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| Question | Answer |
| A positive statement | A statement about what is. i.e. facts |
| A normative statement | A statement that involves a judgement on what ought to be. i.e. an opinion |
| Scarcity | A situation that arises when people have unlimited wants in the face of limited resources |
| Economic problem | The problem that the wants and needs of the people are unlimited, the resources avaliable to satisfy their wants and needs are finite |
| Opportunity cost | The value of the next best alternative forgone |
| Marginal analysis | Based on considering the marginal benefits and costs of a change in behavior |
| Economic agents | Households, firms and the government |
| Factors of production | Land, labour, capital and entreprenurship |
| Renewable resources | Natural resources that can be replenished |
| Non-Renewable resources | Natural resources that once used cannot be replenished |
| PPF | Production possibility frontier shows the different maximum combinations of economic goods that an economy is able to produce in a given period if all resources are fully and efficiently employed |
| Potential economic growth | An expansion of the productive capacity of the economy |
| Gross domestic product | A measure of the economic activity carried out in a given period of time |
| Specialisation | A situation where workers, firms or economies concentrate on a particular task or upon producing task or upon producing some goods and services, but not others |
| A market | A set of arangements that allow transactions to take place |
| A market economy | An economy which allows market forces to guide the allocation of resources |
| A command economy | An economy which decisions on resource allocation are guided by the state |
| Mixed economy | An economy in which resources are allocated partly through price signals and partly through the intervention of the state |
| Microeconomics | The study of economic decisions taken by individual economic agents. E.g. Households and firms |
| Macroeconomics | The study of interrelationships between economic variables at an economy wide level |
| Demand | The quantity of a good or service that consumers choose to buy at any possible price in a given period |
| Diminishing margial utility | When an individual gains less aditional utility from consuming a product, the more of it is consumed |
| The demand curve | A graph showing the quantity demanded of a good or service by consumers at any given price |
| The law of demand | There is an inverse relationship between price and the quantity demanded of a good or service, so when one goes up, the other goes down |
| Causes of a change in demand | Income, price, price of substitutes and complements, tastes, population size, income distribution, weather, advertising and legislation |
| A normal good | A good where the quantity demanded increases when consumer incomes increase |
| An inferior good | A good where the quantity demanded decreases when consumer incomes increase |
| Substitute goods | 2 goods are substitutes if the demand for one good is likely to rise if the price of the other rises |
| Compliment goods | 2 goods are compliments if an increase in the price of one good, causes the demand for the other good to fall |
| Elasticity | A measure of the sensitivity of quantity demanded to a change in a variable which affects it, such as price or income |
| Price elasticity of demand | Measures the sensitivity of the quantity demanded of a good or service to a change in its price |
| PED formula | %Change in Quantity demanded/%Change in price |
| Elastic demand | When PED is greater than 1. |
| Inelastic demand | When PED is less than 1 |
| Unitary elastic demand | When PED is 1 |
| Influences on PED | Avaliability of substitutes, luxury or necessity, proportion of income spent on good, time period and habit forming goods. |
| Income elasticity of demand | A measure of the sensitivity of quantity demanded of a good or service to a change in consumer incomes |
| YED formula | %Change in quantity demanded/%Change in income |
| Inferior and luxury goods and their YED's | Normal goods have positive YED's Inferior goods have negative YED's |
| Luxury and necessity goods and their YED's | Luxury goods will have a positive YED greater than 1 Necessity goods will have a positive YED less than 1 |
| Cross price elasticity of demand | A measure of the sensitivity of quantity demanded of a good or service to a change in the price of some other good or service |
| XED formula | %Change in quantity demanded of good A/%Change in price of good B |
| Supply | The quantity of a good or service that firms choose to sell at any possible price in a given period |
| A firm | An organisation that brings together factors of production in order to produce output |
| A supply curve | A graph showing the quantity supplied of a good or service at any given price |
| A competitve 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 |
| The law of supply | A higher quantity of a good or service will be supplied at a higher price |
| A change in supply can be caused by... | Price, cost of production, and price of other goods, technology, weather, taxes, subsidies, legislation, expected prices and market power |
| Price elasticity of supply | A measure of the sensitivity of quantity supplied of a good or service to a change in price of that good or service. |
| Influences on PES | Number of producers, avaliability of substitutes, existence of spare capacity, ease of storing stock and the time period |
| Market equailibrium | Occurs when the price such that the quantity consmers wish to buy is exactly the equal quantity that firms wish to supply |
| Comparative static analysis | Examines the effect on the equailibrium of a change in the external conditions affecting a market - Either a condition of demand, or a condition of supply, or both |
| Consumer surplus | The difference between how much consumers are prepared to pay for a product and what they actually pay |
| Producer surplus | The difference between how much producers are prepared to accept for a product and what they actually recieve |
| An indirect tax | A tax levelled on expenditure on goods or services. E.g. VAT |
| Incidence of tax | The way in which the burden of paying a sales tax is divided between buyers and sellers |
| Ad Valorem | When the tax is a percentage of the price |
| Specific tax | A tax placed on a good or service which is a fixed amount per unit |
| Subsidy | A payment given by the government to producers to encourage the production of a good or service |
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