As level - economics - flashcards

Market Failure

When the free market fails to allocate resources efficiently, leading to a loss of economic welfare.

Allocative Efficiency

When resources are allocated so that consumer wants are met; P = MC.

Productive Efficiency

When goods are produced at the lowest possible cost; output at minimum AC.

Externality

A third-party cost or benefit not reflected in market prices.

Negative Externality

A harmful effect on a third party from a market transaction (e.g., pollution).

Positive Externality

A beneficial effect on a third party (e.g., education, vaccines).

Price Elasticity of Demand (PED)

The responsiveness of quantity demanded to a change in price.

Income Elasticity of Demand (YED)

The responsiveness of demand to a change in consumer income.

Cross Elasticity of Demand (XED)

The responsiveness of demand for one good to a change in the price of another.

Price Elasticity of Supply (PES)

The responsiveness of quantity supplied to a change in price.

Indirect Tax

A tax on spending (e.g., VAT) that increases costs for producers.

Subsidy

A government payment to reduce producers’ costs and encourage output.

Maximum Price (Ceiling)

A legal limit on how high a price can be set, below market equilibrium.

Minimum Price (Floor)

A legal minimum price, set above equilibrium to protect producers.

Public Good

A good that is non-rivalrous and non-excludable (e.g., street lighting).

Merit Good

A good that is under-consumed and provides external benefits (e.g., education).

Demerit Good

A good that is over-consumed and causes external costs (e.g., cigarettes).

Government Failure

When government intervention worsens resource allocation.

Economic Growth

An increase in real GDP over time.

Inflation

A sustained rise in the general price level.

Unemployment

When people willing and able to work cannot find a job.

Balance of Payments

A record of all financial transactions between a country and the rest of the world.

Monetary Policy

Use of interest rates and money supply to influence AD and inflation.

Fiscal Policy

Government spending and taxation to influence economic activity.

Supply-Side Policies

Policies to increase AS by improving efficiency and productivity.

Aggregate Demand (AD)

Total demand for goods/services in the economy at a given price level.

Aggregate Supply (AS)

Total output that producers are willing and able to supply.

Multiplier Effect

When an injection leads to a greater overall increase in national income.