Key Definitions

Question	Answer
Positive Statement	An assertion or a fact- it can be proved or disproved
Normative Statement	A value or a judgement which cannot be tested true or false
Opportunity Cost	The cost of any choice in terms of the next best alternative foregone
Production Possibility Frontier	The different combinations of goods and services that can be produced with a given amount of resources
Demand	The quantity that purchasers are willing and able to buy at a given price in a given period of time
Derived Demand	The demand for a factor of production used to produce another good or service
Composite Demand	Where goods have more than one use
PED	How responsive demand is to a change in price
YED	How responsive the demand for a product is to a change in real income
Division of Labour	The breaking down of the production of a product into a number of separate tasks and allocating each worker to one task
XED	The responsiveness of demand for good X following a change in the price of a related good Y
Supply	The quantity of a good or service that a producer is willing and able to supply onto the market at a given price in a given period
PES	The responsiveness of quantity supplied to a change in price
Diminishing Marginal Utility	Describes the situation where an individual gains less additional utility from consuming a product, the more of it is consumed
Normal Good	One where the quantity demanded increase in response to an increase in consumer incomes
Inferior Good	One where the quantity demanded decreases in response to an increase in consumer incomes
Consumer Surplus	A measure of the welfare that people gain from consuming goods and services
Producer Surplus	The difference between the price producers are willing and able to supply a good or service for and the price they actually receive
Indirect Taxes	A tax levied on expenditure on goods or services
Subsidies	A grant given by the government to producers to encourage production of a good or service
Allocative Efficiency	Achieved when society is producing an appropriate bundle of goods relative to consumer preferences
Asymmetric Information	A situation in which some participants in a market have better information about market conditions than others
Ceteris Paribus	Other beings equal
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
Externalities	Spill-over effects from production and consumption for which no appropriate compensation is paid/received
Market Failure	When the price mechanism meads to an inefficient allocation of resources and a deadweight loss of economic welfare
Marginal Social Benefit	The additional benefit that society gains from consuming an extra unit of a good
Marginal Social Cost	The cost to society of producing an extra unit of a good
Market Economy	An economy in which market forces are allowed to guide the allocation of resources
Merit good	A good that brings unanticipated benefits to consumers, such that society believes it will be under consumed in a free market
Mixed Economy	An economy in which resources are allocated partly through price signals and partly on the basis of intervention of the state
Public Goods	A good that is non-exclusive and non-rivalrous in consumption
Quasi Public Good	A quasi public good is a near-public good. They are semi-non rival and semi-non exclusive
Free Rider Problem	When an individual cannot be excluded from consuming a good, and thus has no incentive to pay for its provision
Minimum Price	A price floor for a market- suppliers cannot sell the product legally at a lower price

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	Created by Amy Blakeman almost 9 years ago