Key Definitions - OCR - Markets in Action - Flashcards in A Level and IB Economics

Economic Problem

Where consumers have infinite wants when only scarce resources are available.

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Market

Where buyers and sellers come together to exchange goods and services for an agreed price.

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Opportunity Cost

The benefits sacrificed from giving up the next best alternative.

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Production Possibility Curve

Shows the maximum combinations of goods and services that can be produced from a given set of resources.

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Scarcity

Where there is a insufficient amount of something due to consumer, producer or government demand for it.

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Demand

The amount of a good or service the consumer is both willing and able to buy for a given price at a given time.

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Consumer Surplus

Consumer surplus is the difference between what the consumer is willing to pay for a good and the current market price.

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Supply

The quantity of a good or service a producer is willing to offer at a given price at a given time.

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Producer Surplus

The difference between what the producer receives for selling the good and the price they are willing to produce the good for.

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Equilibrium

The point where both supply and demand are equal.

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Price Elasticity of Demand

Measures the responsiveness of quantity demanded following a percentage change in price.

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Income Elasticity of Demand

Measures the responsiveness of quantity demanded following a percentage chance in income.

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Cross elasticity of Demand

Measures the responsiveness of quantity demanded of one good following a percentage change in price of another good.

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Price Elasticity of Supply

Measures the responsiveness of quantity supplied following a percentage change in price.

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Allocative Efficiency

Allocative efficiency is achieved when scarce resources are used to produce the goods and services the consumer wants in the correct quantities

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Market Failure

When scarce resources do not lead to allocative efficiency.

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Negative Externality

Negative externalities are the unwanted third party spillover effects to society from the economic actions of the first party. (Marginal social costs are greater than marginal private costs)

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Regulation

An attempt to control the consumption of demerit goods, which have elements of negative externalities.

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Indirect Tax

Taxes imposed by the government on goods and services.

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Positive Externality

Positive externalities are the positive third party spillover effects to society from the economic activity of the first party. (Marginal social benefits are greater than marginal private benefits)

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Subsidy

An amount of money given directly to firms by the government as an incentive to increase production. When given to the consumer its aim is to increase consumption.

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Information Failure

When a product, service or activity is consumers without full knowledge of the potential consequences.

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Merit Good

A good which is better for the consumer than they fully realise. It has elements of a good with a positive externality.

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Demerit Good

A good which is worse for the consumer than they fully realise. It has some of the features of a good with a negative externality.

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Public Good

A good which is non-diminishable and non-excludable, and not supplied in a free market.

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Key Definitions - OCR - Markets in Action

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