Economics IA3

Market

Any medium used by buyers and sellers to interact for purposes of trade or exchange.

Price signals

The price of inputs and finished goods.

Efficiency

Allocating an economy's resources to maximise value and minimise waste.

Allocative Efficiency

Allocative efficiency occurs where production aligns with consumer preferences.

Productive Efficiency

Producing the maximum quantity of output from the minimum quantity of input.

Specialisation

The use of the factors of production to perform narrowly defined, specific functions, to increase a firm’s productivity and maximise output.

Dynamic efficiency

The ability of resources to be reallocated quickly to respond to consumer's changing preferences.

Technical efficiency

Maximising output from a given input or combination of inputs.

Law of Diminishing Marginal Productivity

The theory that once the most efficient level of production has been reached, additional factors of production will offer a relatively smaller increase in output.

Market structures

The features within markets that determine the market's level of competition.

Market Power

Greater ability to influence the market to achieve favourable outcomes.

Price Takers

Individual firms or consumers who cannot impact the equilibrium price on their own.

Perfect competition

Exists when there are many buyers and sellers in the market who are all price takers.

Monopolistic competition

A market where firms produce the same type of good with slight differences from one firm to another.

Oligopoly

A few large firms dominate the market.

Monopoly

One seller in the market for a particular good or service.

Market concentration

The extent to which market share is concentrated between a small number of firms.

Concentration ratio

The percentage of total sales (% market share) that is accounted for by the largest firms in a particular market or industry.

Market failure

Occurs when the allocation of resources by market forces does not lead to the socially optimal outcome.

Social optimum

The situation that is best from the point of view of society, not just the individual producer or consumer.

Public goods

Goods or services provided by the government sector for societal use and benefit. They are non-excludable and non-rivalrous.

Private goods

Goods or services that you own and use and if someone else uses it, you can’t. They are excludable and rivalrous.

Merit Goods

Goods that are considered to be positive for consumers and/or society but may be underprovided in a free unregulated market.

Demerit Goods

Goods that are considered to be undesirable for consumers and/or society but may be overprovided in a free unregulated market.

Externality

An unintended consequence of economic activity that is not factored into the price mechanism.

Direct costs/benefits

Costs/benefits that are directly related to the creation of a product and can be directly associated with that product.

Indirect costs/benefits

Costs/benefits that are not directly related to the creation of a product.

Tragedy of the commons

The overuse or destruction of a common property good because it has no price and so markets do not ration its consumption.

Suasion

An appeal to the public's morality.

Corrective tax

Tax designed to incentivise firms to reduce their production of goods and services that are harmful to a socially optimal level.

Corrective subsidy

Designed to incentivise firms to increase production of beneficial goods and services.

Price floor

A lower limit on the price of a good or service.

Price ceiling

An upper limit on the price firms can charge for a good or service.

Regulation

Laws that are introduced to control economic activity and production processes.

Tradeable permits

Policy systems where firms must buy a permit for the right to engage in harmful activities.

Absolute poverty

The condition where household income is insufficient to afford the basic necessities of life (food, shelter, clothing)

Relative poverty

Occurs when households receive 50% less income than average median incomes.

Egalitarian society

A society that believes in treating people equally through giving people equal rights and opportunities.

Income

Payments to households in the form of wages, rent, interest, or profit.

Wealth

Total assets owned by an individual or income unit and the nation at any one time.

Lorenz curve

A graphical representation of the inequality of a nation's income distribution. The greater the bow in the curve, the greater the level of inequality.

Gini coefficient

A numerical measure of the degree of inequality involved in any income distribution of a country, based on the areas under the Lorenz curve.

Henderson poverty lines

The minimum desirable levels of household income, revised to accommodate changing economic conditions over time.

Equivalence scales

Scales that indicate the income levels needed by different types of family units to attain the same or equivalent standard of living.

Egalitarian society

A society that believes in treating people equally through giving people equal rights and opportunities.

Disposable income

The amount of money that a person or household has to spend or save after taxes are deducted.

Transfer payments

Payments received by individuals or families from the federal government in the form of cash social services benefits.

Mobility of Labour

The ease with which the labour force can be transferred from one occupation to another or from on geographic region to another.

Welfare state

A system where the government plays a significant role in protecting and promoting the social and economic well-being of its citizens.

Redistribution of income and wealth

Increase economic stability and opportunity. Any movement of income to those on lower incomes is designed to give them an economic advantage and thus results in a more egalitarian society.