Unit 1 Definitions

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Equilibrium Price
price where q demanded = q supplied
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Surplus
where Q supplied exceeds Q demanded at current price
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Consumer Surplus
the difference between the price consumers would have been prepared to pay for a product and the market price
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Producer Surplus
the difference between the price producers would have been prepared to supply a product for and the market price
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PPF
shows the maximum combination of two goods an economy can produce when all its resources are fully and efficiently employed
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Opportunity Cost
the value of the next best alternative foregone
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Division of Labour
production of a good is broken down into different tasks and labour allocated to each task
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Free Market Economy
where resources are allocated by the price mechanism and there is no market operating
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Mixed Economy
resources are partly allocated by the price mechanism and partly by government intervention e.g. Welfare State
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Price Mechanism
the interaction of supply and demand to allocate resources
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Positive Statement
factual and can be tested as true or false
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Normative Statement
a value judgement, opinionated, cannot be tested as true or false
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Sustainable Development
development which enables future generations to access resources for further development
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Price Elasticity of Demand
measures the responsiveness of D for good X to changes in the price of good X
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YED
measure the responsiveness of D for good X to changes in Y
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Normal Good
as real income increases, so will demand increase for a good - positive YED
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Inferior Good
as real income increases, demand for the good falls (e.g. bus tickets) - negative YED
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XED
measures the responsiveness of D for good X to changes in the price of good Y
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PES
measures the responsiveness of supply of good X to changes in the price of good X
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Subsidy
a government grant paid to a firm which reduces business costs, therefore shifting the supply curve to the right and reducing market price
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Indirect Tax
compulsory charge placed on expenditure which increases the cost of production
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Unit Tax
a fixed amount of tax per unit of the good, e.g. on cigs
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Ad Valorem Tax
tax set as a percentage of the price of the good, e.g. VAT
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National Minimum Wage
the legal minimum hourly rate of pay employers can pay to workers
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Derived Demand
the demand from labour is derived from the demand for the product it makes
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Market Failure
price mechanism fails to allocate resources efficiently leading to a net welfare loss
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Public Goods
goods that are NON-RIVALROUS and NON-EXCLUDABLE, e.g. street lighting
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Free Rider Problem
occurs where public goods are provided. It is impossible to prevent people who have not paid for the good from consuming it
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Asymmetric Information
occurs when one party has less market knowledge than another party, e.g. a doctor and a patient
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Imperfect Market Information
people lack the knowledge to make informed choices
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Private Benefit
a benefit internal to an exchange which the price mechanism takes into account
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External Benefit
a positive third party effect ignored by the price mechanism
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Welfare Gain
the excess of social benefit over social cost for a given quantity
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Geographical Immobility of Labour
the ability of labour to take available work in different areas or regions
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Occupational Immobility of Labour
the ability of labour to change occupations to take available work
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Price Floor
minimum price a good is allowed to be sold for (above the equilibrium) - creates a price floor
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Price Ceiling
maximum price a good is allowed to be sold for (below the equilibrium) - creates a shortage
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Buffer Stock Schemes
an agency sells from buffer stock in times of poor harvest or adds to it in times of good harvest. This reduces price fluctuations
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Tradable Pollution Permit
an allowance on the amount of pollution firms may emit which can be bought and sold on the market
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Government Failure
occurs when government intervention leads to a net welfare loss and inefficient allocation of resources
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Factors of Production
inputs used in the production of gds and services - land, labour, capital, entrepreneurship
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Consumer Sovereignty
"the consumer is king"
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Production
primary (FFFMQ), secondary (manufacturing), tertiary (service sector)
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Other cards in this set

Card 2

Front

Surplus

Back

where Q supplied exceeds Q demanded at current price

Card 3

Front

Consumer Surplus

Back

Preview of the front of card 3

Card 4

Front

Producer Surplus

Back

Preview of the front of card 4

Card 5

Front

PPF

Back

Preview of the front of card 5
View more cards

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