Economics - Markets in Action Key Terms C1-3

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  • Created on: 03-01-13 13:41
Economic Problem
How to allocate scarce resources among alternative uses. The fact that resources are scarce in relation to wants which are unlimited. Meaning that choices have to be made.
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Economics
The study of how to allocate scarce resources in the most effective way.
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Household
Group of people whose spending decisions are connected.
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Factor of Production
The resource inputs that are available in an economy for the production of goods and services.
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The Factors of Production
Land, Labour, Capital, Entrepreneurship
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Factor Endowment
The stock of Factors of Production
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Production
The Output of Goods and Services
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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 next best alternative, which is forgone when the choice is made.
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Want
Anything you would like irrespective of whether you have the resources to purchase it.
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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 current resources and the state of technology.
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Developed Economy
An economy with a relatively high level of income per head.
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Developing economy
An economy with a relatively low level of income per head.
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Trade-Off
The calculation involved in deciding on whether too give up one good 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 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 public 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 recognized or distinguishable part of a market. Also known as a market segment.
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Notional 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 Parabus
( Latin: other things being equal ) Assuming other variables 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 deducted and state benefits have been added.
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Real Disposable Income
Income after taxes on income have been deducted and state benefits have been deducted and state benefits have been deducted 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
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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Substitutes
Competing Goods
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Complements
Goods for which there is joint demand.
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Change in Demand
This is a change in a non-price factor leads to an increase or decrease in demand for a product.
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Profit
The difference between the total revenue ( sales revenue ) of a producer and total cost.
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Supply Curve
This shows the relationship between the quantity supplied and the price of the product.
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Supply Schedule
The date 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 is actually paid.
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Change in supply
Occurs when change in a non price influence leads to an increase or decrease in the willingness of a producer to supply a product.
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Price
The amount of money that is paid for a given amount of particular good or service.
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Equilibrium Price / Clearing Price
The price where demand and supply are equal.
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Equlibrium Quantity
The quantity that is demanded and supplied at the equilibrium price.
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Disequilibrium
Any position in the market where demand and supply are not equal.
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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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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. = %change in QD / % change in P
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Price Elastic
Where the % change in the QD is sensitive to a change in price.
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Price Inelastic
Where the % change in the QD is not sensitive to a change in price
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Price Elasticity of Demand Values
PED >1 = Elastic PED <1 = Inelastic PED is 1 = Change in price causes directly proportional change in demand.
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Income elasticity of Demand
The responsiveness of demand to a change in income. % change in QD / %change in Income
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Income Inelastic
Goods for which a change in income produces a less that 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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Cross Elasticity of Demand (XED)
The responsiveness of demand for one product in relation to a change in the price of another product. %change in QD of product A / % change in Price of Product B
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(XED) Values
Positive = Substitutes Negative = Compliments 0 = No Particular Relationship --> The size indicates the strength.
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Price Elasticity of Supply (PES)
The responsiveness of the quantity supplied to a change in the price of the product. It indicates how much additional supply a producer is willing to provide for the market following a change in price of the product.
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(PES) Values
Between 0 and 1 = Inelastic, supply not responsive to change price. ^ than 1 = Elastic, producersrespond with a large change in supply if price rises. Equal to 1 = A change in price causes an exactly proportional change in quantity supplied.
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Efficiency
Where the best use of resources is made for the 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 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 my 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 deicsion
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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 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 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-expandability 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 who does not contribute towards it's provision.
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Non-Rivalry
Situation existing where consumption by one person does not effect 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 taxes the income of people and firms and that cannot be avoided.
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Indirect Tax
A tax levied on Goods and Services
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Polluter Pays Principle
Any measure, such as a 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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The study of how to allocate scarce resources in the most effective way.

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Economics

Card 3

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Group of people whose spending decisions are connected.

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Card 4

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The resource inputs that are available in an economy for the production of goods and services.

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Card 5

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Land, Labour, Capital, Entrepreneurship

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94 flash cards with key unit 1 definitions. Can be used for testing yourself or colleagues and highlighting areas for further study.

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