AS Economics- F581 Defintions

these are just the defintions of all of the key terms needed for F581- markets in action paper. I used the definitons from the OCR approved texted book!!! :)

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  • Created by: lydia
  • Created on: 10-03-14 18:02
Market Failure
When the free market mechanism fails to achieve economic efficiency.
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Product efficiency
where production takes place using the least amount of scare resources.
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Economic efficiency
where both allocative and productive efficiency are achieved.
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Inefficiency
any situation where economic efficiency is not achieved.
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Free market mechanism
the system by which the market forces of demand and supply determine prices and the decision made by the consumers and firms.
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Information failure
a lack of information resulting in consumers and producers making decisions that do not maximise welfare.
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Externality
an effect whereby those not directly involved in taking a decision are affected by the action of others.
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Private cost
the costs incurred by those taking a particular action.
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Private benefits
the benefits directly accruing to those taking a particular action.
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External cost
the costs that are the consequence of externalities to third parties.
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External benefits
the benefits that accrue as a consequence of externalities to third parties.
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Social cost
the total costs of a particular action.
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Social benefits
the total benefits of a particular action.
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Negative externalities
this exists where the social cost of an activity is greater than the private cost.
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Positive externalities
this exists where the social benefit of an activity exceeds the private benefit.
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Merit goods
these have more private benefits than their consumers actually realise.
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Demerit Good
their consumption is more harmful then is actually realised.
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Public goods
goods that are collectively consumed and have the characteristic of non-exclude and non-rivalry.
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Non-excludability
situation existing where individual consumers cannot be excluded from consumption.
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Free- rider
someone who directly benefits from the consumption of a public good but doesn’t contribute towards its provision.
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Non- rivalry
situation existing where consumption by one person does not affect the consumption of all others.
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Quasi-public goods
goods having some but not all of the characteristics of a public good.
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In- kind transfers
benefits in GOODS to those who need it.
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Income transfers
benefits in CASH to those who need it.
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Regulation
rules written to regulate economic behaviour, backed up by legalisations.
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Direct taxes
one that taxes the income of people and firms and cannot be avoided.
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Indirect taxes
a tax levied on goods and services.
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Polluter pays principle
any measure, such as a green tax where by the polluter pays explicitly for the pollution caused.
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Subsidy
a payment, usually form the government, to encourage production or consumption.
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Trade permit
a permit that allows the owner to emit a certain amount of pollution and that, if unused or only partially used, can be sold to another polluter.
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Demand
the quantity of a product that consumers are able and willing to purchase at various prices over a period of time.
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Normative demand
the desire for a product.
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Effective demand
The willingness and ability to buy a product.
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Ceteris paribus
assuming other variables remain unchanged.
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Consumer surplus
the extra amount that a consumer is willing to pay for a product above the price that is actually paid.
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Total expenditure
price x quantity demanded.
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Real disposable income
income after taxes on income has been deducted and state benefits have been added.
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Normal goods
goods for which an increase in income leads to an increase in demand.
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Inferior goods
goods for which an increase in income leads to a fall in demand.
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Complements
goods for which there is a joint demand.
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Supply
the quantity of a product that producers are willing and able to provide at different market prices over a period of time.
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Producer surplus
the difference between the price a producer is willing to accept and what is actually paid.
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Land
natural resources in the economy.
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Labour
the quantity and quality of human resources.
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Capital
man-made aids to production.
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Entrepreneurship
the willingness of an entrepreneur to take risks and organise production.
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Finite
limited E.g. fossil flues, land.
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Infinite
never ending and unlimited E.g. wants.
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Wants
anything you would like, irrespective of whether you have the resources to purchase it.
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Scarcity
a situation where there are insufficient resources to meet all wants.
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Choice
the selection of appropriate alternatives.
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Opportunity Cost
the cost of the forgone alternative.
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Specialisation
the concentration by a worker or workers, firm, region or whole economy on a narrow range of goods and services.
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Absolute advantage
when a product is produced by an economy at a cheaper and better quality than another economy.
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Comparative advantage
One country has a marginal advantage over the other.
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Market economy
an economic system whereby resources are allocated though the market forces of demand and supply.
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Command (centrally planned) economy
an economic system in which resources are state owned and also allocated centrally.
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Mixed economy
an economic system whereby resources are allocated though the free market mechanism.
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Price elasticity of supply(PES)
the responsiveness’s of the quantity supplied to a change in the price of the product. OR % change in quantity supplied/%change in price.
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Elasticity
the extent to which buyers and sellers respond to a change in market conditions.
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Price elasticity of demand(PED)
the responsiveness of quantity demanded to change in the price of the product. OR, %change in QD/ % change in P.
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Price elastic
where the %chnage in the quantity demanded is sensitive to a change in price.
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Price inelastic
where % change in quantity demanded is insensitive to a change in price.
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Income elasticity of demand (YED)
the responsiveness of demand to a change in income. OR, % change in QD/% change in Y.
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Normal goods
goods with a positive income elasticty of demand.
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Income elastic
goods for which a change in income produces a less than propotionate chnage in demand.
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Income elastic
goods for which a change in income produces a greater proportionate change in demand.
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Inferior good
goods for which an increase in income leads to a fall in demand.
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Cross elasticity of demand (XED)
the responsiveness of demand for one product in relation to a change in the price of another product.OR, % change in product A/ % change in product B
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Other cards in this set

Card 2

Front

where production takes place using the least amount of scare resources.

Back

Product efficiency

Card 3

Front

where both allocative and productive efficiency are achieved.

Back

Preview of the back of card 3

Card 4

Front

any situation where economic efficiency is not achieved.

Back

Preview of the back of card 4

Card 5

Front

the system by which the market forces of demand and supply determine prices and the decision made by the consumers and firms.

Back

Preview of the back of card 5
View more cards

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