Markets in Action

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A situation that arisses because people have unlimited wants and there are limited resources
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Opp cost
the cost of the next best thing forgone
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Market Economy
market forces guide the allocation of resources within a society
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Centrally Planned Economy
decisions of allocation of resources guided by state
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Mixed Economy
resources allocated partially through S+D and partially by govt
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Factors of Production
resources used in production process; labour land capital enterprise
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a simplified repressentation of reality used to provide insight into economic decisions and events
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curve showing the maximum combinations of g/s that can be produced in a given time with a given amount of resources
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Economic Growth
an expansion in the productive capacity of the economy
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a measure of the economic acitivty carried out in an economy during a period
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Division of Labour
a process whereby the production procedure is broken down into a sequence of stages, and workers assigned to different stages
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place where buyers and sellers meet to allow transactions to happen
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Micro econs
study of economic decisions taken by individual economic agents (hosueholds + firms)
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Macro econs
the study of interrelationships between economic variables at an aggregate level
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Positive statement
a statement about what IS (facts)
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Normative statement
a statement about what ought to be
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the quantity of a g/s that consumers choose to buy at any possible price in a given period
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Law of Demand
the law that states that there is an inverse relationship between QD and P, ceteris paribus
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Demand Curve
a graph showing how much of a good will be demanded by consumers at any given price level
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Normal Good
one where QD increases in response to an increase in consumer incomes
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Inferior Good
one where the QD decreases in response to an increase in consumer incomes
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2 goods are said to substi if the demand for one good is likely to rise if the price of the other good rises
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2 goods said to be compliments if D for one good is likely to rise at an increase in D of the other
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an organisation that brings together factors of production in order to produce an output
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Competitive Market
a market in which individual firms cannot influence the price of the g/s they selling because of competition from other firms
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Supply Curve
a graph showing the QS a a given price
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Market Equilib
situation that occurs in a market when the price is such that the q demanded = q supplied
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results when people seeking work at the going wage cannot find a job
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Comparative Static Analysis
examines the effect on equilib of a change in the external conditions affecting a market
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a measure of the sensitivity of one variable to changes in another variable
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a measure of the sensitivity of QD to a change in price of g/s
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a measure of the sensitivity of QD to a change in consumer incomes
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Luxury Good
YED positive and greater than 1 (income rises so does demand)
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a measure in sensitivity of QD of a g/s to the change in the price of another g/s
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a measure of the sensitivity of QS of a g/s to a change in price
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Free Market Economy
one in which resource allocation is guided by market forces without intervention from the state
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additional benefit that society gains from consuming an extra unit of a good
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Consumer Surplus
the value that consumers gain from consuming a g/s over and above the price paid
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Producer Surplus
the difference between the price received by firms for a g/s and the price at which they would have been prepared to supply that g/s
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Marginal Cost
the cost of producing an additional unit of output
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Productive Efficiency
attained when a firm operates at minimum AC, choosing an appropriate combinations of input (cost efficiency) and producing the max output possible from those inputs (technical efficiency)
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Allocative Efficiency
achieved when society if producing an appropriate bundle of goods relative to consumer preferences (p=mc)
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Pareto Optimum
an allocation of resources is said to be pareto op if no reallocation of resources can make an individual better off without making others worse off
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(Total) AC
total cost / Q produced
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occur for a firm when an increase in the scale of production leads to production at lower long-run AC
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Technical Efficiency
attaining max possible outputs from a given set of inputs
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Cost Efficiency
approp combinations of inputs of FoP, given relative price of those factors
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a system of production in which there is private ownership of productive resources, and individuals are free to pursue their objectives with minimal interference from govt
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Invisible Hand
term used to describe the way in which resources are allocated in a market economy
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Market Failure
a situation in which the free market mechanism oes not lead to an optimal allocation of resources - where there is a divergence between MSB and MSC
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a cost or a benefit that is external to a market transaction and thus is not reflected in market prices
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Consumption Externality
an externality that affects the consumption side of a market (+or-)
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Production Externality
an externality that affects the production side of a market (+ or -)
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Private Cost
a cost incurred by an individual (firm or consumer) as part of its production or other economic acitivitys
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External Cost
a cost that is associated with an individuals production or other economic activities which is borne by a third party
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Internalising and Externality
an attempt to deal with an externality by bringing an external cost or benefit into the price system
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Private Good
a good that once consumed by one person, cannot be consumed by someone else (EXCLUDABLE AND RIVALROUS)
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Public Good
a good that is NON-EXCLUDABLE AND NON-RIVALROUS consumption by one person doesnt affect how much consumption can be done by anotherq
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Free-Rider Problem
when an individual cannot be excluded from consuming a good and thus has no incentive to pay for its provision
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Merit Good
a good that brings unanticipated benefits to its conumers, such that society believes it should be consumed by individuals regardless of whether they have the means or willingness to do so
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Demerit Good
a good that brings less benefit to consumers than they expect such that society believes that it should not be consumed by individuals regardless of whether they wish to do so
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Asymmetric Information
a situation in which some participants in a market have better info about market conditions than others
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Govt Failure
a misallocation of resources arising from govt intervention
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Minimum Wage
a system designed to protect the low paid by setting aminumum wage rate that employers are permitted to offer workers
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Indirect Tax
a tax levied on expenditure on g/s (as oppposed to direct tax, which is a tax charged directly to an individual)
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Incidence of a Tax
the way in which the burden of paying a sales tax is divided between buyers and sellers
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a grant given by the govt to producers to encourage production of a good or service
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an attempt to prevent the consumption of a demerit good by declaring it illegal
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Other cards in this set

Card 2


Opp cost


the cost of the next best thing forgone

Card 3


Market Economy


Preview of the front of card 3

Card 4


Centrally Planned Economy


Preview of the front of card 4

Card 5


Mixed Economy


Preview of the front of card 5
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