Positive cross elasticity of demand; if good B becomes more expensive, demand for good A rises.
The system of resource allocation based on the free market movement of prices, determined by the demand and supply curves.
A floor price which a firm cannot charge below.
Government payments to a producer to lower their costs of production and encourage them to produce more.
An indirect tax imposed on a good where the value of the tax is dependent on the value of the good.
Goods produced in order to aid production of consumer goods in the future.
Licenses which allow businesses to pollute up to a certain amount, controlled by the government to manage pollution levels.
Forces in free markets which act to reduce prices when there is excess supply and increase them when there is excess demand.
Both the free market mechanism and the government allocate resources.
Goods bought and demanded by households and individuals.
The cost/benefit to society as a whole due to the economic activity.
The extra benefit gained from consumption of a good generally declines as extra units are consumed; explains why the demand curve is downward sloping.
Objective statements which can be tested with factual evidence to be proven or disproven.
The distribution of the tax burden among taxpayers.
When price elasticity of demand or supply equals 1; a change in price leads to a change in output by the same proportion.
One of the four factors of production; goods which can be used in the production process.
Laws to address market failure and promote competition between firms.
Resources which cannot be readily replenished or replaced at a level equal to consumption; the stock level decreases over time as they are consumed.
The responsiveness of demand for one good (A) to a change in price of another good (B).
The costs or benefits to a third party not involved in the economic activity; the difference between social cost/benefit and private cost/benefit.
When resources are allocated optimally, so every consumer benefits and waste is minimised.
The measure of how responsive demand is to a change in income, calculated as the percentage change in quantity demanded divided by the percentage change in income.
A situation where the free market fails to allocate resources in the best interest of society.
The satisfaction derived from consuming a good.
The difference between the price the producer is willing to charge and the price they actually charge.
All factors of production are allocated by the state, so they decide what, how and for whom to produce goods.
Resources which can be replenished, so the stock of resources can be maintained over a period of time.
A situation where the price is set too high, resulting in supply being greater than demand.
A good where PED/PES = 0; quantity demanded/supplied does not change when price changes.
A situation where government intervention results in a net welfare loss in society.
Goods for which demand decreases as income increases, characterized by a YED less than 0.
Where buyers and sellers both have access to the same information.
Goods that are rivalry and excludable.
All other things remaining the same.
A characteristic of public goods; someone cannot be prevented from using the good.
Goods for which demand increases as income increases (YED > 0).
The production of a limited range of goods by a company/country/individual, requiring trade with others.
The phenomenon where individuals who do not pay for a public good still receive benefits, leading to under-provision of the good by the private sector.
The responsiveness of demand to a change in price.
Goods characterized by a YED greater than 1, where an increase in income leads to an even larger increase in demand.
Through taxation, the government provides public goods or merit goods which are underprovided in the free market.
The responsiveness of supply to a change in price.
Goods that are non-excludable and non-rivalry.
Negative XED; if good B becomes more expensive, demand for good A falls.
A characteristic of public goods; one person’s use of the good does not prevent someone else from using it.
The quantity of a good/service that consumers are able and willing to buy at a given price at a given moment of time.
An economy where the market mechanism allocates resources, allowing consumers and producers to make decisions about production, methods, and distribution.
Depicts the maximum productive potential of an economy, using a combination of two goods or services, when resources are fully and efficiently employed.
Government intervention aimed at providing information to correct market failure.
The ability and willingness to provide a particular good/service at a given price at a given moment in time.
Where one party has more information than the other, leading to market failure.
Decision-making that leads to economic agents maximizing their utility.
When PED/PES < 1; demand/supply is relatively unresponsive to a change in price.
A situation where the price is set too low, leading to demand being greater than supply.
A good where PED/PES = Infinity; quantity demanded/supplied falls to 0 when price changes.
The problem of scarcity; wants are unlimited but resources are finite so choices have to be made.
A cause of irrational behaviour where consumers consistently make certain decisions based on habit.
One of the four factors of production, encompassing natural resources such as oil, coal, wheat, and physical space.
A cause of irrational behavior; when consumers are bad at making calculations, estimating probabilities, and working out future benefits/costs.
A ceiling price which a firm cannot charge above.
A hypothesis which can be proven or tested by evidence; it tends to be mathematical whilst a theory is in words.
The difference between the price the consumer is willing to pay and the price they actually pay.
The value of the next best alternative forgone.
A tax imposed on a good where the value of the tax is dependent on the quantity that is bought.
Taxes on expenditure that increase production costs and lead to a decrease in supply.
When PED/PES > 1; demand/supply is relatively responsive to a change in price.
The point where demand equals supply, resulting in no market forces causing changes to price or quantity demanded.
Where social costs equal social benefits; the amount which should be produced/consumed to maximize social welfare.
When labour becomes specialised during the production process so do a specific task in cooperation with other workers.
A situation where an economic agent lacks the necessary information to make a rational, informed decision.
Where the social costs of producing a good are greater than the private costs of producing the good.
The shortage of resources in relation to the quantity of human wants.
The costs or benefits that a third party receives from an economic transaction outside of the market mechanism.
Where the social benefits of consuming a good are larger than the private benefits of consuming that good.
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, referring to human capital.
