Economics Unit 1 Keywords

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Free Market Economy
An economic system which resolves the economic problem through the market mechanism.
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Planned/Command Economy
An economic system where government, through a planning process, allocates resources in society.
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Positive Statements
Are objective statements that can be tested or rejected by referring to the available evidence.
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Normative statements
Express an opinion about what ought to be. They are subjective statements- they carry a value judgement
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Production Possibility Frontiers
The PPF marks the boundary between those combinations of goods and services that can be produced and those that cannot given full and efficient use of resources.
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Division of Labour
Specialisation of workers through division of a job into different specific tasks
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Elasticity
Responsiveness
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Price Elasticity of Demand
Measures the responsiveness of demand to a change in price. ie. to what extent does demand change if price is changed.
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Ceteris Paribus
assuming everything else stays the same "the assumption that all other variables within the model remain constant whilst one change is being considered.
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Demand
The quantity of goods or services that will be bought at any given price over a period of time.
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Contraction in Demand
When quantity demanded falls due to an increase in price.
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Extension in demand
When quantity demanded increases due to a drop in price.
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Normal goods
Where demand for a product increase as incomes increase.
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Inferior goods
When demand for a product falls as incomes increase.
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Substitute goods
Where it is possible to use one good instead of another.
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Complimentary goods
Goods that have a joint demand where demand for one product is high it is likely demand for another will be high also.
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Veblen goods (ostentatious)
Goods with a snob appeal, more people wnat them because they are highly priced.
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Effective Demand
Customers desire a product and can pay for it
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Latent demand
Desire to purchase a good but no power to buy it
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Derived demand
Where demand for a product is directly linked to demand for naother product.
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The Supply Curve shows...
the quantity of goods that sellers are prepared to sell at any given price over a period of time.
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Contraction in Supply
Reduced supply due to a decrease in price. Move down the supply line.
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Extension in Supply
An increase in supply due to an increase of price. A move up the supply line.
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Producer surplus
The differnece between the market price which firms receive and the price at which they are prepared to supply
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Price Mechanism
The interaction of supply and demand to create an equilibrium price. Price is used as a signalling mechanism to inform firms how houses would like resource allocated.
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Ad Valorem Tax
Set percentage paid on a product eg VAT
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Specific Tax
A fixed amount of tax per item
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Subsidy
A payment to suppliers. Works as an incentive to produce more and also lower (marginal) cost of production. Encourges production/ consumption of a good with positive externalities.
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Producer surplus
The difference between the market price which firms receive and the price at which they are prepared to supply at
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Productive efficiency
Where a firm produces a number of goods at the lowest possible cost
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Technical efficiency
where the firm produces the desired level of outputs with the minimal inputs
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Allocative efficiency
How available are products for consumers to buy and does the benefit for consumers match the price they pay?
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Market Failure
Means that the price mechanism is failing to allocate resources efficiently
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Government Failure
Means that the government is failing to allocate resources efficiently, resulting in a welfare loss.
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Monopoly
Theoretically when there is only one firm in a market or legally when a firm holds a greater than 25% market share
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Regulation
Laws and government bodies to stop customers being exploited by firms exploiting their monopoly position
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Private Costs
The costs incurred by individuals when they engage in using scare resources
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Social Costs
The full cost society bears when others use a resource
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Private Benefits
The benefits an individual receives from an activity
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Social Benefits
Benefits society receives as a consequence of the activity
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Primary Sector
One sector of the economy which extracts or produces goods directly from the land or sea.
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Externalities
An external cost or benefit which accrues to parties other than the immediate buyer or seller. They exist when private and social costs are not equal.
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Negative Externality
If social cost is greater than private cost there is a negative externality eg pollution
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Positive Externality
If social benefit is greater than private benefit there is a positive externality eg beautiful building
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Buffer Stocks
Government purchases commodities if a floor price is reached and sells commodities if a ceiling price is reached. Ensures fair income for producers and fair prices for consumers.
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Public Goods eg defence, street lighting and the police service
A good where consumption by one person does not reduce the amount available for consumption by another person and where once provided, all individuals benefit or suffer whether they wish to or not. Principles of exclusion and rivalry do not apply.
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Merit goods eg health, education and insurance
A good which is underprovided by the market mechanism.
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Demerit Goods eg alcohol and cigarettes
A good which is overprovided by the market mechanism. Have a negative externality: MSC is greater than MPC
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Direct Provision eg education and public goods
The government provide the service free of charge
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Subsidised Provision
Government pay a part of the service and the consumer pays the rest
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Free Rider
A person or organisation which receives benefits which others have paid for without making any contribution themselves
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Tradeable permits
Liscenses which can be bought or sold amongst producers involved in an activity which causes environmental damage.
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Asymmetric Information
A situation where two parties involved in a transaction of a good or service have unequal knowledge of the properties or risks of that transaction
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Mixed Economy
An economic system in which the private sector and governements make decisions about how resources should be allocated.
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Misallocation of resources
When resources are not allocated efficiently by the price mechanism or governement.
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Price elasticity of supply
The responsiveness of quantity supplied to a change in price:
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Income elasticity of demand
The responsiveness of quantity demanded to a change in income
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Cross Price Elasticity of Demand
Measures the responsiveness of demand for one product to changes in a related products prices.
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Opportunity Cost
The cost of the next best alternative foregone
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Barriers to entry
Barriers which make it either impossible or difficult for a firm to enter an existing industry eg Legalisation, economies of scale etc.
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Capital goods
Goods that are used by firms in the production of other goods. Consumers do not directly consume capital goods.
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Consumer goods
Goods that are used directly by households.
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Consumer surplus
The difference between the price the consumer is willing to pay and the market price they actually have to pay.
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Economies of Scale
When increases in output lead to a long run decrease in average costs.
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Exchange rate
The value of one currency expressed in terms of another
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Elastic
A given change in price/income will have a more than proportionate change in quantity demanded in the same direction
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Incidence of tax
The distribution of tax burdens amongst various groups in society
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Indirect Tax
The taxes imposed on spending, the seller has ultimate responsibility to pay.
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Inelastic
A given change in price/income will have a less than proportionate change in quantity demanded.
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Inferior Goods
A good of which consumers purchase less as income rise
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Non-excludability
When a product can only be consumed by one individual and then is not available for others to use at the same time
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Non-rivalry
When a product can be consumed by an individual and does not reduce the overall amount.
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Output
The quantity of goods or services made by an individual, organisation or country
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Property rights
Being free to use your private property as you choose provided it does not infringe on the legal properties of others.
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Real personal disposable income
The money that an individual has left after paying all household bills, which has been adjusted for inflation.
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Secondary Sector
A sector of the economy which is involved in manufacturing and construction
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Scarcity
A reference to the fact that at any given there is only a finite amount of resources and people have unlimited wants.
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Specialisation
A division of the production activities between people or regions (countries)
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Supply
The quantity of goods that sellers are prepared to sell at any given price over a period of time.
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Tertiary Sector
A sector of the economy which provides services or sells goods
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Total revenue
The price per unit multiplied by the amount of units produced
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Welfare Loss
The accumulation of social costs brought about by a msiallocation of resources
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Other cards in this set

Card 2

Front

An economic system where government, through a planning process, allocates resources in society.

Back

Planned/Command Economy

Card 3

Front

Are objective statements that can be tested or rejected by referring to the available evidence.

Back

Preview of the back of card 3

Card 4

Front

Express an opinion about what ought to be. They are subjective statements- they carry a value judgement

Back

Preview of the back of card 4

Card 5

Front

The PPF marks the boundary between those combinations of goods and services that can be produced and those that cannot given full and efficient use of resources.

Back

Preview of the back of card 5
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