Econ Unit 3 - Theme 1 Key Terms

Front 1

factors of production

Back 1

inputs to the production process - land labour, capital (+enterprise/entrepreneurship)

Front 2

renewable resources

Back 2

resources that can be exploited over and over again as they have the potential to renew themselves (trees, fish)

Front 3

non-renewable resources

Back 3

resources that cannot be replaced once exploited (coal, oil)

Front 4

consumer goods

Back 4

goos and services used by people to satisfy their wants and needs

Front 5

capital goods

Back 5

goods and services used in production of other goods (factories, offices, roads, machines)

Front 6

economic problem (scarcity)

Back 6

resources must be sallocated between competing uses as there's infinite wants, finite resources

Front 7

opportunity cost

Back 7

the benefits forgone of the next best alternative

Front 8

free goods

Back 8

goods that are unlimited in supply, and therefore have no opportunity cost

Front 9

positive statements

Back 9

a statement that can be supported or refuted by evidence

Front 10

normative statements

Back 10

a statement that can't be supported or refuted due to the presence of a value judgement

Front 11

utility (/economic welfare)

Back 11

the satisfaction or benefit derived from consuming a good or set of goods

Front 12

market

Back 12

any convenient set of arrangements by which buyers and sellers communicate to exchange goods and services

Front 13

price mechanism

Back 13

the means by which millions of decisions taken by consumers and businesses interact to determine the allocation of scarce resources between competing uses (rationing, signalling, incentive)

Front 14

demand

Back 14

the quantity of a good or service that consumers are willing and able to buy at a given price in a given time period

Front 15

supply

Back 15

the quantity of a good or service that producers are willing and able to supply at a given price in a given period of time

Front 16

effective demand

Back 16

aggregate actual demand in an economy supported by the consumer's capacity to pay

Front 17

(law of) diminishing marginal utility

Back 17

the value or utility that individual consumers gain from the last product consumed falls the greater the number consumed

Front 18

consumer surplus

Back 18

the difference between how much buyers are prepared to pay for a good and how much they actually pay

Front 19

producer surplus

Back 19

the difference between how much producers are willing to supply a good for, and the price they actually receive for the good

Front 20

complements

Back 20

a good that is purchased with another good to satisfy a want (negative XED)

Front 21

substitutes

Back 21

a good which can be replaced by another to satisfy a want (positive XED)

Front 22

cross elasticity of demand (XED)

Back 22

the responsiveness of quantity demanded of one good to a change in price of another good (%change Q-goodA / %change P-goodB)

Front 23

derived (joint) demand

Back 23

the demand placed on a good or service for its ability to acquire or produce another good or service

Front 24

composite demand

Back 24

where a good or service has multiple uses, so that an increase in demand for one product leads to a fall in supply of the other

Front 25

joint supply

Back 25

where, as a product or process can yield two or more outputs, the increase in supply of one good results in an increase in supply of the resulting good

Front 26

price elasticity of demand (PED)

Back 26

the responsiveness of a demand for a good/service to a change in price

Front 27

income elasticity of demand (YED)

Back 27

the responsiveness of demand to a change in income (%change D / %change Y)

Front 28

price elasticity of supply (PES)

Back 28

the responsiveness of supply to a change in price (%change in Q / %change P)

Front 29

indirect tax

Back 29

a tax that is passed onto the consumer as part of the price of the good or service they are purchasing

Front 30

specific (or unit) tax

Back 30

tax levied on volume - there is a fixed amount for each unit sold

Front 31

ad valorem tax

Back 31

tax levied as a percentage of the value of the good

Front 32

subsidy

Back 32

a grant given which lowers the price of a good, usually designed to encourage production or consumption of a good

Front 33

production possibility frontier

Back 33

maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently employed

Front 34

specialisation

Back 34

a system of organisation where economic units are not self sufficient but concentrate on producing certain goods and services and trading the surplus with others

Front 35

division of labour

Back 35

specialisation by workers who perform different tasks at different stages of production to make a good or service, in co-operation with other workers

Front 36

free economy

Back 36

an economic system that resolves the basic economic mainly through the market mechanism

Front 37

command economy

Back 37

an economic system where government, through a planning process, allocates resources in society

Front 38

mixed economy

Back 38

an economy where both the free market mechanism and the government planning process allocate significant proportions of total resources

Front 39

market failure

Back 39

where resources are inefficiently allocated due to imperfections in the working of the market mechanism

Front 40

public good

Back 40

a good which possesses the characteristics of non-rivalry and non-excludability

Front 41

non-excludability

Back 41

once provided, it is impossible to prevent any economic agent from consuming the good

Front 42

non-rivalry

Back 42

consumption by one economic agent does not reduce the amount available for consumption by others

Front 43

free rider

Back 43

a person or organisation which receives benefits that others have paid for without making any contributions

Front 44

private good

Back 44

a good which possesses the characteristics of rivalry and excludability

Front 45

subsidised provision

Back 45

when the government pays for part of the good or service but expects the consumer to pay the rest

Front 46

privatisation

Back 46

the act of transferring ownership of business operations from a government organisation to a privately owned entity

Front 47

asymmetric information

Back 47

where buyers and sellers have different amounts of information, with one group having more info than the other

Front 48

negative externality / external cost

Back 48

where net social cost (social cost - social benefit) > net private cost (private cost - private benefit)

Front 49

private cost

Back 49

the cost of an activity to a single economic unit

Front 50

social cost

Back 50

the cost of an activity to society as a whole

Front 51

private benefit

Back 51

the benefit of an activity to a single economic unit

Front 52

positive externality / external benefit

Back 52

where net social benefit (social benefit - social cost) > net private benefit (private benefit - private cost)

Front 53

social benefit

Back 53

the benefit of an activity to society as a whole

Front 54

internalising the externality

Back 54

the act of making a change in a company's private costs or benefits in order to make them equal to the company's social costs or benefits