Theme 1

• Division of labour – a  process whereby the production procedure is broken down into a sequence of stages and worker are assigned to a particular stage. 
• Elastic- term used when PED (price elasticity of demand) is greater than 1, but less than infinity.
• Elasticity – a measure of the responsiveness of one variable to changes in another.
• External benefit – the benefit that society receives over and above those that accrue to the individual engaged in economic activity.
• Externality – a cost or benefit, external to market transactions and thus not reflected in market prices, which may affect third parties not included in the transaction.
• Factors of production – resources used in production (inputs to production – labour, capital & enterprise)
• Firm – an organisation that brings together factors of production in order to produce an output.
• Free market economy – an economy in which market forces are allowed to guide the allocation of resources.
• Free-rider problem- when an individual benefits from the provisions of another paying for the good / service. The individual cannot be excluded from benefiting for the good, but does not have incentive to pay for it.
• Government failure – the misallocation of by the government that is meant to correct market failure. Which causes less efficient allocation of resources and imposes a welfare loss on society.
• GDP – gross domestic product- measure of economic activity / growth carried out over a set period of time.
• Habitual behaviour – where consumers persist in acting in a particular way even when conditions have changed.
• Herding – when people take decisions based on the actions of others rather than rational evaluation of the situation they face.
• Incidence of tax – the way in which the burden of paying sales tax is divided between buyers and sellers.
• YED – income elasticity of demand – a measure of the responsiveness of quantity demanded to a change in consumer incomes.
• Indirect tax – tax levied on expenditure on goods and services (as opposed to direct tax, which is directly to an individual based on a component of income).
• Inelastic – when PED (price elasticity of demand) is less than 1 , but greater than 0.
• Inferior good – a product where quantity demanded decreases when consumer income increases.

  (it is a cheaper substitute)
• Internalising an externality – an attempt to deal with an externality by bringing an external cost or benefit into the price system.
• Law of demand – a law that states the there is an inverse relationship between quantity demanded and the price of a good or service, ceteris paribus.
• Macroeconomics – the study of interrelationships between economic variables at an aggregate (economy-wide) level.
• Marginal analysis – an approach to economic decision making based on considering the additional (marginal) benefits and costs of a change of behaviour.
• Marginal cost – the cost of producing an additional unit of output.
• MSB – marginal social benefit – the additional benefit that society gains from consuming an extra unit of a good.
• MSC – marginal social cost – the cost to society of producing an extra unit of good.
• Market – a set of arrangements that allow transactions to take place.
• Market based policy – an approach to tackling market failure by using the market equilibrium.
• Market equilibrium – a situation that occurs in a market when the price is a such  that the quantity demanded by consumers exactly balanced the quantity supplied by firms.
• Market failure – a situation that occurs within a free market equilibrium does not lead to the socially optimal allocation of resources such that too much or to little of a good is being produced or consumed.
• Microeconomics – study of decisions taken by individual economic agents including households and firms.
• Mixed economy – an economy in which a person who has taken out insurance is prone to taking on more risk.
• Necessity – a good for which the YED (income elasticity of demand) is positive and less than 1 such that income rises, consumers spend proportionally less on the good.
• NIMBY (Not in my back yard) – a syndrome under which people are happy support the construction of an unsightly or unsocial facility, so long as it is not in their back yard.
• Non-excludability – a situation in which it is not possible to provide a product to one person without allowing others to consume it as well.
• Non-renewable resources – natural resources that once used cannot be replenished such as oil/coal.
• Non-rivalry- a situation in which it is not possible to provide a product to one person without allowing others to consume it as well.
• Normal good – a product where the quantity demanded increases in response to increase in consumer incomes.
• Normative statement – a statement that involves a value judgement about what ought to be.
• Nudge theory – analysis that suggests that people’s behaviour can be influenced by making desirable decisions easy to make.
• Opportunity cost – in decision making, the value of the next best option forgone.