ECONOMICS UNIT 1

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Scarce resources.
Limited or finite resources.
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Opportunity cost.
The value of the next best alternative forgone.
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Basic economic problem.
The allocation of scarce resources to provide for unlimited human wants.
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Production possibility frontier.
Shows the maximum potential level of output for two goods or services that an economy can achieve given all resources are efficiently utilized.
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Free good.
A good that has no opportunity cost.
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Factors of production.
Land, labour, capital and enterprise.
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Normative statement.
Value judgement, expressive words for example: 'ought', 'fair', and what 'should' be done.
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Positive statement.
Facts that can be tested scientifically true or false.
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Renewable resources.
Is one whose stock level can be maintained over a period of time.
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Non-renewable resources.
Is one where stock level is decreased over a period of time.
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Specialisation
When a firm or economy focus on the production of a limited range of goods and services.
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Division of labour.
Production is broken down into a series of tasks to be completed by individuals.
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Free-market economy.
All resources are allocated by the price mechanism.
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Mixed economy.
Resources allocated by the price mechanism and the government.
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Centrally planned economy.
All resources allocated by the government.
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Market.
Where buyers and sellers exchange.
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Demand.
The quantity of goods and services purchased at a given price and over given time period.
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Price elasticity of demand.
The responsiveness in demand for good or service to a change in its price. PED = % change in demand / % change in price.
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PED values.
1+ = elastic 1 = unit elastic 1 > 0 = inelastic 0 = perfectly inelastic
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Total revenue.
Quantity sold x Price = TR
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Income elasticity of demand.
The responsiveness of demand of a good or service to a change in real incomes of consumers. YED = % change in demand / % change in real income.
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Normal good.
As income increases the demand for normal goods increase. ( positive YED ).
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Inferior good.
As income increases the demand for inferior goods decreases. ( negative YED ).
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Cross elasticity of demand.
The responsiveness of demand for good 'B' to a change in price of good 'A'. XED = % change in demand for good B / % change in price of good A.
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Substitute goods.
Competitive demand between one good and its alternative. ( XED is positive ).
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Complimentary goods.
Are in joint demand, for example as the price rises for tennis rackets the demand for tennis balls decreases. ( XED is negative ).
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Supply.
The quantity of a good or service that firms are willing to sell at a given price over a given time period.
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Price elasticity of supply.
Is the responsiveness of a change in supply of a good to a change in its price. PES = % change in supply / % change in price.
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Consumer surplus.
Is the extra amount of money consumers are prepared to pay for a good or service above what they actually pay. ( Above the equilibrium ).
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Producer surplus.
Is the extra amount of money paid to producers above what they actually are willing to sell for. ( below the equilibrium ).
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Price mechanism.
The way price responds to changes in demand or supply. This is used to find an equilibrium point.
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Direct tax.
Compulsory charge made by the government, for example income tax.
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Indirect tax.
Compulsory charge made by the government, for example specific tax; fixed amount on alcohol.
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Ad valorem tax.
Is a form of indirect tax, however charged at percentage of the value of the goods and services consumed for example; 20% VAT on clothing.
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Subsidy.
A subsidy is a grant usually provided by the government.
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The supply of labour.
Refers to the quality and quantity of labour hours offered for work over a given time period.
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Market failure.
Occurs when the price mechanism causes an inefficient allocation of resources; as the forces of demand and supply lead to a net welfare loss in society.
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Externalities.
Arise from and exchange, they are third party effects and ignored by the price mechanism.
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External cost.
Is when social costs exceeds private costs for example; a negative externality in production of a chemical firm is the pollution to the river imposing higher cost to water companies.
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Private cost.
Are internal costs directly faced by the firm, for example; the cost of machinery and wages.
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Social cost.
The total cost to society is measured by adding external and private costs together.
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External benefits.
Is when social benefits exceed the private benefits; for example positive externalities like recycling promoting sustainable economic growth.
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Private benefits.
Involves benefits received by producers from the revenue or the utility of consumption from the sale of a good or service.
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Social benefits.
The total benefit to society is measured by adding external and private benefits together.
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Free-market equilibrium.
Where the marginal private cost curve (MPC) intersects the marginal private benefit curve (MPB).
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Social optimum equilibrium
Where the marginal social cost curve (MSC) intersects the marginal social benefits curve (MSB).
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Public goods.
These goods are ignored when left to the forces of the free market. Due to the benefits to society the government usually provide these goods for example; national defense, criminal justice system and refuse collection.
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Private goods.
Are provided by the market, due to the characteristics of being exclusive and rivaled.
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labour immobility.
The ability of workers to move from one job to another both geographically and occupationally.
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Government failure.
Government intervention in a market to correct market failure results in a misallocation of resources leading to a net welfare loss.
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Buffer stock.
A reserve of a commodity held to stabilise the market prices. The stocks are usually held by the government.
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Other cards in this set

Card 2

Front

The value of the next best alternative forgone.

Back

Opportunity cost.

Card 3

Front

The allocation of scarce resources to provide for unlimited human wants.

Back

Preview of the back of card 3

Card 4

Front

Shows the maximum potential level of output for two goods or services that an economy can achieve given all resources are efficiently utilized.

Back

Preview of the back of card 4

Card 5

Front

A good that has no opportunity cost.

Back

Preview of the back of card 5
View more cards

Comments

Chloe Ward

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Lovely and concise, handy for quick revision of terms.

Thank you!

Thoughtful Turtle

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Thank you chloe, 

I have updated it with more terms, if there is any I have missed or made any mistakes please let me know and I will amend them.

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