Economics unit 1 definitions

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  • Created by: awi koba
  • Created on: 06-02-14 16:41
allocative efficency
occurs when resources cannot be reallocated to produce a different combination of goods that will increase economic welfare; ie economic welfare is maximised and the sum of consumer and producer surplus is maximised
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asymmetric information
where one party in an economic relationship has more informantion than another
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buffer stock scheme
a scheme that buys surplus produce in periods of abundance and sells stock in periods of shortage, in order to stabilse market price
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ceteirs paribus
an assumption that all other factors are held constant
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command economy
an economy which allocates its resources predominantly through the direction of a central planning authority
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competition policy
governemnt policy directed at encouraging competition in the private sector. e.g. investigation of takeovers or restrictive practices
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complements
a pair of goods that are consumed together i.e a negative cross-price elasticity of demand
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consumer surplus
the differnece between the total value consumers place on the unit consumed of a good or service and the payment required to purchase that quantity consumed
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cost benefit analysis
an investment appraisal tool used to weigh up the social benefits of a project against the social cost
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cross-price elasticity of demand
measures the responsiveness of demand to a change in the price of a related good or service
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derived demand
the demand for a factor of production that results from the demand for the product that it is used to make
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division of labour
the breaking of production process into separate sequential tasks
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external benefits
the difference between social and private benefits
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external costs
the difference between social and private costs
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externalities
the cost or benefit of transaction that are not incurred or received by producers or consumers but instead by third parties
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free riders
people who use public goods but don't pay for them
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free market economy
an economy which tackles the basic economic problem, the co-existence of infinite wants and infinite resources predominantly through the price mechanism
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geographical immobility
the inability of workers to move location to attain work due to the cost of commuting or relocating and non-pecuniary factors
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government failure
occurs when the government intervention leads to a worse misallocation of resources than if there was no intervention
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incentive function of price mechanism
prices act as an incentive to both buyers and sellers. e.g. a rise in price may encourage sellers to supply more of the product and buyers to purchase less
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incidence of tax
the distribution of the burden of an indirect tax between buyers and sellers
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income elasticity of demand (YED)
measures the responsiveness of demand to change in income
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indirect tax
a tax on expenditure paid by the supplier not the consumer
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inferior good
a good whose demand falls when income increases i.e. negative income elasticity of demand
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market equilibrium
a position where the market price has no tendency to change, assuming ceteris paribus because demand equals supply
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market failure
occurs when a market produces a misallocation of resources
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mixed economy
an economy where both the price mechanism and the planning authority have a significant role in allocating resources
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normal good
a good whose demand increases as income increases, i.e positive income elasticity of demand
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normative statement
it is a statement that contains a valued judgement, i.e what ought to be
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occupational immobility
the inability of workers to move occupation or find work due to a shortage of required skills
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opportunity cost
the value of the next best alternative forgone
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pigouvian tax
a tax placed on a good with negative externalities so that the external cost is internalised: the polluter pays principle
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positive statement
it is a statement that asserts a fact about the world
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PPF
a production possibility frontier is the boundary between attainable and unattainable output combinations, given a finite quantity of productive resources.
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price ceiling
a maximum price set by regulator above which suppliers cannot sell
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price elasticity of demand (PED)
measures the responsiveness of demand to a change in price
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price elasticity of supply (PES)
measures the responsiveness of supply to a change in price
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price floor
a minimum price set by the regulator below which buyers cannot purchase, i.e. national minimum wage
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price mechanism
an economic system which allocates resources using price to transmit information, provide incentives and distribute rewards
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producer surplus
the differnece between the total revenue producers receive for selling a good or service and the opportunity cost of remaining in that market
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public goods
goods and services that once produced can be consumed by anyone in society: they exhibit NON-RIVALRY AND NON-EXCLUDABILITY
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rationing function of the price mechanism
the price mechanism allocates scarce resources to those buyers who are prepared to pay a high enough price
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signalling funciton of the price mechanism
price helps to determine how and where resources should be allocated
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specialisation
a system of organisation where an individual specialise in the production of particular goods or services and then trade the surplus to satisfy their wants as opposed to self-sufficiency
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subsidies
a per unit payment made by the government to producers which they will receive in addition to the market price
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substitutes
a pair of goods which are considered to be alternatives to each other by consumers, i.e. positive cross-price elasticity of demand
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trade unions
an organisation of workers with the primary purpose of collectively bargaining for improved pay and conditions for its members
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tradeable permits
a market orientated solution to regulating the quantity of pollution where the rights to pollute a given amount are traded so that pre-determined level of pollution abatement is achieved for the least cost
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Other cards in this set

Card 2

Front

where one party in an economic relationship has more informantion than another

Back

asymmetric information

Card 3

Front

a scheme that buys surplus produce in periods of abundance and sells stock in periods of shortage, in order to stabilse market price

Back

Preview of the back of card 3

Card 4

Front

an assumption that all other factors are held constant

Back

Preview of the back of card 4

Card 5

Front

an economy which allocates its resources predominantly through the direction of a central planning authority

Back

Preview of the back of card 5
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