Economics Edexcel Unit 1 IAL

Extending property rights

when the govt allocates property rights to organisations over the ownership of resources, so that they could dictate what uses these resources could be put to. If the are abused, the polluters could be fined or even prosecuted.

Excess Demand

A disequilibrium situation when quantity demanded exceeds quantity supplied. It creates a shortage of the good.

Excess Supply

A disequilibrium situation when quantity supplied exceeds quantity demanded. It creates an excess of the good.

Specific Tax

A fixed charge imposed per unit of a good. It is an indirect tax.

Minimum Guaranteed Price

A floor price/ a min price set by an agency that also requires them to purchase the surplus at that price.

Subsidies

A govt grant given to producers to increase supply. It reduces their COP and price falls.

Mixed Economies

An economic system where resources are mainly by individuals, firms and the govt. and where the price mechanism and the govt. acts as the means of allocating resources and in determining prices.

Free Market Economies

An economic system where resources are mainly owned by individuals and firms and where the price mechanism acts as the means of allocating resources and in determining prices.

Externalities

An externality is a cost or benefit that is a spillover effect/ byproduct of a production/consumption process, which affects a third party.

Asymmetric Information

Asymmetric info is when some agents in an economic transaction have better info than others. Therefore they may under/overconsume/produce a good/service

Buffer stock system

Buffer stock schemes seek to stabilize the market price of agricultural products by buying up supplies of the product when harvests are plentiful and selling stocks of the product onto the market when supplies are low.

Normative Statements

Subjective statements which contain a value judgement. The influence economic decision-making and government policy. (use words like ought, should, fair, etc.)

Ad valorem Tax

Tax set as a percentage of the price of a good. Results in a pivotal shift of the supply curve.

Inferior goods

The demand for an inferior good falls as a person's income increases. YED is (-)ve

Normal goods

The demand for the good increases as a person's income increases YED is (+)ve

Tradable pollution permit system

The govt sets a limit/quota on the amount of pollution allowed in an industry and then allocates pollution permits to individual firms. So the firms are then allowed to pollute up to the lvl set by the permit. It is also possible to trade any excess/ surplus permits or even save them for future use.

PPC

The maximum output combinations of two goods that can be produced if the economy uses all of its resources fully and efficiently and technology remains constant

Price Inelastic Demand

When an increase in price results in a less than proportionate decrease in Qd PED<1

Price Elastic Demand

When an increase in price results in a more than proportionate decrease in Qd PED>1

Road Pricing

A combination of tolls and congestion charges that vary according to time and place of travel, to ease congestion on the busiest roads at peak times

Affordability

Earnings/Price of the house

Substitute goods

Goods that could be used instead of another. They are in competitive demand. The XED between them is positive.

Non-excludability

If it is provided for one, another cannot be excluded from using it

Specialisation

In business, the production of a limited range of goods.

Consumer Surplus

It is the difference between the price consumers are willing to pay and the market pricce

Producer Surplus

It is the difference between the price producers are willing to supply at and the market pricce

XED

It measures the responsiveness of Qd of good A to change in the price of good B

Imperfect Information

Lack of essential info to make informed choices

Positive Statements

Positive statements are objective statements that can be tested, amended or rejected by referring to the available evidence.

Total Revenue

Price*Qty

Functions of Prices

Providing incentives, signalling, rationing

YED

The responsiveness of Qd to a change in Incomes (% change in Qd/ %change in Y)

PES

The responsiveness of Qs to a change in P (% change in Qs/ % change in P)

PED

The responsiveness of quantity demanded to a change in its price. (% change in Qd/% change in P)

Division of Labour

The specialisation of labour where the production process is broken down into separate tasks

Non- rivalry

The use of the good by one does not reduce the availability of the good for others

Opportunity Cost

The value of the next best alternative foregone as the result of a decision

Private Benefits

These are benefits that accrue to parties directly involved in the consumption/production of the good.

External Benefits

These are benefits that accrue to third parties, consumers or producers, not directly involved in the consumption/production of the good.

External Costs

These are costs experienced by a third party, a consumer or a producer, not directly involved in the consumption or the production of the good/service.

Private Costs

These are costs experienced by parties that are directly involved in the consumption or the production of the good/service.

Non-renewable resources

These are depleteable resources which cannot be replenished in a short period of time.

Complementary goods

These are goods that are bought and consumed together. They are in joint demand. The XED between them is negative.

Demerit Goods

These are goods that are over-consumed and over-provided by the mkt mechanism because the consumers are not fully aware of their harm. They incur an external cost on society.

Public goods

These are goods that have the characteristics of non-excludability and non-rivalry

Renewable resources

These are resources which can be replenished naturally in a short period of time and are available for use on a continuing basis.

Indirect Taxes

These are taxes on expenditure. Eg: VAT (They affect the cost of production and hence the SUPPLY curve)

Carbon Offsetting

These schemes work by enabling consumers and producers to offset their caron emissions by paying for the removal of the same amount of carbon emissions elsewhere.

Direct Taxes

They are taxes on income and wealth (eg: income tax, inheritance tax)

Derived Demand

This is when a change in demand for one good causes a change in the demand for another good; demand is derived from the demand for the product it makes. Eg/ construction workers for housing, foreign currency for imports.

Free Rider Problem

This is when consumers enjoy the benefits of consumption at no financial cost once it is provided.

Government Failure

This is when govt intervention in an unregulated market in order to correct a mkt failure actually results in an inefficient allocation of resources and hence leads to a loss of economic welfare

Price Mechanism

This is when the forces of demand and supply determine the prices and resource allocations of a country.

Market failure

This is when the price mechanism leads an inefficient allocation of resources and there to a net welfare loss.