Edexcel (A) Economics A-level Flashcards - Theme 1 Introduction To Markets And Market Failure - PDF

Edexcel (A) Economics A Level Theme 1: An introduction to markets and market failure Flashcards PMT Education is licensed under https://bit.ly/pmt-cc This work by https://bit.ly/pmt-edu-cc CC BY-NC-ND 4.0...

Edexcel (A) Economics A Level Theme 1: An introduction to markets and market failure Flashcards PMT Education is licensed under https://bit.ly/pmt-cc This work by https://bit.ly/pmt-edu-cc CC BY-NC-ND 4.0 https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Ad valorem tax https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Ad valorem tax An indirect tax imposed on a good where the value of the tax is dependent on the value of the good https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Asymmetric information https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Asymmetric information Where one party has more information than the other, leading to market failure https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc  Capital https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Capital One of the four factors of production; goods which can be used in the production process https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Capital goods https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Capital goods Goods produced in order to aid production of consumer goods in the future https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Ceteris paribus https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Ceteris paribus All other things remaining the same https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Command economy https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Command economy All factors of production are allocated by the state, so they decide what, how and for whom to produce goods https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Complementary goods https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Complementary goods Negative XED; if good B becomes more expensive, demand for good A falls https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Consumer goods https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Consumer goods Goods bought and demanded by households and individuals https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Consumer surplus https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Consumer surplus The difference between the price the consumer is willing to pay and the price they actually pay https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Cross elasticity of demand (XED) https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Cross elasticity of demand (XED) The responsiveness of demand for one good to a change in the price of another good https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc  Demand https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Demand The quantity of a good/service that consumers are able and willing to buy at a given price at a given moment in time https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Diminishing marginal utility https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Diminishing marginal utility The extra benefit gained from consumption of a good generally declines as extra units are consumed; explains why the demand curve is downward sloping https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Division of labour https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Division of labour When labour becomes specialised during the production process so do a specific task in cooperation with other workers https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Economic problem https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Economic problem The problem of scarcity; wants are unlimited by resources are finite so choices have to be made https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc  Efficiency https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Efficiency When resources are allocated optimally, so every consumer benefits and waste is minimised https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc  Enterprise https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Enterprise One of the four factors of production; the willingness and ability to take risks and combine the three other factors of production https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Equilibrium price/quantity https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Equilibrium price/quantity Where demand equals supply so there are no more market forces bringing about change to price or quantity sold https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Excess demand https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Excess demand When price is set too low so demand is greater than supply https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Excess supply https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Excess supply When price is set too high so supply is greater than demand https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Externalities https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Externalities The cost of benefit a third party receives from an economic transaction outside of the market mechanism. https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc External cost/benefit https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc External cost/benefit The cost/benefit to a third party not involved in the economic activity; the difference between social cost/benefit and private cost/benefit https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Free market https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Free market An economy where the market mechanism allocates resources so consumers and producers make decision about what is produced, how to produce it and for whom https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Free rider principle https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Free rider principle People who do not pay for a public good still receive benefits from it so the private sector will under-provide the good as they cannot make a profit https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Government failure https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Government failure When government intervention leads to a net welfare loss in society https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Habitual behaviour https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Habitual behaviour A cause of irrational behaviour; when consumers are in the habit of making certain decisions https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Incidence of tax https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Incidence of tax The tax burden on the taxpayer https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Income elasticity of demand (YED) https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Income elasticity of demand (YED) The responsiveness of demand to a change in income https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc  Indirect tax https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Indirect tax Taxes levied on goods and services which increase production and leads to a fall in supply, although this is often partially, or fully, passed onto consumers. https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Inferior goods https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Inferior goods YED1; an increase in incomes causes an even bigger increase in demand https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Market failure https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Market failure When the free market fails to allocate resources to the best interest of society, so there is an inefficient allocation of scarce resources https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Market forces https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Market forces Forces in free markets which act to reduce prices when there is excess supply and increase them when there is excess demand https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Minimum price https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Minimum price A floor price which a firm cannot charge below https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Mixed economy https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Mixed economy Both the free market mechanism and the government allocate resources https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc  Model https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Model A hypothesis which can be proven or tested by evidence; it tends to be mathematical whilst a theory is in words https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Negative externalities of production https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Negative externalities of production Where the social costs of producing a good are greater than the private costs of producing the good https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Non-excludability https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Non-excludability A characteristic of public goods; someone cannot be prevent from using the good https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Non-renewable resources https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Non-renewable resources Resources which cannot be readily replenished or replaced at a level equal to consumption; the stock level decreases over time as they are consumed https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc  Non-rivalry https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Non-rivalry A characteristic of public goods; one person’s use of the good does not prevent someone else from using it https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Normal goods https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Normal goods YED>0; demand increases as income increases https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Normative statements https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Normative statements Subjective statements based on value judgements and opinions; cannot be proven or disproven https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Opportunity cost https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Opportunity cost The value of the next best alternative forgone https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Perfectly price elastic good https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Perfectly price elastic good PED/PES=Infinity; quantity demanded/supplied falls to 0 when price changes https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Perfectly price inelastic good https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Perfectly price inelastic good PED/PES=0; quantity demanded/supplied does not change when price changes https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Positive externalities of consumption https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Positive externalities of consumption Where the social benefits of consuming a good are larger than the private benefits of consuming that good https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Positive statements https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Positive statements Objective statements which can be tested with factual evidence to be proven or disproven https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Possibility production frontier (PPF) https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Possibility production frontier (PPF) Depicts the maximum productive potential of an economy, using a combination of two goods or services https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Price elasticity of demand https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Price elasticity of demand The responsiveness of demand to a change in price https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Price elasticity of supply https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Price elasticity of supply The responsive of supply to a change in price https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Price mechanism https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Price mechanism The system of resource allocation based on the free market movement of prices, determined by the demand and supply curves https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Private cost/benefit https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Private cost/benefit The cost/benefit to the individual participating in the economic activity https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Private goods https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Private goods Goods that are rivalry and excludable https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Producer surplus https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Producer surplus The difference between the price the producer is willing to charge and the price they actually charge https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Public good https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Public good Goods that are non-excludable, non-rivalry, non-rejectable and have zero marginal cost https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc  Rationality https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Rationality Decision-making that leads to economic agents maximising their utility https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc  Regulation https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Regulation Laws to address market failure and promote competition between firms https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Relatively price elastic good https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Relatively price elastic good When PED/PES>1; demand/ supply is relatively responsive to a change in price so a small change in price leads to a large change in quantity demanded/supplied https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Relatively price inelastic good https://bit.ly/pmt-cc https://bit.ly/pmt-edu https://bit.ly/pmt-cc Relatively price inelastic good When PED/PES