollute a fixed amount which can be bought or sold between firms |
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Government Failure |
Where government intervention causes inefficiency in resource allocation |
