Economic Revison Unit 1

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Equilibrium Price:
The price at which quantity demanded and quantity supplied are equal. (or use labelled supply and demand diagram)

Market Failure:
When a market results in a misallocation of resources
(or labelled marginal cost and benefit diagram)

Social Cost:
The whole cost resulting from any decision or choice, for example by a firm or a consumer

Normal Good:
A good for which demand increases as income increases
A good with a positive income elasticity of demand

Income elasticity of demand:
Income elasticity of demand= % Change in Quantity demanded
% Change in income

Subsidy:
A payment that reduces the cost or price of a good or service often from the government

Economies of scale:
Falling average costs as the size or output of a firm increases.

Positive Externality:
Benefits received by a third party; beneficial spin-off effects; social benefit greater than private benefit.

Demerit Good:
A good for which the long term private costs of production exceed the short-term private costs of consumption.

Negative Externality:
An adverse consequence of a economic activity that is experienced by third parties; an adverse spin-off effect resulting from an economic activate; when the social costs of activity exceeds private costs of activity.

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Aggregate Demand:
Total planned expenditure in the economy.

Allocative Efficiency:
This is achieved when you cannot make someone better off without making someone else worse off; connote produce more of one thing without producing less of another (like at equilibrium)

Budget Deficit:
Where government spending exceeds government recipes in a financial year

Budget Surplus:
Where government recipes exceeds government spending in a financial year

Buffer Stock:
an intervention system that aims to limits the fluctuations of the prices of a commodity

Commodity:
A good that is traded. Often unbranded and raw materials such as tea, oil and wheat

Competition:
A market situation where there are a lot of buyers and sellers

Complementary products:
Two products which can be consumed together

Composite Demand:
A good that is demanded for more than purpose so that when there is and increase in demand for one product there is a reduction in supply for another e.g milk used to make butter and cheese

Demand:
The amount that consumers are willing and are able to buy a product at each different price level

Demerit good:
A good that is over-consumed and brings less overall benefit to the consumer; negative effects. such as alcohol and tobacco

Derived Demand:
When the demand for one good comes from the demand of another; the demand for cars stimulates the demand for steel. so steel had derived demand.

Diseconomies of scale:
When an increase in the scale of production leads to an increase in the total average cost of firms

Economic Welfare:
The welfare of the economy; the benefits or satisfactions a person or society gets from the allocation of resources. Can be measured by looking at standard or living or peoples well being

Excess Supply:
When supply at a particular price is greatre then demand
[pic]

Excess Demand:
When demand at a particular price is greater than supply
[pic]

Externalities:
when the cost or benefits of a market transaction spill over to third parties

Free Goods:
Goods which have no opportunity cost; air

Free market economy:
One that has very little government involvement in providing goods and services. It tries to ensure that the rules of the market are fair; e.g people cannot steel others property

Free-Rider problem:
When other people benefit from others purchasing a product or good. Particularly in the case of public goods

Goods and services:
A good is considered to be tangible like a CD of a phone. A...
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