Foundations
the fundamental problem of economics
What is scarcity?
the economic generalization that states that all else being equal, there is a negative causal relationship between price and quantity demanded.
What is the Law of Demand?
when the % change in quantity demand is greater than the percentage change in the price which caused it.
What is an PED elastic good?
A maximum price for a good or service.
What is a price ceiling?
When markets do not create the mix of goods and services that maximize societal welfare.
What is a market failure?
a manmade factor of production that is used to produce goods and services.
What is capital?
factors such as changes in consumer tastes or the price of substitutes that will change market demand for a good or service
What are non-price determinants of demand?
A way to describe a good that is inexpensive, has few close substitutes and is a necessity.
What is a PED inelastic good?
a tax on per unit on a specific good - a type of indirect tax.
What is excise tax?
the unintended byproduct on the production of a good that effects third parties.
What is an externality of production?
What to produce, How to produce and For Whom to produce.
What are the Allocation Questions?
When quantity demanded is equal to quantity supplied at a single price.
What is market equilibrium?
This is when the QS is completely unresponsive to changes in price
What is perfectly inelastic supply?
the method by which goods are distributed when a price ceiling results in a disequilibrium (shortage)
What non price rationing?
goods that are harmful to society and overproduced by markets
What is a demerit good.
the phrase used to indicate that all variables (other than the one being examined are assumed not to change.
What is ceteris paribus?
a good for which market demand will decrease when consumer income increases.
What is an inferior good
a good for which the QD will increase if income also increases.
What is a normal good?
when an indirect tax is a percentage of the price of a good rather than a fixed amount per unit.
What is an ad valorem tax?
this is a market based attempt to reduce emissions by having firms buy permission to pollute over a set amount.
What is Cap and Trade?
Condition that must be present for an economy to be producing on the PPC curve rather than inside the curve.
What is efficient use of resources?
when two or more products are derived from a single product so it not possible to produce more of one without producing more of the other.
What is Joint Supply?
When PED = 1
What is unit elastic?
the term used to indicate whether consumers or firms pay the majority of an excise tax on a good. Hint - it is effected by the relative PED of the good.
What is "tax incidence"?
An attempt to quantify the amount that allocative efficiency is lost due to a market failure
What is a welfare loss