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.
An economy where both the free market mechanism and the government allocate resources.
Excess demand, where demand exceeds supply.
The demand for good A rises.
Reduce prices when there is excess supply and increase them when there is excess demand.
Where demand equals supply, resulting in no market forces changing price or quantity demanded.
Market failure, as one party has more information than the other.
External cost/benefit, which affects a third party not involved in the economic activity.
People who do not pay for a public good still receive benefits, leading to under-provision by the private sector.
When the social benefits of consuming a good are larger than the private benefits.
The responsiveness of demand to a change in income, calculated as % change in QD / % change in Y.
Goods with YED < 0, which see a fall in demand as income increases.
Natural resources such as oil, coal, wheat, and physical space, one of the four factors of production.
Where buyers and sellers both have access to the same information.
A floor price which a firm cannot charge below.
The difference between the price the producer is willing to charge and the price they actually charge.
Decision-making that leads to economic agents maximizing their utility.
When PED/PES < 1; demand/supply is relatively unresponsive to a change in price.
The shortage of resources in relation to the quantity of human wants.
A tax imposed on a good where the value of the tax depends on the quantity bought.
The quantity of a good/service that consumers are able and willing to buy at a given price at a given moment of time.
Government payments to a producer to lower their costs of production and encourage them to produce more.
Market failure.
Goods that are rivalry and excludable.
Excess supply, where supply exceeds demand.
Goods produced in order to aid production of consumer goods in the future.
All factors of production are allocated by the state, deciding what, how, and for whom to produce goods.
A cause of irrational behavior where consumers habitually make certain decisions.
Objective statements which can be tested with factual evidence.
When the government intervenes to provide information to correct market failure.
Through taxation.
A cause of irrational behavior; when consumers are bad at making calculations, estimating probabilities, and working out future benefits/costs.
A hypothesis which can be proven or tested by evidence, often mathematical.
Goods that are non-excludable and non-rivalry.
When PED/PES > 1; demand/supply is relatively responsive to a change in price.
Resources which can be replenished, maintaining the stock over time.
Where social costs equal social benefits, maximizing social welfare.
The tax burden on the taxpayer.
Taxes on expenditure that increase production costs and lead to a fall in supply.
The problem of scarcity; wants are unlimited but resources are finite, so choices have to be made.
The satisfaction derived from consuming a good.
A system of resource allocation based on free market movement of prices, determined by demand and supply curves.
Someone cannot be prevented from using the good.
One person’s use of the good does not prevent someone else from using it.
The value of the next best alternative forgone.
When government intervention results in a net welfare loss in society.
The production of a limited range of goods by a company/country/individual, requiring trade with others.
When resources are allocated optimally, so every consumer benefits and waste is minimised.
The ability and willingness to provide a particular good/service at a given price at a given moment in time.
A ceiling price which a firm cannot charge above.
When the social costs of producing a good are greater than the private costs.
Resources that cannot be readily replenished or replaced at a level equal to consumption.
Goods for which demand increases as income increases (YED > 0).
PED/PES = Infinity; quantity demanded/supplied falls to 0 when price changes.
The responsiveness of demand to a change in price.
Human capital, one of the four factors of production.
The responsiveness of supply to a change in price.
An indirect tax imposed on a good where the value of the tax is dependent on the value of the good.
The cost or benefit a third party receives from an economic transaction outside of the market mechanism.
All other things remaining the same.
PED/PES = 0; quantity demanded/supplied does not change when price changes.
The responsiveness of demand for one good (A) to a change in price of another good (B).
The maximum productive potential of an economy using a combination of two goods or services.
The extra benefit gained from consumption of a good generally declines as extra units are consumed.
One of the four factors of production; the willingness and ability to take risks and combine the three other factors of production.
One of the four factors of production; goods which can be used in the production process.
An economy where the market mechanism allocates resources based on consumer and producer decisions.
Goods that have negative cross elasticity of demand; if good B becomes more expensive, demand for good A falls.
Goods bought and demanded by households and individuals.
The difference between the price the consumer is willing to pay and the price they actually pay.
When an economic agent lacks the information needed to make a rational, informed decision.
When the free market fails to allocate resources in the best interest.
When labour becomes specialised during the production process to do a specific task in cooperation with other workers.
Goods with YED > 1, where an increase in incomes causes an even bigger increase in demand.
