Economics F581

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Economic problem
How to allocate scarce resources among alternative uses
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Goods
Tangible products; i.e. products that can be seen and touched
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Services
Intangible products; i.e products that cannot be seen or touched
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Land
Natural resources in an 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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Entrepreneur
Someone who bears the risks of the business and who organises production
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Want
Anything you would like, irresprective 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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Opportunity cost
The cost of the (next) best alternative, which is foregone when a choice is made
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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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Exchange
The process by which goods and services are traded
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Subsidy
A payment by a governing body to encourage the production or consumption of a product
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Division of labour
The specialisation of labour where the production process is broken down into separate tasks
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Productivity
Output, or production of a good or service, per worker
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Production possibility curve
This shows the maximum quantities of different combinations of output of two products,given the current resources and the state of technology
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Trade-off
The calculation involved in deciding on whether to give up one goof for another
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Economic growth
Change in the productive potential of an economy
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Productive potential
The maximum output that an economy is capable of producing
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Economic system
The way in which production is organised in a country or group of countries
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Market economy
An economic system whereby resources are allocated through the market forces of demand and supply
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Price system
A method of allocating resources by the free movement of prices
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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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Demand
The quantity of a product that consumers are willing and able to purchase at various prices over a period of time
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Command economy
An economic system in which the most resources are state owned and also allocated centrally
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Mixed economy
An economic system in which resources are allocated through a mixture of the market and direct sector involvement
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Market
Where or when buyers and sellers meet to trade or exchange products
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Sub-market
A recognised or distinguishable part of a market. Also known as a market segment
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Notional demand
A 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 variable remain unchanged
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Demand curve
This shows the relationship between the quantity demanded and the price of a product
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Demand Schedule
The data that is used to draw the demand curve for a product
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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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Disposable income
Income after taxes on income have been deduced and state benefits have been added
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Real disposable income
Income after taxes on income have been deduced and state benefits have been added and the result has been adjusted to take into account changes in the price level
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Normal goods
Good which an increase in income leads to an increase in demand
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Inferior goods
Good for which an increase in income leads to a fall in demand
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Substitutes
Competing goods
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Complements
Goods for which there is anoint demand
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Profit
A difference between the total revenue of a producer and the total cost
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Supply schedule
The data used to draw up the supply curve of a product
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Producer surplus
The difference between the price a producer is willing to accept and what it actually paid
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Price
The amount of money that is paid for a given amount of a particular good or service
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Clearing price
Same as equilibrium price
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Surplus
An excess of supply over demand
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Shortage
An excess of demand over supply
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Equilibrium quantity
The quantity that is demanded and supplied at the equilibrium 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
The responsiveness of the quantity demanded to a change in the price of the product
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Price elastic
Where the percentage change in the quantity demanded is sensitive to a change in price
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Price elastic
Where the percentage change in the quantity demanded is insensitive to a change in price
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Income elasticity of demand
The responsiveness of demand to a change in income
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Normal goods
Goods with a positive income elasticity of demand
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Income inelastic
Goods for which a change in income produces a less than proportionate change 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 goods
Goods for which an increase in income leads to a fall in demand
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Cross elasticity of demand
The responsiveness of demand for one product in relation to a change in the price of another product
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Price elasticity of supply
The responsive of the quantity supplied to a change in the price of the product
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Efficiency
Where the best use of resources is made to benefit of consumers
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Allocative efficiency
Where consumer satisfaction is maximised
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Market Failure
Where the free market mechanism fails to achieve economic efficiency
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Productive efficiency
Where production takes place using the least amount of scarce resources
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Economic efficiency
Where both a 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 decisions made by 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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Asymmetric information
Information not equally shared between two parties
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Externality
An effect whereby those not directly involved in taking a decision are affected by the actions of others
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Third party
Those not directly involved in making a decision
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Private costs
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 costs
The costs that are the consequences of externalises to third parties
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External benefits
The benefits that accrue as a consequences of external to third parties
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Social costs
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 externality
This exists where the social cost of an activity is greater than the private cost
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Positive externality
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 goods
Their consumption is more harmful than is actually realised
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Public goods
Goods that are collectively consumed and have the characteristics of non rivalry and non excludability
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Non excludability
Situation existing where individual consumers cannot be excusable from consumption
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Free rider
Someone who directly benefits from the consumption of a public good but who does not 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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Direct tax
One that races the income of people and firms and that cannot be avoided
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Indirect tax
A tax that is levied on goods and services
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Polluter pays principle
Any measure, such as green tax, whereby the polluter pays explicitly for the pollution caused
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Subsidy
A payment, usually from government, to encourage production or consumption
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Tradable 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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Other cards in this set

Card 2

Front

Tangible products; i.e. products that can be seen and touched

Back

Goods

Card 3

Front

Intangible products; i.e products that cannot be seen or touched

Back

Preview of the back of card 3

Card 4

Front

Natural resources in an economy

Back

Preview of the back of card 4

Card 5

Front

The quantity and quality of human resources

Back

Preview of the back of card 5
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