Econ theme 1 definition

Ad valorem tax

A tax that changes depending on the value of the thing being taxed.

Asymmetric information

When one person in a deal knows more than the other, often leading to unfair outcomes.

Capital

The tools, machines, and buildings used to make other stuff.

Capital goods

Goods made to help produce other goods, like a factory or a machine.

Ceteris paribus

A fancy way of saying 'everything else stays the same.'

Command economy

When the government decides what to make, how to make it, and who gets it.

Complementary goods

Two products that go together, like peanut butter and jelly.

Consumer goods

Stuff that people buy for themselves, like clothes, food, or a new phone.

Consumer surplus

The extra happiness you get when you pay less than what you were actually willing to pay.

Cross elasticity of demand (XED)

How much the demand for one thing changes when the price of another thing changes.

Demand

How much people want to buy something at a certain price.

Diminishing marginal utility

The more you have of something, the less excited you are about getting more.

Division of labour

Splitting up jobs so people focus on one thing and get really good at it.

Economic problem

There aren't enough resources to give everyone everything they want.

Efficiency

Making the best use of resources with minimal waste.

Enterprise

Taking risks and organizing other resources to create a business.

Equilibrium price/quantity

The perfect balance where what's supplied matches what's demanded.

Excess demand

When there's more demand than supply - people want more than what's available.

Excess supply

When there's more supply than demand - too much of something with not enough buyers.

Externalities

Side effects of an economic activity that affect people who weren't directly involved.

Free market

A system where businesses and consumers make all the decisions without government interference.

Free rider principle

People benefiting from something without paying for it (like public parks or streetlights).

Government failure

When government tries to fix a problem but ends up making it worse.

Indirect tax

A tax added to goods and services, like VAT or sales tax.

Inferior goods

Cheap products that people buy less of when they get richer.

Information gap

When people don't have enough knowledge to make good choices.

Labour

The human effort (physical and mental) used in production.

Land

Natural resources like oil, coal, and farmland.

Luxury goods

Expensive items that people buy more of when they have extra money.

Market failure

When the free market doesn't distribute resources in the best way for society.

Market forces

The natural way prices go up or down based on supply and demand.

Maximum price

A price limit that sellers can't go above.

Minimum price

A price floor that sellers can't go below.

Mixed economy

A mix of free market and government-controlled decisions.

Negative externalities

When producing something causes bad side effects, like pollution.

Non-excludable

If something is available, no one can be stopped from using it (like streetlights).

Non-renewable resources

Resources that won't come back once used, like oil and coal.

Normative statement

An opinion-based statement that can't be proven.

Opportunity cost

The thing you give up when you choose something else.

Perfectly price elastic goods

Goods where a tiny price change stops all demand.

Perfectly price inelastic goods

Goods that people will buy no matter the price.

Positive externalities

Good side effects of consuming something, like vaccines.

Positive statement

A factual statement that can be tested.

Production possibility frontier (PPF)

A graph showing the maximum possible production when using all resources efficiently.

Price elasticity of demand (PED)

Measures how much demand changes when price changes.

Price elasticity of supply (PES)

Measures how much supply changes when price changes.

Price mechanism

How prices naturally adjust based on supply and demand.

Private cost/benefit

The direct cost or benefit to an individual in a transaction.

Private goods

Things that belong to someone and others can't use without paying.

Producer surplus

The extra money a seller makes when they sell for more than they were willing to.

Public goods

Goods that everyone can use, like national defence or public parks.

Rationality

Making choices that maximize personal benefit.

Regulation

Government rules to make markets fairer.

Relatively price elastic goods

Goods where demand changes a lot with price changes.

Relatively price inelastic goods

Goods where demand barely changes with price changes.

Renewable resources

Resources that can be replaced, like trees and wind power.

Scarcity

Not having enough resources to meet everyone's wants.

Social cost/benefit

The total cost or benefit of an action for society.

Social optimum position

The ideal point where benefits equal costs.

Social science

The study of human behaviour in societies.

Specialisation

When a person, business, or country focuses on making one thing really well.

Specific tax

A tax that is charged based on quantity, not price.

State provision of goods

When the government provides goods or services using tax money.

Subsidy

Government money given to businesses to help lower costs and increase production.

Substitutes

Goods that can replace each other, like Coke and Pepsi.

Supply

How much of something businesses are willing to sell at a certain price.

Symmetric information

When buyers and sellers have the same information.

Trade pollution permits

Government-issued allowances for businesses to pollute, which can be bought and sold.

Unitary price elasticity

When a price change causes demand to change by the same percentage.

Utility

The happiness or satisfaction you get from something.

Weakness at computation

When people make bad decisions because they aren't great at math or estimating future benefits.