theme 1 keywords

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  • Created by: gswetah
  • Created on: 25-11-17 08:51
Adverse Selection
A situation in which a person at risk is more likely to take out insurance
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Allocative Efficiency
Achieved when society is producing an appropriate number of goods relative to consumer preference
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Asymmetric Information
Where consumers and producers have unequal access to the same information about a good or service in the market.
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Cartel
An agreement between firms in a market on price and output with intentions of maximizing their joint profits
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Ceteris Paribus
A Latin phrase meaning 'all other things being equal'
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Command Economy
An economy where decisions on resource allocation are guided by the government
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Comparative Static Analysis
Examines the effect on equilibrium, of a change in the external conditions affecting a market
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Competitive Market
A market in which individual firms cannot influence the price of the good or service they are selling, because of competition from other firms
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Complementary Goods
When the increase in price of one good causes the demand for the other good to fall
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Consumer Surplus
The value that consumer gains from consuming a good or service over and above the price paid
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Consumption Externality
An externality that affects the consumption side of a market, which may be either positive or negative
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Cross-Price Elasticity of Demand (XED)
A measure of the sensitivity of quantity demanded of a good or service to a change in the price of some other good or service
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Demand
The quantity of a good or service that consumers choose to buy at any possible price in a given period
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Demand Curve
A graph showing how much of a good will be demanded by consumers at any given price
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Diminishing Marginal Utility
Describes the situation where an individual gains less additional utility from consuming a product, the more of it is consumed
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Division of Labor
When the production process is broken down into stages, and workers are assigned to a particular stage
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Economics
The allocation of scarce resources to provide for unlimited human wants
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Elasticity
A measure of the sensitivity of one variable to changes in another variable
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Equilibrium Price
The price where the quantity demanded equals the quantity supplied for a good or service in a market
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Excess Demand
Where the quantity demanded exceeds the quantity supply for a good at the current market price
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Excess Supply
Where the quantity supplied exceeds the quantity demanded for a good at the current market price
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External Costs
Negative third party effects outside of a market transaction
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External Benefit
Positive third party effects outside of a market transaction
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Externality
Costs or benefits which are external to an exchange. They are third-party effects ignored by the price mechanism
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Factors of Production
Resources used in the production process. Inputs put into production like labor, capital, land and entrepreneurship
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Firm
An organization that brings together factors o production in order to produce output
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Free-rider Problem
When an individual can't be excluded from consuming a good, and thus has no incentive to pay for its provision
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Government Failure
When government intervention leads to an inefficient allocation of resources and a net welfare loss because MSB doesn't equal MSC.
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Government Intervention
When the government intervenes where there is market failure and attempts to correct this so that resources are allocated more efficiently
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Gross Domestic Product (GDP)
A measure of the economic activity carried out in an economy over a period
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Incidence of a Tax
The distribution of the tax paid between consumers and producers
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Income Elasticity of Demand (YED)
A measure of the sensitivity of quantity demanded to a change in consumer incomes
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Indirect Tax
A tax imposed on goods or services supplied by businesses. It includes both specific and ad valorem tax
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Inferior Good
When the quantity demanded decreases in response to an increase in consumer incomes. Negative income elasticity of demand
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Internalizing an Externality
An attempt to deal with an externality by bringing an external cost or benefit into the price system
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Law of Demand
When there is an inverse relationship between quantity demanded and the price of a good or service
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Luxury Good
When the quantity demanded increases in response to an increase in consumer incomes. Positive income elasticity of demand
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Marginal Analysis
An approach to economic decisions making based on considering the additional marginal benefits and costs of a change in behavior
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Marginal Cost
The cost of producing an additional unit of output
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Marginal Social Benefit (MSB)
The additional benefit that society gains from consuming an extra unit of a good
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Marginal Social Cost (MSC)
The cost to society of producing an extra unit of a good
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Marginal Utility
The utility or satisfaction obtained from consuming one extra unit of a good or service
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Market
Where consumers and producers come into contact with each other to exchange goods and services
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Market Economy
An economy in which market forces are allowed to guide the allocation of resources
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Market Equilibrium
Where marginal private benefit equals marginal private cost
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Market Failure
When the price mechanism causes an inefficient allocation of resources, leading to a net welfare loss
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Merit Good
A good that brings benefits to consumers, and society believes that it will be under consumed in a free market
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Mixed Economy
Where some resources are owned and allocated by the private sector and some by the public sector
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Model
A simplified representation of reality used to provide insight into economic decisions and events
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Money
Anything that is generally acceptable in the payment of a good or service, or of a debt
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Moral Hazard
A situation in which a person who has taken out insurance is prone to taking more risk
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NIMBY (not in my back yard)
A syndrome under which people are happy to support the construction of an unsightly or unsocial facility, so long as it is not in their own area
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Non-renewable Resources
Natural resources that once used cannot be replenished, so stock levels decrease over time as it is consumed
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Normal Good
When quantity demanded increases in response to an increase in consumer incomes
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Normative Statement
Based on value judgements which cannot be tested as true or false. Value of judgement, what ought to be
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Opportunity Cost
In decision making, the value of the next best alternative forgone
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Pension Schemes
A scheme to provide an income to people when they retire from work
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Positive Statement
Statements based on facts.
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Potential Economic Growth
An expansion in the productive capacity of the economy
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Price Elasticity of Demand (PED)
The responsiveness of demand for a good or service to a change in its price
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Price Elasticity of Supply (PES)
The responsiveness of the supply for a good or service to a change in its price
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Price Mechanism
The use of market forces to allocate resources in order to solve the economic problem of what, how and for whom to produce
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Private Benefit
Benefits incurred by an individual as part of its production or other economic activities, which are therefore taken into account by the price mechanism
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Private Cost
Costs incurred by an individual as part of its production or other economic activities, which are therefore taken into account by the price mechanism
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Private Good
A good that, once consumed by one person, cannot be consumed by somebody else. It has excludability and is rivalrous
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Producer Surplus
The difference between the price received by firms for a good or service and the price at which they would have been prepared to supply that good or service
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Production Externality
An externality that affects the production side of the market (it can be either positive or negative)
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Production Possibility Frontier (PPF)
A curve showing the maximum combinations of goods or services that can be produced in a given period of time with available resources
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Prohibition
An attempt to prevent the consumption of a demerit good by declaring it illegal
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Public Good
Those goods that have non-rivalry and non-excludability in their consumption
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Rational Decision Making
Where consumers allocate their expenditure on goods and services to maximize utility, and producers allocate their resources to maximize profit
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Regulation
Government rules in markets to influence the behavior of consumers and producers
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Relatively Elastic
When the price elasticity of demand is greater than 1 but less than infinity
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Relatively Inelastic
When the price elasticity of demand is less than 1 but greater than zero
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Renewable Resources
A resource whose stock level can be replenished naturally over a period of time
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Scarcity
There are finite resources compared to infinite human wants, so choices have to be made about how to use those resources
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Social Benefit
External benefits and private benefits from a market transaction
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Social Cost
Private cost and external cost from a market transaction
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Social Optimum
Where MSB equals MSC
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Specialization
When an individual, a firm, a region or a country concentrates on the production of a limited range of goods and services
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Specific tax
Tax charged at a fixed amount per unit of a good, like a litre of wine or a packet or cigarettes
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Subsidy
A grant given by the government to producers to encourage production of a good or service. (it reduces production costs and encourages an increase in output)
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Substitutes
When the demand for one good is likely to rise if the price of the other good rises
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Supply
The quantity of a good or service that firms choose to sell at any possible price in a given period
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Supply Curve
A graph showing the quantity supplied at any given price.
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Sustainable Development
'development which meets the needs of the present without compromising the ability of future generations to meet their own needs'
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Symmetric Information
Where consumers and producers have access to the same information about a good or service in the market
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Unitary Elastic
When the price elasticity of demand is equal to 1
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Welfare Gain
Economic welfare that is gained as a result of increasing or decreasing the production and consumption of goods or resources
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Welfare Loss
Economic welfare that is lost as a result of too much or too little production and consumption of a good or resources
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Other cards in this set

Card 2

Front

Achieved when society is producing an appropriate number of goods relative to consumer preference

Back

Allocative Efficiency

Card 3

Front

Where consumers and producers have unequal access to the same information about a good or service in the market.

Back

Preview of the back of card 3

Card 4

Front

An agreement between firms in a market on price and output with intentions of maximizing their joint profits

Back

Preview of the back of card 4

Card 5

Front

A Latin phrase meaning 'all other things being equal'

Back

Preview of the back of card 5
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