Markets in Action

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Scarcity
A situation that arisses because people have unlimited wants and there are limited resources
1 of 68
Opp cost
the cost of the next best thing forgone
2 of 68
Market Economy
market forces guide the allocation of resources within a society
3 of 68
Centrally Planned Economy
decisions of allocation of resources guided by state
4 of 68
Mixed Economy
resources allocated partially through S+D and partially by govt
5 of 68
Factors of Production
resources used in production process; labour land capital enterprise
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Model
a simplified repressentation of reality used to provide insight into economic decisions and events
7 of 68
PPC
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
9 of 68
GDP
a measure of the economic acitivty carried out in an economy during a period
10 of 68
Division of Labour
a process whereby the production procedure is broken down into a sequence of stages, and workers assigned to different stages
11 of 68
Market
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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Demand
the quantity of a g/s that consumers choose to buy at any possible price in a given period
17 of 68
Law of Demand
the law that states that there is an inverse relationship between QD and P, ceteris paribus
18 of 68
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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Substitutes
2 goods are said to substi if the demand for one good is likely to rise if the price of the other good rises
22 of 68
Complements
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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Firm
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
25 of 68
Supply Curve
a graph showing the QS a a given price
26 of 68
Market Equilib
situation that occurs in a market when the price is such that the q demanded = q supplied
27 of 68
Unemployment
results when people seeking work at the going wage cannot find a job
28 of 68
Comparative Static Analysis
examines the effect on equilib of a change in the external conditions affecting a market
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Elasticity
a measure of the sensitivity of one variable to changes in another variable
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PED
a measure of the sensitivity of QD to a change in price of g/s
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YED
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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XED
a measure in sensitivity of QD of a g/s to the change in the price of another g/s
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PES
a measure of the sensitivity of QS of a g/s to a change in price
35 of 68
Free Market Economy
one in which resource allocation is guided by market forces without intervention from the state
36 of 68
MSB
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
38 of 68
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
39 of 68
Marginal Cost
the cost of producing an additional unit of output
40 of 68
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)
41 of 68
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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EoS
occur for a firm when an increase in the scale of production leads to production at lower long-run AC
45 of 68
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
47 of 68
Capitalism
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
50 of 68
Externality
a cost or a benefit that is external to a market transaction and thus is not reflected in market prices
51 of 68
Consumption Externality
an externality that affects the consumption side of a market (+or-)
52 of 68
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
54 of 68
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)
57 of 68
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
59 of 68
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
61 of 68
Asymmetric Information
a situation in which some participants in a market have better info about market conditions than others
62 of 68
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
64 of 68
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
66 of 68
Subsidy
a grant given by the govt to producers to encourage production of a good or service
67 of 68
Prohibition
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

Front

Opp cost

Back

the cost of the next best thing forgone

Card 3

Front

Market Economy

Back

Preview of the front of card 3

Card 4

Front

Centrally Planned Economy

Back

Preview of the front of card 4

Card 5

Front

Mixed Economy

Back

Preview of the front of card 5
View more cards

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