paper 1

• allocative efficiency

  resources are utilised to produce goods/services that maximise economic welfare
• allocative price function

  prices allocate resources away from markets with excess supply to those with excess demand
• ceteris paribus


  all other things held constant
• economic welfare

  wellbeing of economy
• finite resources

  non renewable resources becoming more scarce
• fundamental economic problem

  deciding how to allocate scarce resources to maximise economic welfare
• imperfect information

  individuals lack info to make best decision
• incentive price function

  prices create incentives for people to adjust economic transactions
• normative statements


  statements with value judgements, that cant be easily dis/proven
• opportunity cost

  loss of other alternatives due to selecting one of a set of options
• pareto efficiency

  state of resource allocation, where to make economic agent better off, other has to be worse off
• positive statement

  facts that can easily be dis/proven
• production possibility frontier

  curve showing possible combinations of 2 products that can be produced with finite resources
• rationing price function


  prices rise to ration demand for goods
• scarcity

  infinite wants and needs for limited resources
• signalling price function

  prices provide info to sellers and buyers, influencing economic decisions
• trade

  buying and selling of goods/services
• value judgements

  subjective statements based on opinions
• competing supply

  resources can be used to produce 1 good or another good but not both
• competitive markets

  markets with large numbers of buyers and sellers, with low barriers to entry and exit
• complementary goods

  goods in joint demand, often purchased together
• composite demand

  demand for multi purpose goods
• condition of demand

  determinant of demand other than price that sets position of curve
• condition of supply

  determinants of supply other than price setting position of curve
• consumer sovereignty

  consumers can collectively govern production in market via spending power
• cross elasticity of demand

  xed - measures responsiveness of good's demand to change in price of other good
• demand

  quantity of good/service consumer is willing/ able to buy at any given price/time
• derived demand

  demand for good that is input of another good
• disequilibrium

  excess supply or demand in market
• effective demand

  desire for good/service that is backed by ability to pay
• elasticity

  proportionate responsiveness of 2nd variable to change in 1st
• equilibrium

  demand=supply
• equilibrium price

  price where planned demand matches planned supply
• excess demand

  consumers demand more than supplied. occurs below equilibrium price
• excess supply

  producers want to sell more than demanded. occurs above equilibrium price
• income elasticity of demand

  yed - measures responsiveness of good's demand to change in consumer income
• inferior good

  good where demand rises as incomes fall
• joint supply

  when 1 good is produced, another good is from same raw materials
• normal good

  good where demand rises as incomes rise
• price elasticity of supply

  measures responsiveness of good's supply to change in price