What is an ad valorem tax?
An indirect tax imposed on a good where the value of the tax is dependent on the value of the good.
What is asymmetric information?
Where one party has more information than the other, leading to market failure.
What is capital in economics?
One of the four factors of production; goods which can be used in the production process.
What are capital goods?
Goods produced to aid production of consumer goods in the future.
What does ceteris paribus mean?
All other things remaining the same.
What is a command economy?
All factors of production are allocated by the state, deciding what, how, and for whom to produce goods.
What are complementary goods?
Negative XED; if good B becomes more expensive, demand for good A falls.
What are consumer goods?
Goods bought and demanded by households and individuals.
What is consumer surplus?
The difference between the price the consumer is willing to pay and the price they actually pay.
What is cross elasticity of demand (XED)?
The responsiveness of demand for one good (A) to a change in price of another good (B).
What is demand?
The quantity of a good/service that consumers are able and willing to buy at a given price at a given time.
What is diminishing marginal utility?
The extra benefit gained from consumption of a good generally declines as extra units are consumed.
What is division of labour?
When labour becomes specialised during the production process to perform a specific task.
What is the economic problem?
The problem of scarcity; wants are unlimited but resources are finite, necessitating choices.
What is efficiency in economics?
When resources are allocated optimally, benefiting every consumer and minimising waste.
What is enterprise?
One of the four factors of production; the willingness and ability to take risks and combine other factors.
What is equilibrium price/quantity?
Where demand equals supply, with no market forces causing changes to price or quantity.
What is excess demand?
When price is set too low, leading to demand greater than supply.
What is excess supply?
When price is set too high, resulting in supply greater than demand.
What are externalities?
The cost or benefit a third party receives from an economic transaction outside the market mechanism.
What are external costs/benefits?
The costs/benefits to a third party not involved in the economic activity; the difference between social and private costs/benefits.
What is a free market?
An economy where the market mechanism allocates resources based on consumer and producer decisions.
What is the free rider principle?
People who do not pay for a public good still receive benefits, leading to under-provision by the private sector.
What is government failure?
When government intervention leads to a net welfare loss in society.
What is habitual behaviour?
A cause of irrational behaviour; when consumers habitually make certain decisions.
What is incidence of tax?
The tax burden on the taxpayer.
What is income elasticity of demand (YED)?
The responsiveness of demand to a change in income.
What is an indirect tax?
Taxes on expenditure that increase production costs and lead to a fall in supply.
What are inferior goods?
Goods for which demand falls as income increases (YED<0).
What is an information gap?
When an economic agent lacks the information needed to make a rational, informed decision.
What is information provision?
When the government intervenes to provide information to correct market failure.
What is labour in economics?
One of the four factors of production; human capital.
What is land in economics?
One of the four factors of production; natural resources such as oil, coal, and wheat.
What are luxury goods?
Goods for which an increase in incomes causes a more than proportional increase in demand (YED>1).
What is market failure?
When the free market fails to allocate resources in the best interest of society, leading to inefficient allocation of scarce resources.
What are market forces?
Forces that reduce prices when there is excess supply and increase them when there is excess demand.
What is a maximum price?
A ceiling price which a firm cannot charge above.
What is a minimum price?
A floor price which a firm cannot charge below.
What is a mixed economy?
An economy where both the free market mechanism and the government allocate resources.
What is a model in economics?
A hypothesis that can be proven or tested by evidence, often mathematical.
What are negative externalities of production?
When the social costs of producing a good are greater than the private costs.
What does non-excludable mean?
A characteristic of public goods where someone cannot be prevented from using the good.
What are non-renewable resources?
Resources that cannot be readily replenished or replaced, decreasing over time as consumed.
What is non-rivalry in public goods?
One person’s use of the good does not prevent someone else from using it.
What are normal goods?
Goods where YED > 0; demand increases as income increases.
What is a normative statement?
Subjective statements based on value judgments; cannot be proven or disproven.
What is opportunity cost?
The value of the next best alternative forgone.
What is a perfectly price elastic good?
A good where PED/PES = Infinity; quantity falls to 0 when price changes.
What is a perfectly price inelastic good?
A good where PED/PES = 0; quantity does not change when price changes.
What are positive externalities of consumption?
When the social benefits of consuming a good are larger than the private benefits.
What is a positive statement?
Objective statements that can be tested with factual evidence.
What is the possibility production frontier (PPF)?
Depicts the maximum productive potential of an economy using two goods or services.
What is price elasticity of demand (PED)?
The responsiveness of demand to a change in price; % change in QD.
What is an ad valorem tax?
An indirect tax imposed on a good where the value of the tax is dependent on the value of the good.
What is asymmetric information?
Where one party has more information than the other, leading to market failure.
What is capital in economics?
One of the four factors of production; goods which can be used in the production process.
What is a command economy?
All factors of production are allocated by the state, deciding what, how, and for whom to produce goods.
What are complementary goods?
Negative XED; if good B becomes more expensive, demand for good A falls.
What is consumer surplus?
The difference between the price the consumer is willing to pay and the price they actually pay.
What is cross elasticity of demand (XED)?
The responsiveness of demand for one good (A) to a change in price of another good (B).
What is demand?
The quantity of a good/service that consumers are able and willing to buy at a given price at a given time.
What is diminishing marginal utility?
The extra benefit gained from consumption of a good generally declines as extra units are consumed.
What is division of labour?
When labour becomes specialised during the production process to perform a specific task.
What is the economic problem?
The problem of scarcity; wants are unlimited but resources are finite, necessitating choices.
What is efficiency in economics?
When resources are allocated optimally, benefiting every consumer and minimising waste.
What is enterprise?
One of the four factors of production; the willingness and ability to take risks and combine other factors.
What is equilibrium price/quantity?
Where demand equals supply, with no market forces causing changes to price or quantity.
What are externalities?
The cost or benefit a third party receives from an economic transaction outside the market mechanism.
What are external costs/benefits?
The costs/benefits to a third party not involved in the economic activity; the difference between social and private costs/benefits.
What is a free market?
An economy where the market mechanism allocates resources based on consumer and producer decisions.
What is the free rider principle?
People who do not pay for a public good still receive benefits, leading to under-provision by the private sector.
What is habitual behaviour?
A cause of irrational behaviour; when consumers habitually make certain decisions.
What is an indirect tax?
Taxes on expenditure that increase production costs and lead to a fall in supply.
What is an information gap?
When an economic agent lacks the information needed to make a rational, informed decision.
What is information provision?
When the government intervenes to provide information to correct market failure.
What is land in economics?
One of the four factors of production; natural resources such as oil, coal, and wheat.
What are luxury goods?
Goods for which an increase in incomes causes a more than proportional increase in demand (YED>1).
What is market failure?
When the free market fails to allocate resources in the best interest of society, leading to inefficient allocation of scarce resources.
What are market forces?
Forces that reduce prices when there is excess supply and increase them when there is excess demand.
What is a mixed economy?
An economy where both the free market mechanism and the government allocate resources.
What is a model in economics?
A hypothesis that can be proven or tested by evidence, often mathematical.
What are negative externalities of production?
When the social costs of producing a good are greater than the private costs.
What does non-excludable mean?
A characteristic of public goods where someone cannot be prevented from using the good.
What are non-renewable resources?
Resources that cannot be readily replenished or replaced, decreasing over time as consumed.
What is non-rivalry in public goods?
One person’s use of the good does not prevent someone else from using it.
What is a normative statement?
Subjective statements based on value judgments; cannot be proven or disproven.
What is a perfectly price elastic good?
A good where PED/PES = Infinity; quantity falls to 0 when price changes.
What is a perfectly price inelastic good?
A good where PED/PES = 0; quantity does not change when price changes.
What are positive externalities of consumption?
When the social benefits of consuming a good are larger than the private benefits.
What is the possibility production frontier (PPF)?
Depicts the maximum productive potential of an economy using two goods or services.
What is price elasticity of demand (PED)?
The responsiveness of demand to a change in price; % change in QD.
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