Definitions

• What is microeconomics?


  The study of individual markets.
• What does allocative efficiency refer to?


  Producing the mix of goods and services that society values the most.
• What is a buffer stock?


  An intervention system that aims to stabilize prices.
• What is capital in economics?


  Productive resources.
• What does ceteris paribus mean?


  All other factors remaining constant.
• What is a command economy?


  An economic system where all decisions about resource allocation are made centrally by the state.
• What is a complement in economics?


  A product generally consumed together with another, e.g. fish and chips.
• What is composite demand?


  When a good is demanded for more than one distinct purpose.
• What is cross elasticity of demand?


  The responsiveness of quantity demanded of one good to the change in price of another good.
• What is demand in economics?


  The amount of a product that consumers are willing and able to buy at each given price level.
• What is a demerit good?


  A good that would be over-consumed in a free market as it brings less overall benefit to consumers than they realize.
• What is depreciation in economics?


  The rate at which capital loses value over time.
• What is derived demand?


  When the demand for a product or factor of production comes from the demand for another product.
• What are diseconomies of scale?


  Where an increase in the scale of production leads to an increase in average total costs for firms.
• What is disequilibrium in a market?


  When supply in a market does not meet demand.
• What is division of labour?


  Breaking the production process down into a sequence of tasks, with workers assigned to particular tasks.
• What are economic goods?


  Goods that are scarce and therefore have an opportunity cost in consumption.
• What is economic welfare?


  The benefit or satisfaction an individual gets from the allocation of resources.
• What are economies of scale?


  Where an increase in the scale of production leads to reductions in average total costs for firms.
• What is effective demand?


  Demand backed up by the ability to pay for a good or service.
• What is enterprise in economics?


  The risk-taking role of business owners in combining other factors of production.
• What is equilibrium in a market?


  The market situation where planned demand equals planned supply and there is no tendency for change.
• What is excess demand?


  When demand is greater than supply at a given price.
• What is excess supply?


  When supply is greater than demand at a given price.
• What are externalities?


  Spillover effects to third parties of a market transaction.
• What are factors of production?

  Capital equipment, enterprise, land, and labour.
• What is a factor market?


  The market for a factor of production that makes other goods or services.
• What are fixed costs?


  Costs of production that do not vary with output.
• What are free goods?


  Goods that have no opportunity cost in consumption, e.g. air.
• What is a free market economy?


  One in which there is very little government intervention in the allocation of resources.
• What is the free-rider problem?


  Where some consumers benefit from other consumers purchasing a good, especially in the case of public goods.
• What is government failure?


  When government intervention to correct market failure does not improve the allocation of resources.
• What is the incidence of tax?


  The proportion of tax passed on to the consumer.
• What is income elasticity of demand?


  The responsiveness of quantity demanded to a change in income.
• What is an indirect tax?


  A tax on spending.
• What are inferior goods?


  Goods or services that will see a fall in demand when income increases.
• What is joint supply?


  When the production of one good results in the production of another.
• What is a market in economics?


  A situation where buyers are in contact with sellers of a good or service.
• What is market failure?


  When the free market fails to achieve an efficient or equitable allocation of resources.
• What is a maximum price?


  A price ceiling above which the price of a good or service is not allowed to increase.