Economics Unit 1 Keywords

Some of these words are relevant to other units in the economics syllabus. 

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  • Created on: 03-03-13 12:22
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Ad Valorem Tax A tax charged as a percentage of the price of the good.
Consumers and producers have imperfect and unequal market knowledge upon which to make
Asymmetric Information
their economic decisions and this could lead to a misallocation of resources.
All resources are allocated by the government, no price mechanism.
Commodities Refers to raw materials used in the production of goods.
The extra amount of money consumers are prepared to pay for a good or service above what
Consumer Surplus
they actually pay.
Demand for the final product.
The wage rate.
Other labour costs.
Demand for Labour
Price of other factor inputs.
Productivity of labour.
Government employment regulations.
Decrease in price = Increase in revenue
Demand is Elastic
Increase in price = Decrease in revenue
Decrease in price = Decrease in revenue
Demand is Inelastic
Increase in price = Increase in revenue
A form of specialisation, where a workforce is divided into separate stages in the production of
Division of Labour
a good or service.
Free-market Economy All resources are allocated by the price mechanism, no government intervention.
Free-Market Equilibrium MPC = MPB
Free-Rider Problem Once a public good has been provided for one individual, it is automatically provided for all.
Unemployment while people search for jobs and fill them.
Reasons that prevent labour moving from one area to another to find work.
Market A market is where buyers and sellers come into contact for the purpose of exchange.
Mixed Economy Some resources are allocated by the price mechanism and some by the government.
Mobility of Labour The ability of workers to change from one job to another.
A resource whose stock level is decreased over time as it is consumed.
A statement that is right or wrong, a value-judgement. Usually includes (ought, should, fair,
Normative Statements
unfair, better, worse).
Reasons that prevent labour changing their typed of occupation to find work.

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Opportunity Cost The value of the next best alternative forgone.
The responsiveness in demand for a good due to a change in its price.
(% Qd) / (% P) Avaliability of Subsititutes
PED < 1 ( Price Inelastic) Luxury/Necessity
PED PED > 1 (Price Elastic) Addictive
PED = 1 ( Unit Elasticity) % of Consumer Income
PED = 0 (Perfectly Inelastic) Time Period
PED = (Perfectly Elastic) Brand Image
The responsiveness in supply for a good due to a change in its price.…read more

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It is difficult to measure the value obtained by consumers of public goods and hence it becomes
Valuation Problem
hard to establish a market price of them.
(% Qd) good B / ( % P) good A
XED Complementary goods (-ve) Substitutes
goods (+ve)
(% Q) / ( % Y)
YED Normal goods (+ve)
Inferior goods (-ve)
A scheme operated by the government to reduce price fluctuations and stabilise producer
Buffer Stock Schemes
incomes.…read more


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