Flashcards by erikacotton, updated more than 1 year ago


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CAPITAL INTENSIVE Use of a high proportion of capital goods in production, relative to other resources
CONSUMER SOVEREIGNTY Buyers ultimately determine what is produced and how scarce resources are used by means of their purchases
CONTRACTION IN DEMAND A rise in price causes movement along demand curve and a decrease in demand
DERIVED DEMAND Occurs when demand for a particular product results from the demand for another product
CONTRACTION IN SUPPLY A fall in supply causes movement along the suppy curve and a decrease in supply
CROSS ELASTICITY OF DEMAND Measures resonsiveness of demand for one product to a given change in price of another
EQUILIBrium State of balance - no tendency to change
ECONOMIC EFFICIENCY Occurs when society produces those products consumers most value at the lowest possible unit cost
ECONOMIC SYSTEM Methods used by society to deal with production, distribution and consumption
EFFECTIVE DEMAND The willingness and ability to purchase a product
EFFICIENCY MAXIMISATION When a firm selects the level of output and price that delivers allocative efficiency by producing where P=MC
BARTER Direct exchange of products for other products - without the use of money
ECONOMIC AGENTS Term used to describe households and firms
ECONOMIC GOOD Products created using scarce resources
DOUBLE COINCIDENCE OF WANTS If either party doesn't want the product being offered in BARTER, then no exchange will take place
EQUILIBRIUM PRICE The PRICE where the amount consumers demand = the amount producers supply "BALANCED"
EQUILIBRIUM OUTPUT Amount traded at the equilibrium market price i.e. market output
DIVISION OF LABOUR specialisation of labour where production is broken down into separate parts
ALLOCATIVE EFFICIENCY when resources are being used to produce those items most valued by society, given their costs
COMMODITIES Primary products such as - gold, oil, wheat
DEMERIT GOOD Products believed to be more harmful to the consumer than they actually realise - overconsumed in free markets (have negative externalities)
DISEQUILIBRIUM A situation where there is a state of imbalance + so no tendency for change
ELASTICITY Measures the response of one variable to a change in another variable
ALLOCATIVE EFFICIENCY OUTPUT The level of output where MSB = MSC (I.E. socially optimum output level)
CETERUS PARIBUS "All other things being equal"
COMMAND ECONOMY Economic system where states owns and allocates resources
CONSUMER SURPLUS Extra amount a consumer is willing + able to pay for a product above the market asking price
DIRECT TAXES Compulsory charges imposed by the government on income or wealth of individuals and firms
ASYMMETRIC INFORMATION When one party in a transaction knows more than another
MIXED ECONOMY economic system where resources are allocated through a mixture of the market with direct public sector involvement
MARKET ECONOMY economic system where resources are allocated through market forces of supply and demand
MICRO DEFINITION the study of how households and firms make spending decisions in a market
INFERIOR GOODS An increase in income leads to a fall in demand (e.g. supermarket own brands)
CHANGE IN DEMAND where a change in a non-price factor leads to an increase or decrease in demand
FACTORS OF PRODUCTION -Land (resources) -Labour (labourforce) -Capital (machinery) -Enterprise (entrepreneurship)
DEMAND Willingness and ability to purchase a product at various prices over a period of time
BENEFITS OF SPECIALISATION -Higher productivity -Higher quality of goods produced -Increase in efficiency
MARKET A place that brings buyers and sellers together
PRICE SYSTEM method of allocating resources by the free movement of prices
INFORMATION FAILURE Lack of info resulting in consumer spending decisions that do not maximise welfare (e.g. smoking)
ARITHMETIC MEAN the sum of items divided by the number of items
MARKET FAILURE Free market mechanism fails to achieve economic efficiency
EXTERNAL COSTS the costs that are the consequence of externalities to 3rd parties
EXTERNALITY Those not directly involved in making a decision are affected by the actions of others
MERIT GOODS more private benefits than consumers actually realise
ASYMMETRIC INFORMATION info not equally shared between two parties (e.g. doctors and patients)
REGRESSIVE TAX tax that takes a higher % from the income of the poor
FREE MARKET MECHANISM system by which market forces of S + D determine prices + decisions made by consumers and firms
PROGRESSIVE TAX Tax that takes a higher % from income of the rich
POSITIVE EXTERNALITY Social benefits of an activity exceeds the private benefits
NON RIVALRY Consumption by one does not affect the consumption by others
INDIRECT TAXES a tax levied on goods + services (e.g. VAT)
NEGATIVE EXTERNALITY social cost is greater than private cost
TRADABLE PERMIT allows owner to emit a certain amount of pollution - if unused, can be sold - aimed at larger manufacturers
PUBLIC GOODS collectively consumed + have characteristics of non-rivalry and non-excludability
QUASI PUBLIC GOODS Some but not all characteristics of a public good
NON-EXCLUDABILITY Where an individual cannot be excluded from the consumption of a good or service
EXTERNAL BENEFITS Benefits that occur as a consequence of externalities to 3rd parties
BUFFER STOCKS Supplies of a product held in storage in case of a change in market conditions
EXTENSION IN DEMAND Increase in the quantity demanded caused by a fall in the price of a product
COSTS An expenditure incurred by a firm in producing a good or service
DEMAND CURVE Shows amount of a product consumers are willing and able to buy at different prices in a given period of time
INTERPRETING XED - indications of positive XED -substitutes -(below 1) weak -(above 1) strong
INTERPRETING XED - indications of negative XED -complements -(above -1) weak -(below -1) strong
EVALUATING ELASTICITIES - factors of demand may change values - estimates - change over time - questionable reliability
INTERPRETING YED -elastic -inelastic -perfectly inelastic - >1 -<1 -=1
INTERPRETING PED -elastic -inelastic -unit elasticity - PED > 1 - 0 < PED < 1 - % change in P = % change in QD
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