2. Allocation of resources_economics

economics

Microeconomics

the behaviour and decision of a household and firm as an individual

Macroeconomics

the behaviour and decision of an economy as a whole

Market

a place which brings buyers in contact to sellers

Economic agent

the person which has responsibility over economic activities and makes economic decisions

Economic system

is the institution, organisation and mechanism that influences economic behaviour and determines how resources are allocated

Planned economic system

an economic system where government makes crucial decisions, land and capital are state-owner and directives allocate resources

Mixed economic system

an economy in which both private and public sectors play an important role

Market economic system

an economic system where consumers determine what is produced, resources are allocated by the price mechanism and land and capital are privately owned

Price mechanism

the way decisions made by households and firms interact to decide the allocation of resources

Capital-intensive

the use of high proportion of capital relative to labour

Labour-intensive

The use of a high proportion of labour relative to capital.

Market equilibrium

A situation where demand and supply are equal at the current price.

Market disequilibrium

A situation where demand and supply are not equal at the current price.

Demand

The willingness and ability to buy a product.

Market demand

Total demand for a product.

Aggregation

The addition of individual components to arrive at a total amount.

Extension in demand

A rise in the quantity demanded caused by a fall in the product's price.

Contraction in demand

A fall in the quantity demanded caused by a rise in the product's price.

Changes in demand

Shifts in the demand curve.

Increase in demand

A rise in demand at any given price, causing the demand curve to shift to the right.

Decrease in demand

A fall in demand at any given price, causing the demand curve to shift to the left.

Normal goods

A product whose demand increases when income increases and decreases when income falls.

Inferior goods

A product whose demand decreases when income increases and increases when income falls.

Substitute

A product that can be used in place of another.

Complement

A product that is used together with another product.

Ageing population

An increase in the average age of the population.

Birth rate

The number of live births per thousand of the population in a year.

Supply

The willingness and ability to sell a product.

Market supply

Total supply of a product.

Extension in supply

A rise in the quantity supplied caused by a rise in the product's price.

Contraction in supply

A fall in the quantity supplied caused by a fall in the product's price.

Changes in supply

Changes in supply conditions causing shifts in the supply curve.

Increase in supply

A rise in supply at any given price, causing the supply curve to shift to the right.

Decrease in supply

A fall in supply at any given price, causing the supply curve to shift to the left.

Unit cost

The average cost of production found by dividing the total cost by the output.

Improvements in technology

Advances in the quality of capital goods and methods of production.

Direct taxes

Taxes on the income and wealth of individuals and firms.

Indirect taxes

Taxes on goods and services.

Tax

A payment to the government.

Subsidy

A payment by the government to encourage the production or consumption of a product.

Equilibrium price

The price where demand and supply are equal.

Disequilibrium

A situation where demand and supply are not equal.

Excess supply

The amount by which supply is greater than demand.

Excess demand

The amount by which demand is greater than supply.

Price elasticity of demand (PED)

A measure of the responsiveness of the quantity demanded to a change in price.

Elastic demand

When the quantity demanded changes by a greater percentage than the change in price.

Inelastic demand

When the quantity demanded changes by a smaller percentage than the change in price.

Perfectly elastic demand

When a change in price causes a complete change in the quantity demanded.

Perfectly inelastic demand

When a change in price has no effect on the quantity demanded.

Unit elasticity of demand

When a change in price causes an equal change in the quantity demanded, leaving total revenue unchanged.

Price elasticity of supply (PES)

A measure of the responsiveness of the quantity supplied to a change in price.

Elastic supply

When the quantity supplied changes by a greater percentage than the change in price.

Inelastic supply

When the quantity supplied changes by a smaller percentage than the change in price.

Perfectly elastic supply

When a change in price causes a complete change in the quantity supplied.

Perfectly inelastic supply

When a change in price has no effect on the quantity supplied.

Unit elasticity of supply

When a change in price causes an equal change in the quantity supplied.

Public sector

The part of the economy controlled by the government.

State-owned enterprises (SOEs)

Organisations owned by the government which sell products.

Privatisation

The sale of public assets to the private sector.

Price mechanism

The system by which the market forces of demand and supply determine prices.

Market failure

Market forces resulting in an inefficient allocation of resources.

Free rider

Someone who consumes a good or service without paying for it.

Allocative efficiency

When resources are allocated to produce the right products in the right quantities.

Productively efficient

When products are produced at the lowest possible cost and make full use of resources.

Dynamic efficiency

Efficiency occurring over time as a result of investment and innovation.

Third parties

Those not directly involved in producing or consuming a product.

Social benefits

The total benefits to a society of an economic activity.

Social costs

The total costs to a society of an economic activity.

Private benefits

Benefits received by those directly consuming or producing a product.

Private costs

Costs made by those directly consuming or producing a product.

External benefits

Benefits enjoyed by those who are not involved in the consumption and production activities of others directly.

External costs

Costs imposed on those who are not involved in the consumption and production activities of others directly.

Socially optimum output

The level of output where social cost equals social benefit, and society's welfare is maximised.

Merit goods

Products the government considers consumers do not fully appreciate how beneficial they are and will be under-consumed if left to market forces.

Demerit goods

Products the government considers consumers do not fully appreciate how harmful they are and will be over-consumed if left to market forces.

Public good

A non-rival and non-excludable product hence needs to be financed by taxation.

Private goods

A product which is both rival and excludable.

Monopoly

A single seller.

Price fixing

When two or more firms agree to sell a product at the same price.

Mixed economic system

An economy in which both the private and public sectors play an essential role.

Rationing

A limit on the amount that can be consumed.

Lottery

The drawing of tickets to decide who will get the products.

Nationalisation

Moving the ownership and control of an industry from the private sector to the government.

Public corporation

A business organisation owned by the government which is designed to act in the public interest.