Allocative efficiency- occurs when nobody can be made better off by transfering resources from one industry to another without making somebody else worse off.
Barriers to entry- Factors which make it difficult or impossible to enter a particular market and compete with existing firms
Capital- One of the factors of production. Includes all buildings and machinery.
Complementary goods- A good which is usually purchased with another e.g. a DVD and a DVD player
Composite demand- A good that is demanded for 2 or more distinct reasons e.g. oil is used for petrol and the production of chemicals
Consumer surplus- The difference between what consumers are prepared to pay for a good and what they actually pay
XED- Measures the responsiveness of demand of one good to a change in price of another good.
Demerit good- A good that is deemed to be socially unacceptable, is over produced by the market mechanism and causes negative externalities (e.g. tobacco and alcohol).
Derived demand- The demand for one good results from another good (e.g. the demand for steel would increase if the demand for cars increases).
Diseconomies of scale- A rise in the long run average costs as production falls.
Division of labour- Happens when specialisation takes place (e.g. on a production line).
Economic efficiency- The use of resources that leads to the highest possible value of output.
Economic goods- These goods are scarce and they have an opportunity cost.
Economic problem- Resources are scarce, however wants are infinite
Economic resources- These are inputs necessary for production to take place; land, labour, capital, enterprise
Economies of scale- A fall in long run average costs as production rises
Equilibrium- A situation of rest where there is no desire to move from the current position and there is no tendancy for change
Equilibrium price and quantity- The price and quantity at which there is no tendancy for change as demand is equal to supply
External economies of scale- Arise when there is an increase in the size of the industry the firm operates in
Externalities- Occur when the actions of a firm lead to a variety of effects that they do not charge for. They can be positive (e.g. extra healthcare) and negative (e.g. pollution).
Factors of production- These are the inputs necessary for production to take place; land, labour, capital and enterprise.
Fixed costs- cots that do not vary with output (e.g. rent and advertising campaigns).
Free goods- goods that are unlimited in supply and have no opportunity cost (e.g. air).
Income elasticity of demand- shows how the quantity demanded will change in response to fluctuations in income.
Inferior good- Demand for the good falls when incomes rise. -ve income elasticity.
Internal economies of scale- Economies of scale that arise due to an increase in the scale of production of a firm.
Joint supply- Two or more goods are produced together, so a change in the quantity of supplied of one good will lead to a change in supply of another good (e.g. an increase in the supply of beed will lead to an increase in the supply of leather)
Labour- A factor of production, it is the workforce
Land-- A factor of production, it includes all raw materials as well as the land
Market failure- Where resources are allocated inefficiently
Merit goods- A good that is deemed socially acceptable and is underprovided by the market mechanism (e.g. health and education)
Monopoly- A market structure where one firm supplies all output in the industry without facing competition due to high barriers to entry
Non-excludability- Once a good is provided, no person can be excluded from using it (eg defence and street lighting)
Non-rivalness- Consumption of a good by one person does not reduce the amount available for consumption y another person (e.g. defence and street lighting)
Normal good- Demand for these goods increase when incomes rise. +ve income elasticity.
Perfectly price elastic- buyers are prepared to by any amount at a given price, but demand falls to 0 if the price rises
Perfectly price inelastic- The quantity demaned does not change in response to price changes
PED- Shows how quantity demanded will change in response to a change in price
PES- Shows how the quantity supplied will change in response to a change in price
Private goods- Goods that can be consumed by one person at a time
Public goods- A good where consumption by one person does not reeduce the amount available for consumption by another person and where once provided, all individuals benefit or suffer whether they wish to or not (e.g. street lighting)
Specialistion- Economic units (individuals, firms, nations etc) concentrate on producing certain goods and services
Subsidy- Money given to firms to lower the price of a good
Substitute goods- A good that can be replaced by another (e.g. a mars bar can be replaced by a snickers)