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65 Cards in this Set
- Front
- Back
Positive Economics |
deals with objective or scientific explanations of the economy. Positive statements are value free and can be proved or disproved. |
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Normative Economics |
attempts to describe what ought to be. Normative statements contain a value judgement and they cannot be scientifically proved or disproved. |
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Basic Economic Problem |
rises when human wants are infinite whilst resources are scarce. |
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Opportunity Cost |
is the benefit lost from the next best alternative forgone. |
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Economics Goods |
are resources which are scarce because their use has an opportunity cost. |
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Free Goods |
are resources which are in unlimited supply and which therefore have no opportunity cost. |
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Production Possibility Frontier (PPF) |
is a curve or a boundary which shows the combinations of two or more goods and services that can be produced whilst using all of the available factor resources efficiently. |
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Land |
is the natural resources available for production. |
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Labour |
is our human input into the production process. |
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Capital |
means investment in goods that are used to produce other goods in the future. |
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Enterprise |
is the activity of entrepreneurs. An entrepreneur is an individual who seeks to supply products to a market for a rate of return (i.e profit). |
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Specialisation |
happens when one individual, region or country concentrates in making one good. |
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Division of Labour |
is a particular type of specialisation where the production of a good is broken up into many separate tasks, each performed by one person. |
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Supply |
is the quantity ofa good or service that firms are willing to sell at a given price over a given time period. |
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Demand |
is the quantity of a good or service that consumers are willing to buy at a given price over a given time period. |
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Equilibrium Price |
is the price at which the quantity demanded is equal to the quantity supplied. |
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Expansion |
when prices fall which causes movement along the demand or supply curve. |
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Contraction |
when prices rise which causes movement along the demand or supply curve. |
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Price Mechanism (Invisible Hand) |
refers to the way price responds to changes in demand or supply for product or factor inputs, so that a new equilibrium position is reached in a market. |
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Consumer Surplus |
is the difference between how much buyers are willing to pay for the good and what they actually pay. |
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Producer Surplus |
is the difference between the market price which firms receive and the price at which they are willing to supply. |
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Complement Goods |
are in joint demand. |
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Substitute Goods |
can be replaced by another good (competitor). |
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Derived Demand |
is when demand for one good is as a result of demand for another good. |
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Composite Demand |
is when a good is demanded for two or more distinct uses. |
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Joint Supply |
is when two or more goods are produced together. |
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Price Elasticity of Demand (PED) |
measures how demand for a product changes in response to a change in price. |
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Price Elasticity of Supply (PES) |
measures the responsiveness of supply to changes in price. |
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Cross Elasticity of Demand (XED) |
measures how demand for a product changes in response to a change in price of another good. |
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Income Elasticity of Demand (YED) |
measures how demand for a product changes in response to a change in consumers' price.` |
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Normal Goods |
where demand for a good increases when income increases and YED is positive. |
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Inferior Goods |
where demand for a good falls when income increases and YED is negative. |
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Luxury Good |
is a good for which demand increases more than proportionally when incomes increases. Luxury goods have a YED greater than 1. |
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Elastic Demand |
means that the change in quantity demanded is proportionately more that the change in price. |
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Inelastic Demand |
means that the change in quantity demanded is proportionately less than the change in price. |
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Unitary Demand |
is when the change is quantity demand is proportionately the same as the change in price. |
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Perfectly Elastic Demand |
means that a change in price leads to an infinite change in the quantity demanded. |
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Perfectly Inelastic Demand |
means that a change in price leads to no change in the quantity demanded. |
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Total Revenue |
is the sum of all money coming into the firm from sales of its product. |
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Market Economy (Capitalist Economy) |
is an economic system which resolves the basic economic problem through the market mechanism. |
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Command Economy (Planned Economy) |
is when the government uses a planning process to allocate resources. |
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Mixed Economy |
is an economy where both the free market mechanism and the government planning process allocate significant proportions of resources. |
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Market Failure |
is when resources are inefficiently allocated due to imperfections in the market mechanism. |
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Private Cost |
is the cost to consumers or firms internal to the exchange. |
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External Cost |
is the negative, unintended spillover effects to third parties. |
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Social Cost |
is the cost to the whole of society, this is the private costs plus the external costs. |
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Private Benefit |
is the benefit to consumers and firms internal to the exchange. |
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External Benefit |
is the positive, unintended spillover effects to third parties. |
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Social Benefits |
is the benefit to the whole of society. This is the private benefits plus the external benefits. |
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Externalities (or spillover effects) |
arise when private costs and benefits are different from social costs and benefits. They occur when the activities of producers and consumers have unintended effects on third parties. |
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Negative Externality (or External Cost) |
occurs when social cost exceeds private cost. |
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Positive Externality (or External Benefit) |
occurs when social benefit exceeds private benefit. |
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Optimum Provision |
of a good is when marginal social benefit (MSB) equals marginal social cost (MSC). |
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Internalising an externality |
an attempt to deal with an externality by bringing an external cost or benefit into the price system. |
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Subsidy |
is a grant which lowers the price of a good, usually designed to encourage production or consumption of a good. |
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Indirect Tax |
is a tax on expenditure and it is levied on the producer. |
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Ad Valorem Tax |
is levied as a % of the value of the good. |
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Specific Tax (Unit Tax) |
increases with the volume of goods produced, not the value. |
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Incidence of Taxation |
refers to who ends up paying, the producer or consumer. |
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Public Goods |
are a 'missing market'; they are not provided by the free market and can only be provided collectively. They have two characteristics of non-excludability (free rider problem) and non-rivalry in consumption. |
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Quasi-Public Goods |
possess some of the characteristics of public goods for some, but not all of the time. |
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Asymmetric Information |
a situation in which some participants in a market have better information about market conditions than others. |
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Buffer Stock |
surplus stock that is bought up when the harvest is good with a view to selling when it is poor, in an attempt to stabilise commodity prices. |
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Government Failure |
occurs when government intervention leads to a net loss in economic welfare. |
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Equilibrium |
Occurs in the marketplace when quantity demanded exactly equals quantity supplied. This is the price at which there is no tendency to change. |