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| Means that society has limited resources and therefore cannot produce all the goods and services that members of society wish to have |
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| Means that society is getting the most that it can from its limited resources |
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| Means that the limtied resources that society has are distributed fairly among members of society |
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| Is the cost of an alternative that must be foregone in order to pursue a certain action |
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| Is the additional utility of consuming an additional unit foa good or service. It is the highest price that a consumer is willing and able to purchase an additional unit at a given price. As consumption increases, marginal benefit decreases. |
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| The circular flow diagram |
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Definition
| Is a model that shows how dollars flow through markets among households and firms. |
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| The production possibilities frontier |
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| Is a graph which shows the various combinations of outputs that an economy can produce given the available factors of production and production technology. |
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| Is the branch of economics that analyses the market behaviour of households and firms in an attempt to understand the decision-making process of these two entities. |
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| Is the branch of economics concerned with behaviour of the aggregate economy and examines economy-wide phenomena such as inflation, GDP and unemployment. |
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| Are objective statements about the economy that contain no indication of disapproval or approval |
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| Are subjectvie statements about the economy that state what ought to be. That is, they contain an indication of disapproval or approval |
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| Is the ability of a country, firm or individual to produce a certain good or service at a lower cost per unit than other countries, firms or individuals. |
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| Is the ability of a country, individual or firm to produce a certain good or service at a lower opportunity cost than others. |
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| Trade makes everyone better off ultimately because it allows people to specialise in the activities in which they have a comparative advantage. |
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| A graph that shows the realtionship between the price of a good and the amount that a consumer is willing and able to purchase the good at a variety of prices. |
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| The principle that, ceteris paribus, as the price of a good or service rises, the quantity demanded by the consumer falls. |
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| A graph which shows the relationship between the price of a good and the amount a producer is willing and able to sell the good at a variety of prices. |
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Definition
| The claim that, ceteris paribus, as the price of a good rises, the quanity supplied by the producer will increase. |
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Term
| The equilbrium is efficient because... |
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Definition
| Total surplus is maximised, every unit for which MB of consumption is greater/equal to MC of production is produced and every unit for which MB is not greater/equal to MC is not produced |
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Definition
| Occurs when the price is above the equilibrium |
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Definition
| Occurs when price is below equilibrium |
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| Price elasticity of demand |
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Definition
| Measures how the quantity demanded responds to chnages in the price. |
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Definition
| Luxury,substitutes, narrowly defined, subtantial time |
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Term
| Relationship between PED and Total Revenue |
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Definition
| At low prices, when the demand is inealstic, the total revenue increases as the price increases. However, as the demand becomes more elastic, total revenue decreases with further price increases. |
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| Income elasticity of demand |
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Definition
| If income elasticity is less than zero, then good is inferior. If income elasticity is greater than zero, less than one, good is normal. Greater than one is a luxury good. |
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Term
| Cross price elasticity of demand |
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Definition
| If the CED is less than zero then its a complement. Greater than zero and it is a substitute. |
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Term
| Price elasticity of supply |
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Definition
| Measures how the quantity supplied responds to chnages in the price. |
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| Supply price is elastic when... |
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Definition
| firm has inputs, time, inventory, exisiting capacity |
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Definition
| Is the highest price a consumer is willing and able to purchase a good or service. = value - actual cost |
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Definition
| Is the highest price a producer is willing and able to sell a good or service. = actual cost - seller's cost |
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Definition
= consumer surplus + producer surplus + (tax revenue)
= value - cost |
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Definition
| Is the reduction of surplus associated with moving away from the efficient level of production. |
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| Perfectly competitive markets... |
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Definition
| Allocate goods to consumers who value them most, allocate goods to producers who can produce at least cost, produces quantities that maximise total surplus. |
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Definition
| Is the legally determined maximum price that a seller may receive. When the price ceiling is below the equilibrium, it is binding |
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Definition
| Is the legally determined minimum price that a seller may receive. When the price floor is above the equilibrium, it is binding. |
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Definition
= Tax x Quantity of good sold
or
= total expenditure - total revenue |
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Definition
| Legal incidence of a tax does not affect the economic incidence of a tax. Economic incidence depends on the elasticity of supply and demand. The more inelastic demand, the greater incidence on consumers. |
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Definition
| Is where consumers and producers buy and sell at prices that violate price regulations |
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Term
| Black markets happen when... |
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Definition
| governments impose price ceilings. They can reduce allocative inefficency and increase supply. |
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Term
| Things that shift the demand curve |
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Definition
| Income, prices of related goods, tastes,expectations, the number of buyers |
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Term
| Things that shift the supply curve |
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Definition
| Inpute prices, technology, expectations, number of firms in the market |
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