Key terms

• What is absolute poverty?

  A severe deprivation of basic human needs
• What does allocative efficiency indicate in an economy?

  Resources cannot be reallocated to improve welfare
• What must price equal for allocative efficiency?

  Marginal cost (P=MC)
• How do changing relative prices affect resource allocation?

  They allocate resources from excess supply to demand
• What occurs during allocative inefficiency?

  Too little or too much of a good is produced
• What is altruism?

  Concern for the welfare of others
• What is anchoring in decision-making?

  Relying too heavily on the first piece of information
• What are artificial barriers in economics?

  Man-made barriers to market entry
• What is asymmetric information?

  One party has less information than another
• What does availability bias refer to?

  Judgments based on easily recalled examples
• How is average cost of labour calculated?

  Total wage costs divided by number of workers
• What is average fixed cost (AFC)?

  Total fixed costs divided by output size
• How is average returns of labour calculated?

  Total output divided by total number of workers
• What is average revenue?

  Total revenue divided by total output
• What is average total cost (ATC)?

  Total cost divided by size of output
• How is average variable cost calculated?

  Total variable cost divided by size of output
• What is behavioural economics?

  Analysis applying psychology to economic choices
• What does bounded rationality refer to?

  Limited rationality due to information and time
• What is bounded self-control?

  Limited self-control to act rationally
• What is a capital good?

  A good used in production of other goods
• What is capital productivity?

  Output per unit of capital
• What is a cartel?

  A collusive agreement to restrict output
• What does choice refer to in economics?

  Choosing between alternatives for resource allocation
• What is choice architecture?

  A framework influencing consumer decision-making
• What is cognitive bias?

  A systematic error affecting decisions and judgments
• What is collective bargaining?

  Negotiation of wage rates and work conditions
• What is a command economy?

  An economy where government allocates resources
• What does the Competition and Markets Authority (CMA) do?

  Enforces UK competition policy
• What is competition policy?

  Government policy to enhance market competitiveness
• What is competitive demand?

  When goods are substitutes for each other
• What are competitive markets?

  Markets with many buyers and sellers
• What are complementary goods?

  Goods that enhance each other's demand
• What is complete market failure?

  A market failing to function at all
• What is composite demand?

  Demand for a good with multiple uses
• What does the concentration ratio measure?

  Market share of the largest firms
• What is a condition of demand?

  Other determinants affecting the demand curve
• What is a condition of supply?

  Other determinants affecting the supply curve
• What are constant returns to scale?

  Output increases at the same rate as inputs
• What is a consumer good?

  A good consumed by individuals or households
• What is a consumption externality?

  An externality generated during consumption