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| Question | Answer |
| extension of demand | an adjustment or movement down the demand curve following a fall in the goods prices |
| contraction of demand | an adjustment or movement up the demand curve following an increase in the goods prices |
| condition of demand | a determinant that fixes the position of the demand curve. a change in one or more of the conditions of demand leads to a shift of demand |
| paradox of value | the apparent contradiction that although water is on the whole more useful that diamonds in terms of survival than diamonds but diamonds command a higher price in the market |
| marginal utility | the benefit of consuming one more unit of a good or service |
| law of demand | as a goods price falls more is demanded |
| what are the 3 explanations of why the demand curve slopes downwards? | - the law of diminishing marginal utility - the income effect - the substitution effect |
| gradient | an increase or decrease in the magnitude of a property observed in passing from one point or moment to another |
| utility | the state of being useful, profitable or beneficial |
| total utility | the total satisfaction received from consuming a given total quantity of a good or service |
| marginal utility | the benefit gained from consuming one additional unit of a product or service |
| diminishing marginal utility | as a person increases consumption of a product while keeping consumption of other products constant, there is a decline in marginal utility that the person derives from consuming each additional unit of that product |
| indifference curve | a curve that defines the combinations of 2 or more goods that give satisfaction |
| imperfect information | incomplete information which can cause a misrepresentation of a good or service therefore not allowing a customer to make a good choice |
| asymmetric information | when one party to a market transaction processes less information relevant to the exchange than the other party |
| economic agents | a person or company that has an effect on the economy of a country for example by buying, selling or investing |
| what are the 3 economic agents | - consumers - firms - the government |
| market failure | when the free market left to its own devices; fails to deliver economic efficiency |
| behaviour economics | a method of economic analysis that supplies psychological insights into human behaviour to explain how individuals make choices and decisions |
| altruism | concern for the welfare of others |
| bounded rationality | when making decisions, an individuals rationality is limited by the information they have, the limitations of their minds and the finite amount of time available in which to make decisions |
| bounded self-control | limited self control in which individuals lack the self control to act in what they see as their self interest |
| cognitive bias | a mistake in reasoning or in some other mental thought process occurring as a result of for example using rule of thumb or holding onto ones preference and beliefs, regardless of contrary information |
| social norms | informal understanding that govern the behaviour of members of a society |
| economic policy | the system for setting levels of taxation, government budgets, the money supply and interest rates as well as the labour market, national ownership and many other areas of government interventions into the economy |
| economic indicators | analysis of economic performance and predictions of future performances |
| production | the action of making or manufacturing from components or raw materials |
| productivity | output per unit of input |
| labour productivity | output per worker |
| capital productivity | output per unit of capital |
| content effect | increase of capital stock by product unit in the sectors |
| structure effect | reallocation of production to sectors that are more capital incentive |
| price effect | price increase of capital goods relative to the price of other products |
| short run | the time period where at least one factor of production is fixed |
| long run | the period of time when all inputs can be changed |
| explicit costs | payments to non owners of a firm for their resources |
| implicit cost | the opportunity cost of using resources owned by the firm |
| the law of diminishing returns | if one variable factor factor of production is increased while other factors are fixed, eventually the marginal returns from the factor will start to decrease |
| short run production theory | when at least one factor of production is considered fixed |
| long run production theory | all factors of production are variable while in the very long run all factors of production are variable and research and development is possible |
| law of increasing returns | when more and more units of a variable factor is employed while other factors remain fixed; there is an increase of a production at a high rate |
| law of constant return | an increase of the scale of production in a industry gives a proportionate increase of return or requires a proportionate increase in outlay for labour or materials |
| increasing returns | lower cost per input |
| diminishing returns | higher cost thus the law of increasing returns signifies that cost per unit of marginal or additional output falls with the expansion of an industry |
| constant returns | id output increases by the same proportional changes as all inputs change then there are cont returns to scale |
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