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| Question | Answer |
| ad valorem tax | a sales tax that is set at a percentage of the price |
| adverse selection | a situation in which a person at risk is more likely to take out insurance |
| allocative efficiency | acheived when society is producing an appropriate bundle of goods relative to consumer preferences |
| asymetric information | a situation in which some participants in a market have better information about market conditions than others |
| bounded rationality | a situation in which people's ability to take rational decisions is limited by lack of information that is available, perhaps because of weakness at computation |
| Capital goods | goods used as part of the production process, such as machinery or factory buildings |
| Cartel | an agreement between firms in a market on price and output with the intention of maximising their joint profits |
| ceteris paribus | a latin phrase meaning 'other things being equal', it is used in economics when we focus on changes in one variable while holding other influences constant |
| command economy | an economy in which decisions on resource allocation are guided by the state |
| competitive market | a market in which individual firms cannot influence the price of the good or service they are selling, because of competition from other firms |
| complements | two goods are said to be complemets if an increase in the price of one good causes the demand for the other good to fall |
| consumer goods | goods produced for present use (consumption) |
| consumer surplus | the value that consumers gain from consuming a good or service over and above the price paid |
| consumption externality | an externality that affects the consumption side of a market, which may be either positive or negative |
| cross elasticity of demand (XED) | a measure of the sensitivity of quantity demanded of a good or service to a change in the price of some other good or seveice |
| demand | the quantity of a good or service that consumers are willing and able to buy at any given price in a given period of time |
| demand curve | a graph showing how much of a good will be demanded by consumers at any given price |
| diminishing marginal utility | describes the situation where an induividual gains less additional utility from consuming a product, the more of it is consumed |
| division of labour | a process whereby the production procedure is broken down into a sequence of stages, and workers are assigned to a particular stage |
| elastic | a term used when the price elasticity of demand is greater than 1 but less than infinity |
| elasticity | a measureos the sensitivity of one variable to changes in another variable |
| external benefit | the benefit that society receives over and above those that accrue to the individual engaged in an economic activity |
| external cost | a cost associated with an individual's (a firm or household's) production or other economic activities, which is borne by a third party and is not reflected in market price |
| externality | a cost or benefit that is external to a market transaction, and is thus not reflected in market prices, which may affect third parties not involved in the transactions |
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