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79 Cards in this Set
- Front
- Back
Opportunity Cost |
The next best alternative when an economic decision is made. |
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Economic Goods |
Good that are scarce and therefore have an opportunity cost. |
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Free Goods |
Good that have no opportunity cost (Air). |
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Factor Market |
The market for the factors of production that make other goods and services such as labour and raw materials.
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Renewable Resources |
Resources that are able to be replenished over time. |
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Profit |
When total income or revenue for a firm is greater than total costs. |
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Free Market Economy |
Limited government involvement in providing goods and services. Its main role is to ensure that the rules of the market are fair. (Property can't be stolen from others etc) |
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Production Possibility Boundary |
Indicates the maximum possible output that can be achieved given a fixed set of resources and technology in a particular time period. |
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Productive Efficiency |
When a firm operates at minimum average total cost, producing the maximum possible output from inputs into the production process. |
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Allocative Efficiency |
When it is not possible to make an increase of something without making a decrease of something else. |
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Productivity |
Measuring the ratio of inputs to outputs. |
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Human Capital |
The skills, abilities, motivation and knowledge of labour. Increasing human capital productivity can shift PPB to the right. |
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Division of Labour |
Breaking the production process down and assigning workers to particular tasks. |
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Specialisation |
The production of a limited range of goods to increase productive efficiency. |
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Normative Statements |
Statements and judgements based on opinion and personal values. |
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Positive Statements |
Statements and judgements that can be tested against facts and data.
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Demand |
The amount that consumers are willing and able to buy at each given price level. |
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Market Demand |
Total demand in a market for a good. The sum of all individuals' demand at each given price level. |
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Contractions in Demand |
Falls in the quantity demanded cause by rises in prices.
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Extensions in Demand |
Increases in demand caused by changes in falls in prices. |
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Normal Goods |
Goods or services that will see an increase in demand when incomes rise. |
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Inferior Goods |
Goods or services that will see a decrease in demand when incomes rise. |
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Complementary Products |
Good that are consumed together. (Bread and butter. |
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Composite Demand |
A good that is demanded for more than one purpose so that an increase in demand for one purpose reduces the availability for the other purpose.
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Derived Demand |
When the demand for a good or service comes from the demand for another good or service. |
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Supply
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The quantity offered for sale at each given price level. |
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Market Supply |
The sum of all individual firm's supply curves at each given price. |
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Extension in Supply |
When there is an increase in supply because the market price has risen. |
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Contraction in Supply |
When there is a decrease in supply because the market price has fallen. |
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Joint Supply |
When the production of one good leads to the production of another. |
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Equilibrium |
The price where demand is equal to supply and there is no tendency for change. |
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Disequilibrium |
A situation within the market where supply does not equal demand. |
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Excess Supply |
When supply at a particular price is greater than demand. |
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Market-clearing Price |
The price at which all goods that are supplied will be demanded. |
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Excess Demand |
When demand is greater than supply at a given price. |
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Maximum Price |
A price ceiling where the price of a good or service is not allowed to increase. |
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Minimum Price |
A price floor where the price of a good or service is not allowed to decrease. |
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Price Elasticity |
The responsiveness of demand to a change in the price level. |
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Subsidies |
Payments by the government to producers to encourage production of goods and services. |
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Incidence of Tax |
The proportion of a tax that is passed onto the consumer.
When demand is high IoT tends to be high. |
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Income Elasticity of Demand |
The proportion to which demand changes when there is a change in income. |
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Substitutes |
Goods that can be used as alternatives to another good. |
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Commodity |
Usually refers to raw materials or unbranded semi-manafactured goods that are traded or sold in bulk. |
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Investment Good |
A product that will increase in value over time.
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Market Failure |
Where the market fails to produce what consumers require at the lowest possible cost. |
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Government Failure |
When government intervention to correct market failure does not improve the allocation of resources or leads to a worsening of the situation. |
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Buffer Stocks |
An intervention system that aims to limit fluctuations of the price of a commodity by keeping a reserve of stock. |
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Inflationary pressure |
Occurrences that are likely to lead to increased prices. |
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Negative Externalities |
Costs imposed on a third party not involved with consumption or production of a good. |
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Production |
The process that converts factor inputs into outputs of goods and services. |
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Fixed Costs |
Costs of production that does not vary as output changes. |
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Variable Costs |
Costs of production that varies as output changes. |
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Economies of Scale |
Where an increase in the scale of production leads to reductions in average total cost for firms. |
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Diseconomies of Scale |
Where an increase in the scale of production leads to increases in average total costs for firms. |
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Competition |
A market situation in which there are a large number of buyers and sellers. |
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Monopoly |
A market structure dominated by a single seller of a good. |
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Externalities |
Costs or benefits that spill over to third parties external to a market transaction. |
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Marginal Private Cost |
The cost to an individual or firm of an economic transaction.
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Marginal External Cost |
The spillover cost to third parties of an economic transaction. |
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Marginal Social Cost |
The full cost to society of an economic transaction, including private and external costs. |
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Marginal Private Benefit |
The benefit to an individual or firm of an economic transaction. |
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Marginal External Benefit |
The spillover benefit to third parties of an economic transaction. |
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Positive Externality |
A positive spillover effect to third parties of a market transaction. |
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Marginal Social Benefit |
The full benefit to society of an economic transaction, including private and external benefits. |
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Merit Good |
A good that would under-consumed in a free market as consumers do not fully perceive the benefits obtained from consumption. |
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Partial Market Failure |
Where the free market provides a product but with a misallocation of resources. |
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Demerit Good |
A good that would be over-consumed in a free market, as it brings less overall benefit to consumers than they realise. |
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Public Good |
A good that possesses the characteristics of non-excludability and non-rivalry in consumption. |
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Free-rider Problem |
Where some consumers benefit from other consumers purchasing a good, particularly in the case of public goods. |
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Quasi-public Good |
A good that has some of the qualities of a public good but does not fully possess the two required characteristics of non-rivalry and non-excludability. |
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Private Good |
A good that is both excludable and rival in consumption. |
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Complete Market Failure |
Where the free market fails to provide a product at all. |
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Occupational Immobility |
As patterns of demand and employment change, many workers may find it difficult to easily secure new jobs, since they may lack necessary skills. |
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Geographical Immobility |
Where workers find it difficult to move to where employment opportunities may be, due to family ties and differences in housing costs. |
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Income |
A flow of earnings to a factor of production over a period of time. |
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Wealth |
A stock of owned assets. |
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Indirect Tax |
A tax on spending. |
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Pollution Permit |
A permit sold to firms by the government allowing them to pollute up to a certain limit. |
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Inflation |
A persistent increase in the level of prices. |