• Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

Card Range To Study

through

image

Play button

image

Play button

image

Progress

1/52

Click to flip

Use LEFT and RIGHT arrow keys to navigate between flashcards;

Use UP and DOWN arrow keys to flip the card;

H to show hint;

A reads text to speech;

52 Cards in this Set

  • Front
  • Back

The Economic Problem

The need to make choices regarding how to allocate limited resources between unlimited and competing wants

Specialisation

The concentration of a worker, firm, region or country on a narrow range of tasks or goods and services

Opportunity Cost

The next best alternative foregone when a choice is made

Production Possibility Curve (PPC)

The maximum output combinations of two goods and services that can be produced with all resources fully employed

Factors of Production

Land, labour, capital and enterprise

Market

Any interaction between buyers and sellers for the exchange of goods and services

Demand

The quantity of a good or service that consumers are willing and able to purchase at a given price over a specified period of time

The Determinants of Demand

The price of the good or service


The prices of substitutes


The prices of complements


Households' disposable income and wealth


Tastes and fashion

Ceteris paribus

All other factors (i.e. the other determinants of demand) remaining constant

Price Elasticity of Demand (PED)

The responsiveness of the quantity demanded to a change in price


(% change in quantity demanded / % change in price)


Demand is price-elastic if PED > 1 (ignoring the -)


Demand is price-inelastic if 0 < PED < 1

Cross Elasticity of Demand (XED)

The responsiveness of the quantity demanded of product A to a change in the price of product B


(% change in the quantity demanded of product A / % change in the price of product B)


(remember to comment on the sign and size)

Substitutes

Two goods or services that perform a similar function


Products that are in competitive demand


Have a positive XED

Complements

Two goods or services that are consumed together


Products that are in joint demand


Have a negative XED

Income Elasticity of Demand (YED)

The responsiveness of the quantity demanded to a change in income


(% change in quantity demanded / % change in income)


(remember to comment on the sign and size)

Normal good

Good or service for which the demand increases as income increases


Has a positive YED

Inferior good

Good or service for which the demand decreases as income increases


Has a negative YED


Revenue

Price multiplied by quantity demanded

Consumer surplus

The difference between the price consumers are willing to pay and the market price actually paid

Supply

The quantity of a good or service that producers are willing and able to sell at a given price over a specified period of time

Producer surplus

The difference between the price that producers are willing to supply at and the market price actually received

Allocative efficiency

Achieved where supply equals demand, resources are allocated in accordance with consumers' wants and consumer welfare is maximised

Market failure

Where the free market mechanism fails to achieve allocative efficiency

Externalities

Spillover effects on third parties arising from production or consumption

Private costs

Costs incurred by the firm to acquire the factors of production necessary to produce the good or service being supplied

External costs

The costs imposed on third parties as a consequence of negative externalities

Social cost

The total cost to society of producing a good or service, equal to private costs plus external costs


Negative externality

Adverse or unfavourable spillover effect on a third party arising from production or consumption; exists when the social cost of an activity is greater than the private cost

Positive externality

Beneficial or favourable spillover effect on a third party arising from production or consumption; exists when the social benefit of an activity is greater than the private benefit (or the PC > SC)

Social optimum

The best possible outcome from society's point of view; exists where social cost equals social benefit

Merit good

A good or service which is better for consumers than they realise; a good or service with more private benefits than consumers realise


(consumption also tends to create positive externalities)

Demerit good

A good or service which is worse for consumers than they realise; a good or service with more private costs than consumers realise


(consumption also tends to create negative externalities)

The Determinants of Supply

The price of the good or service


The costs of production


Changes in productivity


Changes in technology / capital investment


Taxes and/or subsidies


Weather / climate (for primary products)


Expected price changes


Prices of other goods that could be supplied


State provision

Where market failure leads to a good or service being provided by the state, often free at the point of consumption (e.g. roads, health care)


(commonly used for public goods, and often alongside private provision for quasi-public goods)

The Determinants of the PED

Whether consumption is habitual


The percentage of income spent on the good or service


The time period available for adjustments to consumer spending patterns


The availability of substitutes

Information failure

A lack of information resulting in consumers and producers making decisions that do not maximise welfare

Competitive market

The interaction of supply and demand without government intervention to set an equilibrium price and quantity for a good or service

Asymmetric information

Where information is not shared equally between producers and consumers

Public good

Collectively consumed goods that are both non-excludable and non-rival

Non-excludability

Where an individual cannot be prevented from consuming a good or service

Non-rivalry

Where the consumption of a good or service by one individual doesn't reduce the amount available for others

Free rider

Someone able to enjoy the benefits of consuming a good or service without paying for its provision

Quasi-public good

Goods or services having some but not all of the characteristics of a public good

Indirect tax

A tax levied on goods and services, the burden of which can be passed on to others (usually from producers to consumers)

Subsidy

A payment to producers or consumers, usually made by the government, to encourage production or consumption

Regulation

Laws, standards and guidelines imposed by the government to influence the behaviour of producers and consumers and reduce market failure

Tradable permit

Gives the holder the right to generate a specified level of pollution

Market equilibrium
The combination of price and quantity that corresponds to the point of intersection of the supply and demand curves
Private benefits
The benefits accruing to individuals arising from the consumption of a good or service
External benefits

The benefits enjoyed by third parties as a consequence of positive externalities

Social benefit
The total benefit to society of consuming a good or service, equal to private benefits plus external benefits
Information provision

Providing information to encourage or discourage consumption of a good or service


(may be done directly by the government or as part of the regulation of a particular market)

Government failure
Where an attempt by government to correct a market failure makes the market failure worse or creates an additional market failure