Econ S1 Definitions

What are common access resources?

Natural resources without established private ownership; non-excludable and rivalrous.

Define 'rivalrous' in the context of resources.

When one person's consumption reduces availability for others.

What does 'non-excludable' mean regarding resources?

Impossible to prevent someone from consuming the good or service.

Define 'excludable' in the context of resources.

Possible to prevent someone from consuming the good or service.

What is the 'Tragedy of the Commons'?

Overuse and depletion of common access resources due to individual self-interest.

What is a subsidy?

Financial support from governments to firms to lower production costs and increase output.

What is asymmetrical/imperfect information?

One party in a transaction has more or better information than the other.

What is perfect information?

All decision-makers have equal and easy access to information.

What is 'screening' in economics?

A process to gain more information about a participant in a transaction to reduce asymmetric information.

What is 'signalling' in economics?

Sending a signal to reveal relevant information and reduce asymmetric information.

What is 'adverse selection'?

Undesired results due to asymmetric information between buyers and sellers.

What is 'moral hazard'?

Changing behavior after a transaction, to the detriment of the other party.

Define 'equity'.

The concept or idea of fairness.

Define 'efficiency'.

Ratio of useful output to total input.

What are 'price controls'?

Prices set by an authority above or below the equilibrium market price.

What is an 'indirect tax'?

A tax on spending, collected by the government through producers (e.g., GST).

What is a 'Pigouvian tax'?

An indirect tax imposed to eliminate the external costs of negative externalities.

What is 'buyer's remorse'?

A feeling of regret after making a purchase.

What is 'consumer rationality'?

Individuals use rational methods to make sensible choices, such as choosing the products that offer the best value.

What is 'utility maximisation'?

People deciding on the option that gives them the highest level of utility (satisfaction).

What is 'opportunistic behavior'?

Individuals or firms exploit their private information for personal gain at the expense of others.

What are 'telematics'?

Devices or apps that track real-time driving behavior (speed, braking, acceleration).

What is 'voluntary excess' in insurance?

Drivers choosing a higher excess to signal low risk.

What is a 'planned economy'?

An economy entirely controlled by the government.

What is a 'free market economy'?

An economy entirely controlled by the market (consumers and producers).

What does 'ceteris paribus' mean?

Other things being equal.

Define 'demand'.

Willingness and ability of consumers to purchase goods/services at different prices.

What does a 'demand curve' show?

Relationship between the price of a good/service and the quantity demanded.

Define 'quantity demanded'.

Amount of a good, service, or resource people are willing and able to buy at a specified price during a period.

What is 'market demand'?

The total demand of all individuals within a market.

What is 'extension of demand'?

A rise in quantity demanded caused by a fall in its price.

What is 'contraction of demand'?

A rise in the price of the product. This is referred to as a decrease in the quantity demand

What is the 'law of demand'?

As the price of a good falls, the quantity demanded will normally increase.

Define 'supply'.

Willingness and ability of producers to produce a quantity of a good or service.

Define 'quantity supplied'.

The willingness and ability to produce a quantity of a good or service at a given price over a given time period.

What does a 'supply curve' show?

Relationship between the price of a good/service and the quantity supplied.

What is the 'law of supply'?

As the price of a good rises, the quantity supplied will normally rise.

What is 'market supply'?

The horizontal sum of the individual supply curves for a product of all the producers in a market.

What is 'extension in supply'?

A rise in quantity supplied of a good or service due to a rise in its price while all other factors remain constant.

What is 'contraction in supply'?

A decrease in quantity supplied as the price of the good or service falls.

What is 'disposable income'?

The remaining income available for an individual to spend or save, after taxation.

What is 'rationing'?

An artificial control on the distribution of scarce resources.

Define 'scarcity'.

Limited availability of economic resources relative to society’s unlimited demand.

What is a 'shortage'?

Quantity demanded exceeds quantity supplied because the price is below equilibrium.

What is a 'surplus'?

Quantity supplied exceeds quantity demanded because the price is above equilibrium.

What is 'equilibrium price'?

The price where quantity supplied equals quantity demanded.

What is 'equilibrium quantity'?

The quantity where there is no shortage or surplus because it is at the equilibrium price.

What is 'market equilibrium'?

The point where quantity demanded equals quantity supplied, creating a market-clearing price and quantity.

What is the 'price mechanism'?

The system where supply and demand determine the prices of products. Also known as the market mechanism

What is 'consumer surplus'?

The additional benefit/utility received by consumers by paying a price that is lower than they are willing to pay.

What is 'producer surplus'?

The additional benefit received by producers by receiving a price that is higher than the price they were willing to receive.

What is 'social surplus'?

The combination of consumer surplus and producer surplus.

What is 'marginal private benefit'?

The benefits derived from the private consumption of an addition unit of a product. This is the demand for the product.

What is 'marginal social benefit'?

MPB plus any external benefits (positive or negative) placed on society from a products consumption.

What are 'marginal costs'?

Marginal costs are the additional costs of producing one more unit of output.

What is 'marginal private cost'?

The private costs to produce an additional unit of output. This is supply

What is 'marginal social cost'?

MPC plus any external costs (positive or negative) placed on society from a products production.

What is 'marginal external benefit'?

he additional benefit that occurs to third parties when an extra unit of a good or service is produced or consumed, representing a positive externality.

What is 'marginal external cost'?

The cost of an additional unit of output that is incurred by someone other than the producer, representing a negative externality.

What is 'allocative efficiency'?

The level of output where marginal cost is equal to average revenue. The firm sells the last unit it produces at the amount that it cost to make it. The socially optimum level of output

What is 'dead weight loss'?

The loss of welfare when a market is not at the socially optimal price and/or quantity.

What is 'market failure'?

The failure of markets to produce at the point where community surplus (consumer surplus + producer surplus) is maximised

What are 'externalities'?

An externality exists any time the production or consumption of a good creates spillover benefits or costs on a third party not involved in the market (not consumer or producer)

What are 'negative externalities of consumption'?

They are the negative effects that are suffered by a third party when a good or service is consumed

What are 'negative externalities of production'?

They are the negative effects that are suffered by a third party when a good or service is produced

What are 'positive externalities of consumption'?

The beneficial effects that are enjoyed by a third party when a good or service is consumed

What are 'positive externalities of production'?

The beneficial effects that are enjoyed by a third party when a good or service is produced

What is 'socially optimal'?

The point where the combined benefits to society are maximised when considering all costs, benefits including externalities

What is 'socially optimal quantity'?

The level of production or consumption of a good or service that maximises societal welfare, balancing benefits and costs

What is 'socially optimal price'?

The price that maximises the overall societal welfare

What is 'diminishing marginal unit'?

As the consumer consumes more of the good or service, the less satisfaction is experienced

What is 'opportunity cost'?

The next best alternative foregone when an economic decision is made.