Definitions

• Ad Volerem Tax - an indirect tax imposed on a good based on its value
• Capital goods: goods produced to aid the production of other consumer goods
• Ceterius paribus: assuming all other factors are constant
• Command economy: controlled by the state. They decide what, how and for whom to produce the goods. they allocate the state’s scarce resources
• Complementary goods: 2 goods that are usually consumed together. If the price of good A increases, the demand for good B will decrease
• Consumer surplus - the difference in the price consumers are willing to pay and the price they actually pay
• price elasticity of demand: a measure of responsiveness of a change in price to the change in demand
• Demand - the quantity of a good/service consumers are willing to pay for at a given price over a given time period
• Division of labour - when workers focus on a narrow range of tasks and become specialised at it
• The Economic Problem - resources being scarce. There are limited resources to fulfill unlimited wants
• Efficiency - where scarce resources are allocated for optimal use so consumer benefit is maximised and waste is minimised
• Enterprise - the willingness and ability to take risks, usually by starting an original firm
• Equilibrium - when demand and supply are equal
• Excess demand - when prices are set too low so demand becomes greater than supply
• Excess supply - when prices are set too high so quantity supplied is greater than quantity demanded
• Free market economy: an economy controlled by the price mechanism. Consumers and producers allocate resources and make decisions on what, how and for whom to produce
• Free rider principle - people who do not pay for a public good but are still benefiting off it
• habitual behaviour - causes irrational behaviour; when consumers have a habit of making a certain decision
• Indirect tax - a tax levied on the consumption of a good or service
• Luxury goods - an increase in incomes sees a even bigger increase in demand
• Mixed economy: both the government and the price mechanism allocate resources
• Non excludability - a characteristic of a public good. It is costly or impossible for someone to prevent/exclude someone else from using the same good
• Non renewable resources - can’t be replenished at the same rate it is being consumed
• Non rivalry - a characteristic of public goods. One persons use of a good doesn't affect someone else using it
• Normative statements - subjective statements. Opinions. Cannot be proven true or false
• Opportunity cost - the value of the next best alternative forgone
• Perfectly elastic goods - PED/PES = infinity. demand/supply falls to 0 when there is a change in price
• Perfectly inelastic goods - PED/PES = 0. demand/supply does not fall when there is a change in price
• Positive statements - objective statements that can be proven true or false
• Private goods - goods that are rivalrous and excludable
• Producer surplus - the difference between the price that producers are willing to charge and the price that they actually charge
• Public goods - goods that are non rivalrous and non excludable
• Rational decisions - making decisions that maximise utility
• Utility - the benefit or satisfaction derived from the consumption of a good
• Elastic - PED/PES > 1
• Inelastic - PED/PES < 1
• Renewable resources - resources that can be replenished at the same rate it is consumed
• Scarcity - the shortage of resources in relation to humans unlimited wants
• Specialisation - the focus on the production of a limited range of goods and services
• Specific tax - the value of tax depends on the quantity that is bought