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| The study of how people use the world’s limited resources to try to satisfy unlimited wants. |
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| The study of the economy itself and the various issues and concepts that revolve around it, such as GDP, unemployment, or inflation. |
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| The study of the economic behaviour of consumers and producers and how prices of goods and services are determined. |
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| A system where the government makes the economic decisions and has control over the factors of production how they are used and the distribution of income. |
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| A system where the consumers and producers have control over the factors of production and decide themselves how to use them. |
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| A system where the government and the producers and consumers share the control over how resources should be used. |
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| The total satisfaction received by a consumer from consuming a good or service. |
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| The cost of any activity measured in terms of the value of the best alternative that is not chosen. |
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| When demand exceeds the supply of goods or services. |
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| Technical Efficiency (aka Productive Efficiency) |
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Definition
| For a given sate of technology, output is produced at the lowest possible cost. Achieved by individual firms. |
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| Allocative Efficiency (aka Economic Efficiency) |
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Definition
When a resource is distributed to the different industries that need it to meet the need of the consumers it is allocatively efficient.
Ex.
Wood: If enough wood is distributed to make all different wood products to meet the needs for each product, the economy is allocatively efficient. |
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Definition
A statement about what ought to be. This is an expression of an opinion that cannot be verified by observation.
Ex.
I think Ashbury College is the best high school in Ottawa. (The listener may agree or disagree) |
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A statement about fact. (Measureable and quantifiable) This is an expression can be verified by observation.
Ex.
This desk is 15 feet long. |
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| The various resources that contribute to the production of goods and services. |
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| Any resources that are available without any alteration such as water and wood. |
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| The human resources that involves people making productive contributions of work both mentally and physically. |
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| The factors of production that have been man made such as factories and machines. |
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| Enterprise/Entrepreneurship |
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| The factor of production involving human resources that manages and combines the first three factors of production in the attempt to make a profit. |
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| The relationship between the quantity demanded of a good or service and its price. |
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| The amount of a good or service that consumers plan to buy in a given period of time. |
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| A list of the quantities of a good or service demanded at different prices, holding everything else constant. |
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| The entire relationship between the quantity supplied of a good or service and its price. |
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| The amount of a good or service that producers plan to sell in a given period of time. |
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| A list of quantities supplied at different prices, holding everything else constant. |
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| As the price of products change (ex. Rise), it causes a change in consumers’ real income therefore changing (ex. Decreasing) demand. |
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| The tendency of people to substitute in favour of cheaper goods and services and away from more expensive goods and services. |
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| A situation in which the plans of consumers and producers exactly coincide so that there is neither excess supply nor excess demand. |
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| When the assumption is made that all other things are held equal, or constant, except the ones being studied. |
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| A situation in which the plans of consumers and producers do not coincide so that there is either excess supply or excess demand. |
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| When the demand for a good or service is greater that the supply. |
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| When the supply for a good or service is greater than the demand. |
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Definition
two goods are considered a complements if a change in price of one causes an opposite shift in the demand for the other.
Ex.
Computers and computer games or gas and cars |
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Definition
A good or service that may be used in place of another
Ex.
Coke and Pepsi or Mercedes and BMW |
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Definition
a payment made by the government to producers of goods and services
Ex.
A car producer is given money and supply is increased |
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Definition
A tax imposed on spending, indirect because a producer uses it to pay off the tax they have already paid.
Ex.
GST and PST and HST |
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Definition
tax liability targeted at one person on the basis of their income or wealth.
Ex.
Federal income tax, unemployment insurance, CPP (Canada Pension Plan) - income taxes |
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| The difference between the amount that a consumer is willing to pay for a good or service ant the amount that is actually paid. |
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| The amount of money that the producer will miss out on if they price their product at a lower price. The difference between the lower price which the producer is willing to price their product at and the equilibrium. |
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| Government regulation of free market prices such that a legal maximum price is specified. |
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Definition
the lowest legal price a good or service can be sold at.
Ex.
Minimum Wage (above equilibrium) |
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Definition
A government-imposed limit on the price of a good or service.
Ex.
Rent control |
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Definition
| An effect of consumption or production that is not taken into account by the consumer or the producer, which affects the utility or cost of other consumers or producers. |
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| A good that is recognised as socially desirable. As it has positive externalities it will be underprovided in a free market. |
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| The opposite of a merit good; one that the political process had decided is socially undesirable. |
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| A situation in which a market leads to either an under-allocation or over-allocation of resources to a specific economic activity. |
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A good, which is non-excludable and non-rivalrous. A good which can be jointly consumed by many individuals simultaneously, at no additional cost, and with no deduction in the quality or quantity of the provision concerned. Typically provided by the government. Likely to have positive externalities.
Ex.
A bridge, a park, streetlights |
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Definition
| A good or service, each unit of which is consumed by only one individual. Could have negative or positive externalities. |
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The marginal cost directly incurred by the producer of a good or service.
Ex.
Making a desk, costs = nails, wood ect. |
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The total cost of producing on additional unit of output. This includes the cost borne by the producer and any indirect costs incurred by any other member of society. It is the marginal private cost incurred by the producer plus any marginal costs imposed as an externality on others. Marginal Private Cost + External Costs = Marginal Social Cost. Synonym: Negative Externalities
Ex.
Trees cut down to make a desk, pollution produced when making screws and nails for the desk |
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Definition
The marginal benefit to the consumer from one additional unit of consumption.
Ex.
Satisfaction by wearing a shirt or eating an apple |
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| The total value of the benefit from oe additional unit of consumption. This includes the benefit to the buyer and any indirect benefits to other members of society. Synonym: Positive Externalities |
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Definition
| The change in as a result of producing one more unit of a good or service. |
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| Price Elasticity of Demand |
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Definition
| The responsiveness of quantity demanded of a good to a change in its price. A tool used to measure the consumer’s sensitivity to a change in price. |
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| Price Elasticity of Supply |
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Definition
| The responsiveness of quantity supplied of a good to a change in its price. |
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Definition
A cost that varies with a change of volume of output while remaining uniform on a per-unit basis.
Ex.
Envelope business, Variable Cost = paper |
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Definition
A cost unvarying in the volume of output.
Ex. Car business, Fixed Cost = factory ren |
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| The amount received from the sales of a good or service. |
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| The total amount earned by a producer. |
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| The difference between total revenues and the opportunity cost of all factors of production. |
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| A period of time in which at least one factor of production is held constant. |
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| The time period which none of the factors of production are held constant. |
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| Law of Diminishing Returns |
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Definition
If one factor of production increases but the others do not than productivity will fall
Ex.
Envelope making, one factor was variable (labor) but the other factors were fixed (land, resources - ex. Scissors & tape) so productivity fell. |
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Definition
An input whose quantity can be changed in the time period.
Ex.
(Envelope Making) Labor |
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Definition
An input whose quantity stays fixed in the time period.
Ex.
(Envelope making) Scissors, tape & size of the factory |
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Definition
| The rate at which goods or services are produced. |
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Definition
| A system of organizing the manufacture of a good in a series of specialized operations, each of which is carried out by a different worker or group of workers |
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Definition
| When tasks are divided up between workers based on their skills. |
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Definition
| For a given state of technology, output is produced at the lowest possible average cost. Also know as technical efficiency. |
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Definition
| The extra revenue that an additional unit of product will make. |
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Definition
| Calculated by the change in total revenue divided by the change in quantity. |
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| Long Run Average Cost Curve (LRAC) |
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Definition
| Represents the cheapest way to produce various levels of output given existing technology and current resource prices. |
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Definition
| When increasing the scale of production leads to a lower cost per unit of output. |
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Definition
| When increasing output leads to increases in long-run average costs. |
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| Constant Returns to Scale |
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Definition
| Technological conditions under which the percentage change in a firm’s output is equal to the percentage change in its input. |
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Definition
Companies will use this factor of production to its greatest capacity. Minimum input to maximum output.
Ex.
No wasted space on conveyor belts |
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Definition
Companies may use specialization and division of labour at the management level to increase units of output.
Ex.
Team of people in the front office at Ashbury vs. one person with an increase in student population. |
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Definition
Companies may purchase their raw materials in larger quantities to reduce costs.
Ex.
Wal-Mart pressuring their suppliers to reduce costs so the lower their costs are the higher quantities they can afford to buy. |
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Definition
| Companies may invest in advertising to result in an increase in demand for their product. Advertising is a fixed cost so it increases their units of output and causes a greater profit without an increase in costs as the output increases. |
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Definition
| When companies get larger they pose lower risks to banks and financial institutions so when they need to borrow money they receive lower rates of interest. |
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