669151
Description
Flashcards by Sophie Marshall, updated more than 1 year ago
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Created by Sophie Marshall
over 10 years ago
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| Question | Answer |
| Profit | When total income or revenue for a firm is greater than total costs |
| Opportunity cost | The next best alternative foregone when an economic decision is made |
| Economic goods | Goods that are scarce and therefore have an opportunity cost |
| Free goods | Goods that have no opportunity cost, for example air |
| Factor market | The market for the factors of production that make others goods and services such as labour or raw materials |
| Renewable resources | Resources that are able to be replenished over time, whereas non-renewables such as oil and gas are likely to run out |
| Free market economy | One in which there is very limited government involvement in providing goods and services. Main role is to ensure the rules are fair |
| PPB | Indicates the maximum possible output that can be achieved given a fixed set of resources and technology in a particular time period |
| Productive efficiency | When a firm operates at a minimum average total cost, producing the maximum possible output from inputs into the production process |
| Allocative efficiency | When it is not possible to produce more of one good without making less of another |
| Productivity | A measure of efficiency, measuring the ratio of inputs to outputs; the most common measure is labour productivity, which is the output per worker |
| Human capital | The skills, abilities, motivation and knowledge of labour. Improvements in human capital can raise productivity and can shift the PPB to the right |
| Division of labour | Breaking the production process down into a sequence of tasks, with workers assigned to particular tasks |
| Specialisation | The production of a limited range of goods by an individual factor of production or firm or country, in cooperation with others so that together a complete range of goods is produced |
| Value judgements | Statements or opinions expressed that are not testable or cannot be verified and depend very much on the views of the individual and the values they hold |
| Normative statements | Opinions that require value judgements to be made |
| Positive statements | Statements that can be tested against real world data |
| Demand | The amount that consumers are willing and able to buy at each given price level |
| Effective demand | Demand supported by the ability to pay for a good or service |
| Market demand | Total demand in a market for a good, the sum of all individuals' demand, at each given price level |
| Contractions in demand | Falls in the quantity demanded caused by rises in prices |
| Extensions in demand | Increases in demand caused by changes (falls) in price |
| Normal goods | Goods or services that will see an increase in demand when income rises |
| Inferior goods | Goods or services that will see demand fall when income rises |
| Complementary products | Goods that are consumed together, for example bread and butter, or DVDs and DVD players |
| Composite demand | A good that is demanded for more than one purpose so that an increase in demand for one purpose reduces the available supply for the other, typically leading to higher prices, e.g. milk used in butter and cheese |
| Supply | The amount offered for sale at each given price level |
| Planned supply | The amount producers plan to produce at each given price |
| Actual supply | The amount that producers in fact produce. This may differ from planned supply for a variety of reasons such as breakdowns in production, staff absences, etc. |
| Market supply | The sum of all individual firm's supply curves at each given price |
| Extension in supply | When there is an increase in supply because the market price has risen |
| Contraction in supply | When the amount offered for sale is reduced because the price level has fallen |
| Joint supply | When the production of one good also results in the production of the other |
| Equilibrium | The price at which demand is equal to supply and there is no tendency for change |
| Disequilibrium | A situation within the market where supply does not equal demand |
| Excess supply | When supply at a particular price is greater than demand; this should signal to producers to lower prices |
| Market-clearing price | The price at which all goods that are supplied will be demanded |
| Excess demand | When demand is greater than supply at a given price |
| Maximum price | A price ceiling above which the price of a good or service is not allowed to increase |
| Minimum price | A price floor below which the price of a good or service is not allowed to decrease |
| Price elasticity of demand | The responsiveness of demand to a change in the price level. The formula is % Δ Qd/% Δ price |
| Subsidies | Payments by government to producers to encourage production of goods or services |
| Incidence of tax | The proportion of tax that is passed onto the consumer (when demand is price inelastic incidence tax tends to be high) |
| Price elasticity of supply | The responsiveness of supply to a change in the price level. The formula is % Δ Qs/% Δ price |
| Income elasticity of demand | The proportion to which demand changes when there is a change in income |
| Normal goods | Goods or services that will see an increase in demand when incomes rise |
| Inferior goods | Goods or services that will see demand fall when income rises |
| Substitutes | Goods that can be used as alternatives to another good, for example bus and rail services or Mars Bars and Snickers |
| Commodity | A good that is traded, but usually refers to raw materials or semi-manufactured goods. Often they are homogeneous goods |
| Investment good | A product that will increase in value over time |
| Sustainable | An activity carried out today that does not stop future generations maximising their welfare |
| Market failure | Where the market fails to produce what consumers require at the lowest possible cost |
| Government failure | When government intervention to correct market failure does not improve the allocation of resources or leads to a worsening of the situation. The costs of government intervention may exceed the benefits |
| Buffer stocks | An intervention system that aims to limit the fluctuations of the price of a commodity |
| Inflationary pressure | Occurrences that are likely to lead to increased prices |
| Negative externalities | Costs imposed on a third party not involved with the consumption or production of the good |
| Production | The process that converts factor inputs into outputs of goods and services |
| Fixed costs | Costs of production that do not vary as output changes |
| Variable costs | Costs of production that vary with output |
| Economies of scale | Where an increase in the scale of production leads to reductions in average total costs for firms |
| Diseconomies of scale | Where an increase in the scale of production leads to increases in average total costs for firms |
| Competition | A market situation in which there are a large number of buyers and sellers |
| Externalities | Costs or benefits that spill over to third parties external to a market transaction |
| Marginal private cost | The cost to an individual or firm of an economic transaction |
| Marginal external cost | The spillover cost to third parties of an economic transaction |
| Marginal social cost | The full cost to society of an economic transaction, including private and external costs |
| Marginal private benefit | The benefit to an individual or firm of an economic transaction |
| Marginal external benefit | The spillover benefit to third parties of an economic transaction |
| Positive externality | A positive spillover effect to third parties of a market transaction |
| Marginal social benefit | The full benefit to society of an economic transaction, including private and external benefits |
| Ex ante | A term that refers to future events |
| Ex post | A term that refers to after the event |
| Merit good | A good that would be under-consumed in a free market, as individuals do not fully perceive the benefits obtained from consumption |
| Failure of information | Where economic agents do not properly perceive the benefits or disadvantages of a transaction |
| Partial market failure | Where the free market provides a product but with a misallocation of resources |
| Demerit good | A good that would be over-consumed in a free market, as it brings less overall benefit to consumers than they realise |
| Public good | A good that possesses the characteristics of non-excludability and non-rivalry in consumption |
| Free-rider problem | Where some consumers benefit from other consumers purchasing a good, particularly in the case of public goods |
| Quasi-public good | A good that has some of the qualities of a public good but does not fully possess the two required characteristics of non-rivalry and non-excludability |
| Private good | A good that is both excludable and rival in consumption |
| Complete market failure | Where the free market fails to provide a product at all, i.e. the case of public goods |
| Occupational immobility | As patterns of demand and employment change, many workers may find it difficult to easily secure new jobs, since they may lack the necessary skills |
| Geographical immobility | Where workers find it difficult to move to where employment opportunities may be, due to family ties and differences in housing costs |
| Income | A flow of earnings to a factor of production over a period of time, e.g. wages or salaries |
| Wealth | A stock of owned assets, e.g. housing property or a portfolio of shares |
| Indirect tax | A tax on spending |
| Pollution permit | A permit sold to firms by the government, allowing them to pollute up to a certain limit |
| Law of unintended consequences | When the actions of consumers, producers and governments have effects that are unanticipated |
| Inflation | A persistent increase in the level of prices |
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