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Resource summary
| Question | Answer |
| 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 |