Definitions222

Through taxation.

Government payments to a producer to lower their costs of production and encourage them to produce more.

The demand for good A rises.

The ability and willingness to provide a particular good/service at a given price at a given moment in time.

Where buyers and sellers both have access to the same information.

Licenses that allow businesses to pollute up to a certain amount, controlled by the government.

When PED/PES=1; a change in price leads to a change in output by the same proportion.

The satisfaction derived from consuming a good.

A cause of irrational behavior; when consumers are bad at making calculations, estimating probabilities, and working out future benefits/costs.

Market failure.

Reduce prices when there is excess supply and increase them when there is excess demand.

A ceiling price which a firm cannot charge above.

A floor price which a firm cannot charge below.

The responsiveness of supply to a change in price.

An economy where both the free market mechanism and the government allocate resources.

A system of resource allocation based on free market movement of prices, determined by demand and supply curves.

A hypothesis which can be proven or tested by evidence, often mathematical.

Goods that are rivalry and excludable.

Where demand equals supply, resulting in no market forces changing price or quantity demanded.

When the social costs of producing a good are greater than the private costs.

The difference between the price the producer is willing to charge and the price they actually charge.

An indirect tax imposed on a good where the value of the tax is dependent on the value of the good.

Excess demand, where demand exceeds supply.

Someone cannot be prevented from using the good.

Goods that are non-excludable and non-rivalry.

Excess supply, where supply exceeds demand.

Market failure, as one party has more information than the other.

Resources that cannot be readily replenished or replaced at a level equal to consumption.

Decision-making that leads to economic agents maximizing their utility.

The cost or benefit a third party receives from an economic transaction outside of the market mechanism.

One of the four factors of production; goods which can be used in the production process.

One person’s use of the good does not prevent someone else from using it.

When PED/PES > 1; demand/supply is relatively responsive to a change in price.

Goods produced in order to aid production of consumer goods in the future.

External cost/benefit, which affects a third party not involved in the economic activity.

Goods for which demand increases as income increases (YED > 0).

When PED/PES < 1; demand/supply is relatively unresponsive to a change in price.

All other things remaining the same.

An economy where the market mechanism allocates resources based on consumer and producer decisions.

The value of the next best alternative forgone.

Resources which can be replenished, maintaining the stock over time.

All factors of production are allocated by the state, deciding what, how, and for whom to produce goods.

People who do not pay for a public good still receive benefits, leading to under-provision by the private sector.

PED/PES = Infinity; quantity demanded/supplied falls to 0 when price changes.

The shortage of resources in relation to the quantity of human wants.

Goods that have negative cross elasticity of demand; if good B becomes more expensive, demand for good A falls.

When government intervention results in a net welfare loss in society.

PED/PES = 0; quantity demanded/supplied does not change when price changes.

Goods bought and demanded by households and individuals.

Where social costs equal social benefits, maximizing social welfare.

A cause of irrational behavior where consumers habitually make certain decisions.

When the social benefits of consuming a good are larger than the private benefits.

The difference between the price the consumer is willing to pay and the price they actually pay.

The production of a limited range of goods by a company/country/individual, requiring trade with others.

The tax burden on the taxpayer.

Objective statements which can be tested with factual evidence.

The responsiveness of demand for one good (A) to a change in price of another good (B).

The responsiveness of demand to a change in income, calculated as % change in QD / % change in Y.

A tax imposed on a good where the value of the tax depends on the quantity bought.

The maximum productive potential of an economy using a combination of two goods or services.

The quantity of a good/service that consumers are able and willing to buy at a given price at a given moment of time.

Taxes on expenditure that increase production costs and lead to a fall in supply.

The responsiveness of demand to a change in price.

The extra benefit gained from consumption of a good generally declines as extra units are consumed.

Goods with YED < 0, which see a fall in demand as income increases.

When labour becomes specialised during the production process to do a specific task in cooperation with other workers.

When an economic agent lacks the information needed to make a rational, informed decision.

The problem of scarcity; wants are unlimited but resources are finite, so choices have to be made.

When the government intervenes to provide information to correct market failure.

When resources are allocated optimally, so every consumer benefits and waste is minimised.

Human capital, one of the four factors of production.

One of the four factors of production; the willingness and ability to take risks and combine the three other factors of production.

Natural resources such as oil, coal, wheat, and physical space, one of the four factors of production.

Goods with YED > 1, where an increase in incomes causes an even bigger increase in demand.

When the free market fails to allocate resources in the best interest.