Topic 2 - The Role of Markets and Money

• PES = infinity


  supply is perfectly elastic
• PES = 0


  supply is perfectly inelastic
• PES = 1


  supply is unitary
• PES = between 1 and infinity


  supply is elastic
• PES = between 0 and 1


  supply is inelastic
• PED = 0


  demand is perfectly inelastic
• PED = infinity


  demand is perfectly elastic
• PED = between 1 and infinity


  demand is elastic
• PED = 1


  demand is unitary
• PED = between 0 and 1


  demand is inelastic
• Unitary Demand/Supply


  when percentage change in quantity is the same as percentage change in price
• Savings


  the part of a person's disposable income that is not spent
• Salary


  a yearly wage divided equally into 12 parts
• Purchasing Power


  the amount of goods and services a given amount of money can buy
• Privitisation


  the transfer of assets such as businesses from the public sector to the private sector
• Private Sector


  part of the economy that is run by individuals and firms
• Market Failure


  when the market fails to allocate resources efficiently
• Invisible Hand


  unobservable market forces assisting demand and supply of goods and services in a free market to move to equilibrium
• Effective Demand


  the quantity of a good or service that individual is both willing and able to buy at a range of prices in a given period of time
• consumer sovereignty


  through their purchase, consumers are now able to influence what producers supply and how resources are allocated
• Competition Policy


  government policy to promote competition
• Efficiency


  concerned with the optimal production and distribution of scarce resources
• Diseconomies of Scale

  when the average cost of production for a firm begins to rise as the firm grows in size
• Investment


  the purchase of capital in order to produce future goods and services
• Interest Rates

  cost of borrowing and reward for saving
• Mortgage


  agreement with a financial institution to borrow money to purchase a property
• Risk Management


  finance managers group many savers together and invest into a range of companies - individual investors would not be able to do this on their own and would invest in a smaller range of companies, increasing risk
• Liquidity Provision


  liquidity - how easy it is to turn an asset into cash - bank allows consumers and producers to function when faced with unexpected demands for cash by offering loans and overdrafts
• Credit Provision


  credit is when consumers, producers and government can borrow money to buy goods and services without having to save up
• Insurance Company


  financial institution that guarantees compensation for a specified loss, damage, illness or death in return for an agreed premium
• Building Society


  a mutual financial institution that is owned by its members with the objective to receive deposits from its members and lend money to other members to purchase property
• Medium of Exchange


  anything that sets the standard value of goods and services and is acceptable to all involved in the transaction
• Financial Sector


  consists of financial organisations and their products, involves the flow of capital
• Money


  anything generally accepted as a means of payment - a medium of payment
• Pension


  fixed amount paid at regular intervals to a usually retired person
• National Insurance

  contribution paid by workers and their employers towards state benefits
• Income Tax


  tax directly levied on personal income
• Net Pay

  amount of money an employee receives after deductions are made from gross income
• Gross Pay


  the amount of money an employee earns before taxes and other deductions are made
• Derived Demand


  when the demand for labour depends on the demand for the product the labour helps to produce