ECON 1 TERMS

Merit Goods - (goods that are desirable in society) Product that is underconsumed in a the freemarket because it's external benefits are not appreciated or known by customers

Economic Goods - Products that are scarce and have an opportunity cost 

Productive Efficiency - When it is not possible to make more of one good without making less

Allocative Efficiency - No one can be made better off without somebody being made worse off

Dynamic Efficiency - Results from improvements in technical or productive efficiency which occur over time

Demerit Goods - (goods that are socially undesirable) These are overprovided in market mechanism 

Social Costs - Is the total cost to society. It includes private costs plus any external costs.

Social Benefits - Total benefit to society from producing or consuming a good/ service. Includes all the private benefits plus any external benefits of production/ consumption. If a good has significant external benefits, then the social benefit will be greater than the private benefit.

Public Goods - Product that is non-diminshable and non-excludable

Buffer Stock Schemes -Scheme in which the stock is held to help reduce price instability

Composite Demand - Occurs when there are competing demands for a product or service

Normal Goods - Have a negative elasticity of demand and a positive income elasticity of demand

Elasticity of Demand - Measures the sensitivity of demand to a change in a variable. The variable might be the price of the good, the price of other goods, or income

Elasticity of Supply - Measures responsiveness of supply in change to price

Consumer Surplus -Difference between the price that the consumers pay and the price that they are willing to pay

Producer Surplus - Difference between the price producers are willing to supply at the price they actually recieve 

Welfare Loss - A situation where the Social benefit is not equal to the marginal social cost and society does not achieve maximum utility

Economies of Scale - Occur when it's long term average costs fall with increaing output. Therefore, increasing production leads to increasing returns to scale and there is greater efficiency 

Monopoly - Occurs when one firm dominates a market

Immobility - state of being motionless; not moving 

Road Pricing - 

Subsidy - Sum of money granted 

Indirect Tax - A tax that increases the price of a good so that consumers are actually paying the tax by paying more for the products

Inferior Goods - Increase of income causes a fall in demand; have negative income elasticity of demand and negative price elasticity of demand

Free Goods - Involve no opportunity cost

Competitive Demand - Government policy which seeks to promote competition and efficiency

Opportunity Cost - The decision to produce or consume a product, involves giving up another product. The real cost of the action is the next best alternative foregone

Market Failure - Occurs where the free market does not result in allocative (or productive) efficiency 

Profit - Revenue - Cost = Profit

Excess Demand - Consumers want to buy more than the producers are prepared to sell

Diseconomies of Scale - Increases in longrun costs, which occur from an increase in the scale of production

Asymmetrical Info - Occurs when one individual/ organization knows more about an issue than another

Law of Unintended Consequences - Actions of people - especially of government - always have effects that are unintended and unanticipated

Scarce Resources -  Resources that are inefficient in matching with demand 

Human Capital - Accumulated skill, knowledge and expertise of workers

Micro Economics - Behaviour of individual firm, consumer and industry

Private Good - Good that does have excludability and diminshability

Black Market - An Illegal market

Joint Supply - Occurs when supply of one product is linked to the supply of another 

Basic Economic Problem - Problem that is posed by the fact that human wants are infinite but resources are scarce. This is a problem faced by all socities regardless of their political persuasion or their economic developement 

Capital Intensive Industry - industry that required great investments of money for machinery and infrastructure to make a pro

Command Economy - The state allocates resources and sets production targets and growth rates according to its own view of peoples wants

Sustainable Energy - Energy developement that meets the needs of the present without compromising the ability of the future generations to meet their needs

Production Possibility Frontier - Shows the maximum combination of products that an economy can produce given its resources

Public Interest Theory - 'Regulation is supplied in response to demand of the public for the correction 

Government Failure - When a Government fails to intervene in a market economy to correct inefficitent allocation resources

Positive Externalities - Exist when the Marginal Social Benefit of production and or production exceeds the marginal private benefit

Functions of the Price Mechanism - (1) Signalling Function  (2) Transmission of Preferences  (3) Rationing Function 

Extending Property Rights - method used to internalize externalities

Substitutes -Product or service that satisfies the needs of a consumer that another product or service fulfills

Social Capital - Stock of societies assets which provide a service

Public Choice Theory - 

Regulatory Capture - Regulatory capture. This is when the industries under the control of a regulatory body begin to move policy options so as their outcome is in their favour. Some economists argue that regulators can prevent the ability of the market to operate freely. We might find examples of this in agriculture, telecommunications and the other utilities and also in environmental protection.

Hierarchy of Waste - Process used to protect the enviroment and conserve resources through a priority approach (established in waste policy and legislation)

Factors of Production - Land/ Labour/ Capital/ Enterprise used for production of goods or services

Production vs Productivity - Production is the process of combining units of inputs (natural, man-made and human resources) to create output (goods and services) capable of satisfying human needs and wants. Productivity is the increase of output from each unit in the production process.  There are several ways of achieving productivity. These include the training of workers and the introduction of machinery and equipment into the production process.

Maximum Prices - An upper limit set by the Government or other agency above which the price charged is not allowed to rise

Minimum Prices - A floor set up by the Goverment or other agency below which the price charged is not permitted to fall.

Specific Tax - A fixed tax per unit. A specific tax will have the effect of shifting a supply curve vertically upwards by the amount of the tax.

Carbon Trading - scheme where firms (or countries) buy and sell carbon permits as part of a programme to reduce carbon emissions. Usually firms are given a certain quote to pollute a certain amount. If they wish to pollute more than their allowance then they have to buy more permits. If they pollute less than their quota they can sell their spare permits on the market. Thus there is an incentive to reduce pollution and find the most efficient way of dealing with pollution. Over time governments can reduce pollution quotas to encourage greater efficiency

Supply of Labour - Refers to the total number of hours that labout is willing to work and able to supply at a given wage rate

Deregulation - The removal of controls on a particular market in order to improve economic efficiency of that market and therefore the performance of the economy at a microlevel; lessening or removing goverment regulatios on industries

Equilibrium Price - the price at which the quantity of a product offered is equal to the quantity of the product in demand 

Unitary Elasticity - Situation where one change in factor causes an equal or proportioal change in a another factor 

Complementary Goods - Goods which are used together

Specialisation - Occurs when an individual, business or country focuses on a limited range of tasks 

Income Elasticity of Demand -Measures responsiveness of the demand of the product in relation to changes in income 

Cross (Price) Elasticity of Demand - Measures responsiveness of demand for one product in relation to changes in the price of another

Equity - Quality of being fair 

Negative Externalities - Occur when the consumption or production of a good causes a harmful effect to a third party 

Positive Statement - Statement that can be verified true or false using evidence 

Normative Statement - Has a value judgement and subjective opinion

Optimum Size of Firm - Refers to the speed and the extent of the growth that is ideal for a specific small size business. The optimal firm size is dependent on a variety of internal and external factors.

Marginal Revenue - The extra revenue earnt by selling another unit

Division Labour - Concepts states that dividing production processes into different stages enables workers to focus on specific tasks. If workers can focus on one small aspect of production, the overall efficiency increases - so long as there is sufficient volume and quanitiy produced 

Ad Volorem Tax - A tax placed on the producer that is a percentage of the price

Barter - Trade goods directly rather than through the medium of money

Speculation - Invest in stocks, property or other ventures in hope of gain with risk of loss

Giffen Goods - Negative income elasticity of demand and positive price elasticity of demand

Non-Human Capital - Opposite to human capital

Renewable Resources - Resources that will never run out, not permenantly depleted when used

Quasi-Public Goods - Goods that are essentially public in nature, but do not full exhibit the features of non-excludability and non-diminshability

Rivalry - Charactersitic of good. Rival good is a good whose consumption by one consumer prevents simultaneous consumption by other consumers

Net Investment - Gross investment minus depreciation

Models - Theoretical constructions

Missing Markets - (Market Failure) Some obstruction to an efficient free market which would enable Pareto Effiicient distribution of resources but for various reasons this market does not exist

Ceiling Prices- When there is a limit placed on the Increase of prices in a market

Private Benefits -Benefit to an individual economic agent, such as consumer or firm from an event, action or policyc change (contrasts to social benefit)

Factor Markets - The market for a factor of production, in which supply and demand interact to determine the equilibrium price of a factor

Gross Investment - Measure of investment before depreciation

Market Segmentation - The process dividing total market for product or service into smaller, more manageable subsets or groups of customers 

Land-fill Tax - Tax on the disposal of waste

Markets - Where buyers and sellers of goods and services are brought together so that exchanges can take place

Excludability - State of being exclusively available to an individual, only the eligible individuals can have access to 

Derived Demand - Occurs when the demand for something is derived from the demand for something else (E.g. employers demand labour because their products are demanded)

Depreciation - Reduction of the value of a fixed asset over time

Private Costs - Producers or Supplier's cost of providing and supplying the goods or services (includes internal costs for labour, rent and inputs , but usually excludes external costs for environmental damages

Depletion - Act of decreasing something markedly

Ostentatious Goods - Goods people consume because it is seen exclusive and therefore a symbol of their social status or wealth

Diminishability - Being able to diminish; being able to lessen