Econ Vocab 1.2 The allocation of resources

Economic agent

people who undertake economic activities and make economic decisions

Market demand

total demand for a product

Aggregation

The addition of individual components to arrive at total amount

Lottery

the drawing of tickets to decide who will get the products

Market disequilibrium

A situation where QD is not equal to Qs at the current price

Extension in demand

the increase in quantity demanded due to a fall in price of product it self

Increase in Supply

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

Natianlisation

moving the ownership and control of an industry form the private sector to the government

Microeconomics

the study of the behavior and decisions of household and firms and the performance of individual markets (e.g markets, firms, prices)

Macroeconomics

The study of the whole economy (GDP, inflation, unemployment)

Market

An arrangement which bring buyers into contact with sellers

Economic system

the institution, organisation, mechanisms that influence economic behavior and determine how resources are allocated

Planned economic system

An economic system where government makes the crucial decisions and capital are state-owned and resources are allocated by directives

Market economic system

system where consumer determine what is produced and resources are allocated by the price mechanism and land and capital are privately owned

Capital intensive

the use of a 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 QD = QS at the current price

Demand

Willingness and ability to buy a product

Contraction in demand

the fall in the quantity demanded due to a rise in price

Changes in demand

shifts the demand curve

Increase in Demand

a rise in demand in any given price causing the demand curve to shift rightward

Decrease in Demand

a fall in demand in any given price causing the demand curve to shift leftward

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

product that can be used in place of another

Complement

product that can be used together with another product

Ageing population

increase in the amount of the population

Birth rate

number of births per thousand of the population in a year

Supply

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 price of the product itself

contraction in supply

A fall in the quantity supplied caused by a fall in the price of the product itself.

price mechanism

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

changes in supply

shifts the supply curve

Decrease in Supply

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

unit cost

The average production cost per unit

direct taxes

taxes on 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

Equilibrium

the price where demand and supply are equal

diseuquilibrium

a situation where demand and supply are not equal

Excess supply

amount by which supply is greater than demand

Excess demand

amount by which demand is greater than supply

PED (price elasticity of demand )

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

Ineslatic Demand

when the QD changes by a smaller percentage than the change in percentage in price

Perfectly Inelastic Demand

When a change in price causes a complete change in the QD

Perfectly elastic Demand

when a change in price has no effect on the QD

Unit elasticity of demand

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

PES (Price Elasticity of Supply)

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

Elastic supply

when the QS changes by a greater percentage than the change in percentage in price

Inelastic Supply

when the QS changes by a smaller percentage than the change in price

Perfectly elastic supply

when a change in price causes a complete change in 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 QS

public sector

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 sector organisations to the private sector

Market Failure

market resources resulting in an inefficient allocation of resources

Free rider

someone who consumes a good or service without paying it

Allocative efficiency

when resources are allocated to produce the right products in the right quantities

Productively efficiency

when products are produced at the lowest possible cost and making full use resources

Dynamic efficiency

efficiency occurring over time as a result of investment and innovation

thrid parties

those not directly involved inn producing or consuming a product

Social benefits

total benefits to a society of an economic actively

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 borne 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 other directly

External costs

costs imposed on those who aren't involved in the consumption and production activities of other directly

socially optimum output

the level of output where social cost equals social benefit and society's welfare is maximised

Merit goods

Goods that are underconsumed due to underestimated benefits and generate positive externalities.

Demerit goods

Its a good that is overconsumed and cause negative exteranlties

Public good

a product which is non-rival and non-excludable hence needs to be financed by taxation

Private goods

A product which is both rival and excludable

monopoly

single seller

price fixing

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

Mixed economic system

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

Rationing

a limit on the amount that can be consumed

public corporation

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

정부가 소유하고, 공공의 이익을 위해 운영되는 기업

what are the 3 allocation decisions

• what to produce?

• How to produce?

• who is to receive the product produced?

Features of market system

• allocate scarce resources using demand and supply => price mechanism

• prices for g+s are determined by the interaction of demand and supply

• price mechanism fulfills several functions in an economy: prices allocate resources

  → scarcer => price↑=> only people can afford to pay for them will receive them
  → surplus => prices↓=> more consumers can afford

• Prices provide info to producers and consumers
  → rising prices show where resources are needed
  → falling prices show where resources are not needed

3 main market system

Mixed, planned, market economic system