A LEVEL ECONOMICS: Theme 1 Definitions

?
ad valorem tax
An indirect tax based on a percentage of the sales price of a good or service.
1 of 50
Asymmetric Information
When one party knows more than the other party in the market.
2 of 50
The Basic Economic Problem
There are infinite wants but finite (scarce) resources with which to satisfy them.
3 of 50
Command Economy
Economic system where resources are allocated by the government.
4 of 50
Free Market
In a free market, the forces of supply and demand alone determine price and output without any government intervention. Free markets are totally unregulated.
5 of 50
Competitive Market
A market where no single firm has a dominant position and where the consumer has plenty of choice. There are few barriers to the entry of new firms.
6 of 50
Congestion Charging
A direct charge for use of roads in a defined zone (e.g: central London).
7 of 50
Consumer Surplus
Consumer Surplus is the difference between the total amount that consumers are willing and able to pay for a good or service (indicated by the demand curve) and the total amount that they actually pay (the market price).
8 of 50
Producer Surplus
The difference between the price that producers are willing and able to supply a good for and the price they actually receive.
9 of 50
Demand
Quantity of a good or service that consumers are willing and able to buy at a given price in a given time period. A demand curve shows the relationship between the price of an item and the quantity demanded over a period of time.
10 of 50
Supply
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 time period.
11 of 50
Tradeable Pollution Permits
Government issued licences allowing firms to emit a specified amount of pollutant (e.g: C02). Firms can buy and sell (trade) these permits in a market.
12 of 50
Value Judgement
A view of the rightness or wrongness of something, based on a personal view.
13 of 50
Price Elasticity of Demand (PED)
Responsiveness of demand for a product following a change in its own price.
14 of 50
Price Elasticity of Supply (PES)
Relationship between change in quantity supplied and a change in the price of a product.
15 of 50
Cross Price Elasticity of Demand
Responsiveness of demand for good X following a change in the price of good Y (a related good).
16 of 50
Income Elasticity of Demand
Measures the relationship between a change in quantity demanded and a change in real income. The formula for income elasticity is: percentage change in quantity demanded/the percentage change in income.
17 of 50
Inelastic Demand
When the co-efficient of price elasticity of demand is less than 1.
18 of 50
Inelastic Supply
When the co-efficient of price elasticity of supply is less than 1.
19 of 50
Elastic demand
Demand for which price elasticity is greater than 1.
20 of 50
Elastic Supply
Where the price elasticity of supply is greater than 1.
21 of 50
De-Merit Goods
The consumption of de-merit goods can lead to negative externalities which causes a fall in social welfare.
22 of 50
Merit Goods
A product that society values and judges that everyone should have regardless of whether an individual wants them.
23 of 50
Mixed Goods
Products that have the characteristics of both private and public goods.
24 of 50
Normal Goods
Normal goods have a positive income elasticity of demand.
25 of 50
Private Goods
Products which are both rival and excludable.
26 of 50
Public Goods
Pure public goods are non-rival and non-excludable.
27 of 50
Inferior Good
When demand for a product falls as real incomes increases.
28 of 50
Goods
Tangible, physical products (e.g: cars and computers).
29 of 50
Externalities
Externalities are third party effects arising from production and consumption of goods and services for which no appropriate compensation is paid.
30 of 50
Excise Duties
Excise duties are indirect taxes levied on our spending on goods and services such as cigarettes, fuel and alcohol.
31 of 50
Indirect Tax
An indirect tax is imposed on producers (suppliers) by the government. Examples include excise duties on cigarettes, alcohol and fuel and also VAT.
32 of 50
Invisible Hand Theory
Adam Smith described how the invisible or hidden hand of the market operated in a competitive market through the pursuit of self-interest to allocate resources in society's best interest.
33 of 50
Factors of Production
Land, Labour, Capital and Enterprise.
34 of 50
Market failure
Market failure exists when the competitive outcome of markets is not efficient from the point of view of the economy as a whole.
35 of 50
Deregulation
The removal of legally enforced rules that restrict or ban specified activities.
36 of 50
Minimum Price
A legally imposed price floor below which the normal market price cannot fall. To be effective the minimum price has to be set above the normal equilibrium price. A good example of this is minimum wage.
37 of 50
Maximum Price
A legally-imposed maximum price in a market that suppliers cannot exceed. To be effective a maximum price has to be set below the free market price.
38 of 50
Normative Statements
Normative statements express an opinion about what ought to be. They are subjective statements - i.e. they carry value judgments.
39 of 50
Positive Statement
Objective statements that can be tested or rejected by referring to the available evidence/facts. Positive economics deals with objective explanation.
40 of 50
Opportunity Cost
The value of the next best alternative foregone.
41 of 50
Price Mechanism
The means by which decisions of consumers and businesses interact to determine the allocation of resources between different goods and services.
42 of 50
Production Possibility Frontier (PPF)
A boundary that shows the combinations of two or more goods and services that can be produced using all available factor resources efficiently.
43 of 50
Spare Capacity
Where a firm or economy can produce more with existing resources. When there is plenty of spare capacity, elasticity of supply tends to be high.
44 of 50
Subsidy
Payment to suppliers that reduce their costs. The effect of a subsidy is to increase supply and therefore reduce the market equilibrium price.
45 of 50
Welfare Loss
The excess of social cost over social benefit for a given output.
46 of 50
Black Market
An illegal market in which the market price is higher than a legally imposed price ceiling. Black markets can develop where there is excess demand for a commodity.
47 of 50
Buffer Stock
Buffer stock schemes seek to stabilize the market price of agricultural products by buying up supplies of the product when harvests are plentiful and selling stocks of the product onto the market when supplies are low.
48 of 50
Capital Goods
Producer or capital goods such as plant (factories) and machinery and equipment are useful not in themselves but for the goods and services they can help produce in the future.
49 of 50
Ceteris Paribus
To simplify analysis, economists isolate the relationship between two variables by assuming ceteris paribus - all other influencing factors are held constant.
50 of 50

Other cards in this set

Card 2

Front

When one party knows more than the other party in the market.

Back

Asymmetric Information

Card 3

Front

There are infinite wants but finite (scarce) resources with which to satisfy them.

Back

Preview of the back of card 3

Card 4

Front

Economic system where resources are allocated by the government.

Back

Preview of the back of card 4

Card 5

Front

In a free market, the forces of supply and demand alone determine price and output without any government intervention. Free markets are totally unregulated.

Back

Preview of the back of card 5
View more cards

Comments

No comments have yet been made

Similar Economics resources:

See all Economics resources »See all Theme 1 resources »