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Basic Economic Problem - The basic economic problem is about scarcity and choice,
which includes “ what to produce, how to produce and for whom to produce
Ceteris Paribus - the assumption that all other variables within the model remain
constant whilst one change is being considered
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Composite demand - Demand for a good that has multiple uses
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g
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Consumer Surplus - Consumer surplus is a measure of the welfare that people gain
from consuming goods and services
Cross price elasticity of demand - An economic concept that measures the
responsiveness in the quantity demand of one good when a change in price takes
place in another good
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Elastic demand - the demand elasticity refers to how sensitive the demand for a good
is to changes in other economic variables
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See also elasticity of supply
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Externalities - Factors whose benefits (called external economies) and costs (called
external diseconomies) are not reflected in the market price of goods and services
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Full Capacity - The maximum level of output of goods and/or services that a given
system can potentially produce over a set period of time
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Indirect Tax - A tax that increases the price of a good so that consumers are actually
paying the tax by paying more for the products
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Inelastic supply - A market situation in which any increase or decrease in the price of
a good or service does not result in a corresponding increase or decrease in its supply
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Market clearing price - Where buyers and sellers agree on a price to reflect supply and
demand
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Market Failure - A case in which prices are unable to adequately adjust to reflect
changes in supply or demand
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Market mechanism - The process by which a market solves a problem allocating
resources, especially that of deciding how much of a good or service should be
produced, but other such problems as well
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Merit Goods - Goods and services that are judged to be worth more than their value
according to the market
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Non-rivalry - Public goods, A product that one individual can consume without
reducing its availability to another individual and from which no one is excluded
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Normative economic statements - A perspective on economics that incorporates
subjectivity within its analyses
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Positive economic statements - Positive statements are objective statements that can
be tested, amended or rejected by referring to the available evidence
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Less than one, which means PED is inelastic
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Zero (0), which is perfectly inelastic
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Price elasticity of supply - Price elasticity of supply (PES) measures the
responsiveness of quantity supplied to a change in price
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%change in quantity supplied / % change in price
Price mechanism - System of interdependence between supply of a good or service
and its price
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Production Possibility frontier - A graphical representation of the alternative
combinations of the amounts of two goods or services that an economy can produce
by transferring resources from one good or service to the other
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Shifts in a demand curve - A change in any of the facts affecting demand, except
price, leads to a shift in demand
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Signalling function (of prices) - the millions of decisions taken each day by
consumers and businesses interact to determine the allocation of scarce resources
between competing uses
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Specialisation - An agreement within a community, group, or organization under
which the members most suited (by virtue of their natural aptitude, location, skill, or
other qualification) for a specific activity or task assume greater responsibility for its
execution or performance
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