Markets In Action Key Terms

Front 1

Allocative efficiency

Back 1

when resources are
being used to produce those items most
valued by society, given their costs. This
means consumer satisfaction is maximised.

Front 2

Allocatively efficient output

Back 2

the level of
output where MSB = MSC ie the socially
optimum output level

Front 3

Asymmetric information

Back 3

when one party
in a transaction has more information than
another

Front 4

Average cost

Back 4

The cost of making one item
sometimes called unit cost

Front 5

Barter

Back 5

the direct exchange of products for
other products without the use of money

Front 6

Benefits

Back 6

a payment made by the
government to individuals eg child benefit

Front 7

Black market

Back 7

an illegal market where
products in short supply are traded at a
price greater than the legal maximum set by
the government

Front 8

Buffer stocks

Back 8

supplies of a product held in
storage in case of a change in market
conditions eg unexpected shortages

Front 9

Capacity

Back 9

the maximum amount of output a
firm or country can produce given its
current resources

Front 10

Capital

Back 10

man made goods used to produce
more products eg factories, offices,
machines and roads

Front 11

Capital intensive

Back 11

the use of a high
proportion of capital goods in production
relative to other resources

Front 12

Ceterus Paribus

Back 12

a Latin phrase meaning
'all other things being equal'

Front 13

Choice

Back 13

the selection of one option between
alternatives

Front 14

Command economy

Back 14

a type of economic
system where the state owns and allocates
resources

Front 15

Commodities

Back 15

primary products such as
gold, oil, wheat or rubber

Front 16

Competition

Back 16

when rival firms contend for
customers

Front 17

Competitive market

Back 17

a market made up of
many rival firms who are free to enter or
leave the industry

Front 18

Competitive supply

Back 18

a by-product from
manufacture eg beef and leather

Front 19

Complements

Back 19

products consumers use
jointly together eg cars and petrol.

Front 20

Consumer

Back 20

an individual who buys and
uses a product

Front 21

Consumer sovereignty:

Back 21

buyers ultimately
determine what is produced and how scarce
resources are used by means of their
purchases

Front 22

Consumer surplus:

Back 22

the extra amount a
consumer is willing to pay for a product
above the price they actually do pay ie its
market price

Front 23

Consumer taste

Back 23

the preferences of
households

Front 24

Contraction in demand

Back 24

A rise in the price
of a product causes a movement along its
demand curve and a decrease in the
quantity demanded

Front 25

Contraction in supply

Back 25

A fall in the price of
a product causes a movement along its
supply curve and a decrease in the quantity
supplied

Front 26

Costs

Back 26

an expenditure incurred by a firm in
producing a good or a service

Front 27

Cross elasticity of demand

Back 27

measures
responsiveness of demand for one product
to a given change in the price of another
product

Front 28

Decrease in demand

Back 28

when less of a
product is demanded at each and every
price causing the demand curve to shift to
the left.

Front 29

Demand

Back 29

the amount of a product
consumers are willing and able to purchase
at various prices in a given time period eg
one month

Front 30

Demand curve:

Back 30

a graph showing the
amount of a product consumers are willing
and able to buy at different prices, in a given
period of time eg one month

Front 31

Demand schedule

Back 31

a table showing the
amount of a product consumers are willing
and able to buy at different prices, in a given
time period, eg one month

Front 32

Demerit good

Back 32

products government
believes are more harmful for consumers
than they realise and are over consumed in
free markets. Often have negative
externalities.

Front 33

Derived demand

Back 33

occurs when the demand
for a particular product results from the
demand for another product.

Front 34

Direct taxes

Back 34

compulsory charges imposed
by the government on income or wealth of
individuals or firms

Front 35

Disequilibrium

Back 35

a situation where there is
a state of imbalance and so a tendency for
change

Front 36

Disposable income

Back 36

net income left after
deducting direct taxes, and adding state
benefits

Front 37

Division of Labour

Back 37

a type of specialisation
where the production of a good or services
is broken down into separate tasks

Front 38

Double coincidence of wants

Back 38

If either
party does not want the product being
offered in barter, no exchange takes place.

Front 39

Economic activity

Back 39

any activity resulting in
the production of goods or services

Front 40

Economic agents

Back 40

a term used to describe
households and firms

Front 41

Economic cycle

Back 41

periodic rise and falls in
real GDP over time

Front 42

Economic efficiency

Back 42

occurs when society
produces those products consumers most
value at lowest possible unit cost. Allocative
and productive efficiency are achieved

Front 43

Economic good

Back 43

products that are created
using scarce resources

Front 44

Economic growth

Back 44

an increase in the
capacity of the economy to produce goods
and services, over time. An increase in
productive potential is usually means a rise
in GDP

Front 45

Economic inefficiency

Back 45

occurs when
resources are not being put to best possible
because either allocative or productive
efficiency is not achieved.

Front 46

Economic problem

Back 46

Unlimited wants and
scare resources mean no society can
produce sufficient products to satisfy
everyone’s desires

Front 47

Economic system

Back 47

the methods used by
society to deal with production, distribution
and consumption. How economies decide
what how and for whom to produce

Front 48

Economics

Back 48

the study of how to allocate
scarce resources between competing wants

Front 49

Effective demand

Back 49

the willingness and
ability to purchase a product

Front 50

Efficiency

Back 50

making the best use of
resources to satisfy consumer wants

Front 51

Efficiency maximisation

Back 51

when a firm
selects the level of output and price that
delivers allocative efficiency by producing
where P=MC (marginal cost pricing)

Front 52

Elasticity

Back 52

measures the response of one
variable, eg demand, to a change in another
variable, eg price

Front 53

Enterprise

Back 53

the willingness to take
business risks and organise production

Front 54

Entrepreneur

Back 54

the individual who bears
the risk of business by organising land
labour & capital to produce output

Front 55

Equilibrium:

Back 55

a situation where there is a
state of balance and so no tendency for
change

Front 56

Equilibrium output

Back 56

amount traded at the
equilibrium market price ie market output

Front 57

Equilibrium price

Back 57

the price where the
amount consumers demand equals the
amount producers supply. Demand and
supply are in balance

Front 58

Excess demand:

Back 58

demand exceeds supply at
a given price

Front 59

Excess supply

Back 59

supply exceeds demand at a
given price.

Front 60

Exchange:

Back 60

the process of trading goods and
services

Front 61

Extension in demand:

Back 61

an increase in
quantity demand caused by a fall in the
price of the product

Front 62

Extension in supply

Back 62

an increase in
quantity supplied caused by a rise in the
price of the product

Front 63

Externalities:

Back 63

the spill over effects of
economic activity by first parties
(producers or consumers) that affect third
parties (someone not directly involved)

Front 64

Factor endowment:

Back 64

the quantity and
quality of land, labour, capital and
enterprise a country possesses

Front 65

Factor immobility

Back 65

when resources eg
labour is unable to switch to an alternative
use.

Front 66

Factors of production:

Back 66

types of resource
inputs used to produce goods and services:
land labour capital enterprise

Front 67

Firm

Back 67

an organisation that hires and
organises resources to make products

Front 68

Free goods

Back 68

products in limitless supply
because they do not use resources in their
production and have no opportunity cost

Front 69

Free market

Back 69

a market where the forces of
supply and demand determine prices with
no intervention from government

Front 70

Goods:

Back 70

tangible, physical products eg cars
and computers

Front 71

Government failure

Back 71

state intervention
increases economic inefficiency in a market

Front 72

Government intervention

Back 72

the state takes
action to try to correct market failure and so
improve economic efficiency.

Front 73

Gross Domestic Product (GDP):

Back 73

the total
value of goods & services produced within a
country's borders in a given time period eg
a year. The sum of all economic activity in
UK territory

Front 74

Household:

Back 74

individuals who live in the
same dwelling and who’s spending
decisions are connected

Front 75

Human capital

Back 75

the skill knowledge and
expertise workers acquire through
experience education and training

Front 76

Income

Back 76

earnings per period of time eg
weekly wage

Front 77

Income distribution

Back 77

the extent to which
total income is shared out between
households

Front 78

Income elastic demand

Back 78

a given change in
income causes a larger percentage change
in demand

Front 79

Income elasticity of demand

Back 79

measures
the responsiveness of demand for a product
to a given change in income

Front 80

Income inelastic demand

Back 80

a given change
in income causes a smaller percentage
change in demand

Front 81

Increase in demand

Back 81

when more of a
product is demanded at each and every
price causing the demand curve to shift to
the right.

Front 82

Independent goods

Back 82

two products that
have no price-quantity demanded
relationship. XED=0

Front 83

Indirect taxes:

Back 83

compulsory charges
imposed by the government on the sale of
goods or services ie taxes on spending

Front 84

Industry:

Back 84

all those firms producing the
same product

Front 85

Inferior goods

Back 85

products for which an
increase in income leads to an increase in
the demand for that item

Front 86

Infrastructure:

Back 86

the stock of capital used to
support the economic system

Front 87

Interdependent

Back 87

when economic agents
are interlinked eg trading partners become
mutually dependent on one another for
products

Front 88

Joint Supply

Back 88

alternative products a firm
can make with its resources eg carrots or
turnips

Front 89

Labour:

Back 89

human resources; the physical and
mental work of people whether by hand, by
brain, skilled or unskilled

Front 90

Labour intensive:

Back 90

the use of a high
proportion of labour in production relative
to other resources

Front 91

Land:all natural resources

Back 91

all natural resources (gifts of nature)
including fields, mineral wealth, and fishing
stocks

Front 92

Long run

Back 92

the period of time needed for
firms to alter the quantity of all factors used
in production ie both labour and capital

Front 93

Loss:

Back 93

when total revenue fails to cover total
costs

Front 94

Marginal cost

Back 94

the cost of making one extra
item

Front 95

Market:

Back 95

any place where buyers and sellers
meet to exchange or trade products eg a
shop or the internet

Front 96

Market clearing price

Back 96

the one price which
leaves neither unsold products nor
unsatisfied demand ie equilibrium price

Front 97

Market economy:

Back 97

an economic system
where the market forces of supply &
demand are used to allocate scarce
resources between alternative uses

Front 98

Market failure

Back 98

markets make an
inefficient use of scarce resources and fail to
deliver allocative or productive efficiency

Front 99

Market price

Back 99

the price at which buyers
and sellers trade a product

Front 100

Market shortage

Back 100

demand exceeds supply
at a given price. Consumers are unable to
buy all they want at that price.

Front 101

Market surplus

Back 101

supply exceeds demand at
a given price. Produces are unable to sell all
they want at that price.

Front 102

Medium of exchange

Back 102

any item generally
accepted as payment for products

Front 103

Merit good

Back 103

products government believes
are more beneficial for consumers than they
realise and are under consumed in free
markets. Often have positive externalities

Front 104

Microeconomics

Back 104

studies how individual
firms and consumers behave in individual
markets.

Front 105

Mixed economy:

Back 105

an economic system that
uses both market forces and state control to
allocate scarce resources between
alternative uses

Front 106

Mixed goods

Back 106

products that have the
characteristics of both private and public
goods

Front 107

Model

Back 107

a simplified view of complex
relationships and processes, used to make
predictions

Front 108

Money

Back 108

any asset (item) widely accepted as
payment for products eg notes and coins or
bank deposits

Front 109

Needs

Back 109

something essential for survival eg
food satisfies hungry people

Front 110

Negative externalities

Back 110

production or
consumption imposes costs on third parties
who receive no compensation

Front 111

Normal goods

Back 111

a product for which an
increase in income leads to an increase in
the demand for that item

Front 112

Notional demand

Back 112

desire for a product

Front 113

Opportunity cost:

Back 113

the best alternative
sacrificed when an economic choice is
made. The opportunity cost of more leisure
time is the lost wages sacrificed.

Front 114

Optimum output

Back 114

an efficient level of
output which delivers both productive and
allocative efficiency

Front 115

Planned economy

Back 115

an economic system
where the state decides what to produce,
how to produce it, and for whom to produce
goods & services.

Front 116

Polluter pays principle

Back 116

a principal used
by government to force polluters to pay for
their pollution thereby internalising an
externality

Front 117

Positive externalities

Back 117

when third parties
benefit from the spill over effects of
production or consumption for which they
do not pay

Front 118

Price:

Back 118

the amount of money for which a
product is sold

Front 119

Price elastic demand

Back 119

a given change in
price causes a larger percentage change in
demand

Front 120

Price elastic supply

Back 120

a given change in
price causes a larger percentage change in
supply

Front 121

Price elasticity of demand

Back 121

measures the
responsiveness of quantity demanded for a
product to a given change in its price

Front 122

Price elasticity of supply:

Back 122

measures the
responsiveness of quantity supplied to a
given change in its price

Front 123

Price inelastic demand

Back 123

a given change in
price causes a smaller percentage change in
demand

Front 124

Price inelastic supply:

Back 124

a given change in
price causes a smaller percentage change in
supply

Front 125

Price mechanism

Back 125

price movements act as
a signal to consumers and producers to
change their economic activity

Front 126

Price system:

Back 126

a method of allocating
resources using price changes. Consumers
and producers adjust their economic
activity as prices change

Front 127

Primary sector

Back 127

The part of the economy
that extracts natural resources eg farming,
fishing, quarrying and mining.

Front 128

Private benefits

Back 128

the gain to individuals or
firms of consuming or producing an item.

Front 129

Private costs

Back 129

the costs to individuals or
firms of consuming or producing a good or a
service.

Front 130

Private goods

Back 130

products which are both
rival and excludable

Front 131

Private sector

Back 131

that part of the economy
made up of households and firms controlled
by private individuals.

Front 132

Producer surplus

Back 132

the extra amount a
producer is paid for a product above what
they are willing to accept to supply the
product

Front 133

Production

Back 133

the process of creating goods
and services

Front 134

Production possibility curve:

Back 134

shows the
maximum amount of two products a firm or
country can make in a given time period
with current resources and technology

Front 135

Productive efficiency

Back 135

when output is
maximised from given inputs. This means
products are being made a lowest possible
unit cost

Front 136

Productive potential

Back 136

the maximum
amount of products an economy can make
in a given time period with current
resources and technology

Front 137

Productivity of labour

Back 137

output per worker
in a given time period eg 20 items a day or
per worker hour

Front 138

Products:

Back 138

goods or services

Front 139

Progressive taxes:

Back 139

The rich pay a larger
percentage of income in tax than the poor

Front 140

Property rights:

Back 140

the legally enforceable
rules for owning, using and selling a
resource eg land.

Front 141

Proportional taxes

Back 141

the rich pay the same
percentage of income in tax than the poor

Front 142

Public goods

Back 142

products which are both
non-rival and non-excludable.

Front 143

Public sector:

Back 143

that part of the economy
made up central government local
government, and public corporations

Front 144

Quasi public good

Back 144

a product that has
many but not all the characteristics of a
public good ie semi-non-rival and semi-nonexcludable

Front 145

Quaternary sector

Back 145

The part of the
economy that creates intellectual and
information processing services eg scientific
research, R&D, education, and IT.

Front 146

Resources

Back 146

are items used to produce
goods & services eg land, labour and capital

Front 147

Revenue:

Back 147

the amount a firm receives from
the sale of its output.

Front 148

Scarcity:

Back 148

a situation where there are
insufficient resources to create all the
products needed to meet all our wants

Front 149

Secondary sector

Back 149

The part of the economy
that manufactures goods eg, cars,
construction & energy utilities

Front 150

Services

Back 150

non-physical, intangible products
such as banking and education

Front 151

Short run

Back 151

the period of time when the
quantity of one factor of production, usually
labour, is fixed

Front 152

Social benefits

Back 152

the total gain to society of a
given economic activity taking account of
both private benefits and positive
externalities

Front 153

Social costs:

Back 153

the total cost to society of a
given economic activity taking account of
both private costs and negative externalities

Front 154

Socially optimum output

Back 154

the level of
output which maximises consumer welfare
by producing where MSB = MSC

Front 155

Specialisation:

Back 155

when workers, firms,
regions or economies concentrate on the
production of a narrow range of goods and
services

Front 156

Stock:

Back 156

stored goods held ready for future
use or sale ie inventory

Front 157

Store of value

Back 157

any item used for saving

Front 158

Sub market:

Back 158

a market segment (part of the
market) made up of customers with similar
wants eg the computer market has desktop
and notebook submarkets

Front 159

Subsidy:

Back 159

a payment made by the
government to consumers or producers to
encourage consumption or production

Front 160

Substitutes

Back 160

alternative products that can
be used to satisfy the same given want or
need eg butter or margarine.

Front 161

Supplier

Back 161

a firm which sells products

Front 162

Supply:

Back 162

the amount of a product firms are
willing and able to provide at different
market prices in a given time period, eg one
month

Front 163

Supply curve

Back 163

a graph showing the amount
of a product firms are willing and able to
sell at different prices, over a given period
of time eg one month

Front 164

Sustainability:

Back 164

meeting the needs of the
present without compromising the ability of
future generations to meet their own needs

Front 165

Sustainable growth

Back 165

an increase in GDP
that does not compromise the ability of
future generations to meet their own needs

Front 166

Taxes:

Back 166

compulsory charges imposed by
government on individuals & firms

Front 167

Tertiary sector

Back 167

the part of the economy
that creates services eg transport, tourism,
banking, insurance and retail

Front 168

Total Costs:

Back 168

the amount of money spent by
a firm on producing a given level of output

Front 169

Total Revenue:

Back 169

total amount a firm
receives from selling a given level of output

Front 170

Tradeable permits

Back 170

a government issued
licences that allow a firm to pollute up to a
given level and which can be bought and
sold

Front 171

Trade:

Back 171

the exchange of products

Front 172

Trade off:

Back 172

The process of making a choice
between alternatives eg deciding if is worth
sacrificing a new car for a holiday in Hawaii

Front 173

Transaction:

Back 173

the act of buying or selling
(exchanging) a product

Front 174

Transaction costs

Back 174

the costs involved in
trading eg time & travel costs

Front 175

Transition economies:

Back 175

countries moving
from a planned to market economic system.

Front 176

Unit of account:

Back 176

any item used to measure
the value of other items eg money

Front 177

Universal benefits

Back 177

benefits given to
qualifying individuals irrespective of their
income

Front 178

Wants:

Back 178

something desirable but not
essential to survival eg cola quenches thirst