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ad valorem tax
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an indirect tax that is a percentage of the price of the taxed good resulting in a steeper S curve
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allocative efficiency
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The best allocation of resources from society's point of view, where MB=MC, or in case of externalities, MSB=MSC
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common access resources
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natural resources without ownership, that are not traded in a market, without a price, and can therefore be used freely by anyone; they are non-excludable yet rivalrous
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complements (=complementary goods)
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goods that are used together, ex sugar and coffee; tennis balls and tennis rackets: as P of good A goes up, D for good B goes down (shifts left); as P of good A goes down, D for good B goes up (shifts right)
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consumer surplus
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benefit received by consumers who buy a good at a price lower than the price they are willing to pay=the area under the demand curve up to the price consumers pay
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cross price elasticity of demand (XED)
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responsiveness of demand for good X to changes in price of good Y=% change in Qx demanded divided by % change in Py
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Demand (D)
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the quantity of a good that buyers (consumers) are willing and able to buy at various prices over a period, ceteris paribus
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Demerit goods
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a good or service whose consumption is considered unhealthy, degrading, or otherwise socially undesirable due to the perceived negative effects on the consumers themselves
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Externality
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an economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume
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factors of production
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Land, labor ,Entrepreneurship, and capital; the four groups of resources that are used to make all goods and services
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free rider problem
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occurs when a good is used without payment
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income elasticity of demand
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a measure of how much the quantity demanded of a good responds to a change in consumers' income, computed as the percentage change in quantity demanded divided by the percentage change in income
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Law of demand
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the claim that, other thing sequal, consumers buy more of a good when its price decreases and less when its price increases
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Law of supply
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the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises
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market failure
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The failure of the market to allocate resources efficientcy, resaulting is overallocation, under allocation or no allocation of resources to production of good
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Merit goods
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goods or services considered to be beneficial for people that would be under-provided by the market and so under-consumed
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Non-excludable good
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It is not possible to charge a price and therefore keep people from using the good (e.g. a lighthouse)
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non-rivalrous good
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It's use by one individual does not make it less available for use by others
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Normal good
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The demand for this type of good increases as consumers' income increases, and vice versa.
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Opportunity Cost
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The sacrifices of the next best alternative as a result of making a choice; this concept is central to economics, because of scarcity necessitates choice
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Price Ceiling
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A maximum price on a good set by the government below the equilibrium price of the market, resulting in a shortage
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Price Elasticity of Demand (PED)
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Responsiveness of Q demanded to changes in P = % change in Q demanded divided by % change in P
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Price Elasticity of Supply (PES)
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Responsiveness of Q supplied to changes in P = % change in Q supplied divided by % change in P
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Price floor
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a minimum price for a good or service set by the government above the equilibrium price of the market, resulting in a surplus
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Producer surplus
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Benefit received by producers who sell a good at a higher price than the price they are willing to receive = the area above the supply curve up to the price received
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Public good
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A good that is non-rivalrous and non-excludable
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Social surplus (community surplus)
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The sum of producer and consumer surplus
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Specific tax
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An indirect tax that is a specific amount per unit of the good, and results in a parallel shift of the S curve to the left or upward
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Subsidy
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Payment by the government to firms in order to lower costs and price, and increase supply
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Substitute (substitute goods)
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Goods that satisfy a similar need, ex meat and fish; apples and oranges: as P of good A increases, D for good B increases (shifts right); as P of good A decreases, D for good B decreases (shifts left)
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Supply (S)
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The quantity of a good that sellers (firms) are willing and able to sell at various prices over a time period, ceteris paribus
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Sustainability
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The use of natural resources at a pace and in ways that do not decrease the quantity or destroy the quality of resources available for future generations
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Total revenue (TR)
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(P x Q) A firm's total earnings from selling it's output
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Tradable permit (cap and trade schemes)
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A maximum permissible amount of a particular pollutant is determined, and permits to emit this pollutant are distributed to firms by government or (international body), which can be bought and sold in a market
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Welfare loss (deadweight loss)
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The benefits that are lost to society due to resource misallocation
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Indirect tax (excise tax)
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A tax on spending, paid to the government through the seller
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Inferior good
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This demand for this type of good increases as consumers' income decreases, and vice versa
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