Cards (79)

  • Ad valorem tax
    An indirect tax imposed on a good where the value of the tax is dependent on the value of the good
  • Asymmetric information

    Where one party has more information than the other, leading to market failure
  • Capital
    One of the four factors of production; goods which can be used in the production process
  • Capital goods
    Goods produced in order to aid production of consumer goods in the future
  • Ceteris paribus
    All other things remaining the same
  • Command economy
    All factors of production are allocated by the state, so they decide what, how and for whom to produce goods
  • Complementary goods
    Negative XED; if good B becomes more expensive, demand for good A falls
  • Consumer goods

    Goods bought and demanded by households and individuals
  • Consumer surplus
    The difference between the price the consumer is willing to pay and the price they actually pay
  • Cross elasticity of demand (XED)
    The responsiveness of demand for one good (A) to a change in price of another good (B)
  • Demand
    The quantity of a good/service that consumers are able and willing to buy at a given price at a given moment of time
  • Diminishing marginal utility
    The extra benefit gained from consumption of a good generally declines as extra units are consumed; explains why the demand curve is downward sloping
  • Division of labour
    When labour becomes specialised during the production process so do a specific task in cooperation with other workers
  • Economic problem

    The problem of scarcity; wants are unlimited but resources are finite so choices have to be made
  • Efficiency
    When resources are allocated optimally, so every consumer benefits and waste is minimised
  • Enterprise
    One of the four factors of production; the willingness and ability to take risks and combine the three other factors of production
  • Equilibrium price/quantity
    Where demand equals supply so there are no more market forces bringing about change to price or quantity demanded
  • Excess demand
    When price is set too low so demand is greater than supply
  • Excess supply
    When price is set too high so supply is greater than demand
  • Externalities
    The cost or benefit a third party receives from an economic transaction outside of the market mechanism
  • External cost/benefit
    The cost/benefit to a third party not involved in the economic activity; the difference between social cost/benefit and private cost/benefit
  • Free market
    An economy where the market mechanism allocates resources so consumers and producers make decisions about what is produced, how to produce and for whom
  • Free rider principle
    People who do not pay for a public good still receive benefits from it so the private sector will under-provide the good as they cannot make a profit
  • Government failure
    When government intervention leads to a net welfare loss in society
  • Habitual behaviour
    A cause of irrational behaviour; when consumers are in the habit of making certain decisions
  • Incidence of tax
    The tax burden on the taxpayer
  • Income elasticity of demand (YED)
    The responsiveness of demand to a change in income
  • Indirect tax
    Taxes on expenditure which increase production costs and lead to a fall in supply
  • Inferior goods
    YED<0; goods which see a fall in demand as income increases
  • Information gap
    When an economic agent lacks the information needed to make a rational, informed decision
  • Information provision
    When the government intervenes to provide information to correct market failure
  • Labour
    One of the four factors of production; human capital
  • Land
    One of the four factors of production; natural resources such as oil, coal, wheat, physical space
  • Luxury goods
    YED>1; an increase in incomes causes an even bigger increase in demand
  • Market failure
    When the free market fails to allocate resources to the best interest of society, so there is an inefficient allocation of scarce resources
  • Market forces
    Forces in free markets which act to reduce prices when there is excess supply and increase them when there is excess demand
  • Maximum price

    A ceiling price which a firm cannot charge above
  • Minimum price
    A floor price which a firm cannot charge below
  • Mixed economy
    Both the free market mechanism and the government allocate resources
  • Model
    A hypothesis which can be proven or tested by evidence; it tends to be mathematical whilst a theory is in words