F581 - Markets In Action

Frage	Antworten
Economics	A science that studies how to allocate scarce resources, to satisfy societies unlimited needs and wants.
Microeconomics	Smaller scale allocation of scarce resources (personal = consumers and workers, firms = producers).
Household	The number of people who live in a house, and their economic activity.
Goods	Physical trade, tangible.
Services	Invisible trade, intangible.
Economic problem	Limited, scarce resources, but unlimited human needs and wants.
Scarcity	Scarce resources, not enough for everyone.
Factors of production	Scarce resources, carrying an opportunity cost (Land, labour, capital and enterprise).
Factor rewards/ Factor income	Owners of factors of production are rewarded when they decide to trade their factors.
Land	All natural resources (land, rivers, forests etc.) Reward for landlords is rent.
Labour	Physical and intellectual input from workers. Reward for workers is wage.
Capital	All man-made tools and equipment (not money). Reward for creditors is interest.
Enterprise	Risk taking factor, expertise and know-how. Reward for individuals is profit.
Entrepreneur	An individual, who builds capital through general enterprise skills.
Want	Non essential items, personal need which is subject to change.
Need/ basic needs	Necessary/obligatory things and raw materials, needed for survival.
Economy/ Economic system	A way to solve the economic problem.
Free market economy (Capitalist system)	Government has a limited role; resources are allocated without government interference. There is unrestricted ownership; freedom of choice and free enterprise.
Command economy (centrally-planned economy)	Government and bureaucracy decide what, how and for whom to produce. Planners make assumptions about what people want, and set targets and prices based on this.
Mixed economy	Mix of free market and centrally planned economy. Tax is taken so the state can ensure a minimum standard of living for all.
Opportunity cost	Foregoing the benefit of the next best option.
Production Possibility Curve (PPC)	The limits or barrier of productive capacity. Also known as the production possibility frontier (PPF).
Trade-off	The process of making a choice between alternatives.
Specialisation	When scarce resources are focused upon providing a specific good/service.
Division of labour	Breaking down a manufacturing process into specific self-contained tasks, performed by individual workers. Results in significant increases in output; birth of mass production.
Exchange	The trade of two goods, of agreed equal value.
Productivity	A measure of the efficiency of production.
Nationalisation	The transfer of private sector firms to state-ownership.
Privatisation	The transfer of state-owned industries to the private sector. Also known as denationalisation.
Market	A place of transactions. The exchange of goods and services between producers and consumers, using money as a means of payment. Price is the main determinant.
Demand	The quantity of goods or services consumers are willing to buy in a market at a given price, over a period of time.
Notional demand	The aggregate quantity of goods and services that are demanded, when markets are in equilibrium.
Effective demand	The intention to consume is converted into a purchase of goods or services.
Supply	The quantity of goods and services, producers or firms are willing to sell, at a given price.
Determinant of demand	The factors that affect demand.
Determinant of supply	The factors that affect supply.
Demand curve	Demand in relation to price and quantity.
Demand schedule	The quantity demanded at every price.
Supply curve	Supply in relation to price and quantity.
Supply schedule	The quantity supplied at every price.
Ceteris paribus	Literally translated ‘All other things being equal’. When all other factors that may affect demand are assumed constant.
Equilibrium (market clearing)	A situation where there is a state of balance, and so no tendency for change.
Equilibrium price	The price which leaves neither unsold products, nor unsatisfied demand. Demand is equal to supply.
Equilibrium quantity	The quantity which leaves neither unsold products, nor unsatisfied demand. Demand = Supply.
Glut (excess supply)	Supply exceeds demand, at a given price. Supply > Demand.
Shortage (excess demand)	Demand exceeds supply, at a given price. Demand > Supply.
Normal good	A product for which an increase in income, leads to an increase in demand for that item. (+ YED value)
Inferior good	A product for which an increase in income, leads to a decrease in demand for that item. (- YED value)
Substitute good	Alternative products that can be used to satisfy the same given want or need. (+ XED value)
Complementary good	Products that consumers use jointly together. (- XED value)
Producer surplus	The difference between the market price, and the lowest price consumers are willing to pay.
Consumer surplus	The difference between the market price, determined by supply and demand, and the highest price consumers are willing to pay for a good or service.
Subsidy	Government financial assistance to producers, to reduce costs of production. A non-price determinant of supply, resulting in increased supply.
Indirect tax	Compulsory changes imposed by the government on the sale of goods and services i.e. taxes on spending.
Minimum price	Adopted when the government would like to help certain producers secure good profit levels, or consumer adequate income level.
Maximum price	Occurs when the government intervenes in a market which is failing to fix the price of a product below the market price.
Elasticity of demand	Measures the responsiveness of demand, following a percentage change in any determinant of demand.
Elasticity of supply	Measures the responsiveness of supply, following a percentage change in any determinant of supply.
Cross Elasticity of Demand (XED)	The responsiveness of demand of good A, following a percentage change in the price of good B. (+) or (–) value.
Income Elasticity of Demand (YED)	The responsiveness of demand, following a percentage change in income. (+) or (–) value.
Price Elasticity of Demand (PED)	The responsiveness of demand, following a percentage change in price. Always (–) value.
Elastic	A change of one variable results in a bigger change of the second.
Inelastic	A change of one variable results in a smaller change of the second.

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F581 - Markets In Action

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