Normal Good A good demand increases when income increases (i.e. it has a positive income elasticity of demand) Substitution Effect The impact on quantity demanded due to a change in price, assuming that consumers’ real incomes stay the same (i.e. the impact of a change in price excluding the income effect) Direct Tax Levied directly to an individual or organisation. Generally paid on incomes Indirect Tax Usually levied on the purchase of goods and services. It represents a tax on expenditure Specific Tax A type of indirect tax. It is charged as a fixed amount per unit of a good. (Example: Excise Tax) Ad Valorem Tax Charged as a percentage of the price of a good. (Example: VAT) Subsidy A grant provided by the government, to encourage suppliers to increase production of a good or service, leading to a fall in its price Allocative Or Economic Efficiency Occurs when resources are distributed in such a way that no consumers could be made better off without other consumers becoming worse off Occurs when resources are allocated Dynamic Efficiency efficiently over time Market Failure Occurs when the price mechanism causes an inefficient allocation of resources; the forces of demand and supply lead to a net welfare loss in society Externalities Those costs or benefits which are external to an exchange. They are third part effects ignored by the price mechanism Productive Efficiency Is achieved when production is achieved at lowest cost Static Efficiency Occurs when resources are allocated efficiently at a point in time Technical Efficiency Is achieved when a given quantity of output is produced with the minimum number of inputs External Costs May occur in the production and the consumption of a good or service. (i.e. pollution) Private Costs Costs internal to the firm, which it directly pays for
Normal Good A good demand increases when income increases (i.e. it has a positive income elasticity of demand) Substitution Effect The impact on quantity demanded due to a change in price, assuming that consumers’ real incomes stay the same (i.e. the impact of a change in price excluding the income effect) Direct Tax Levied directly to an individual or organisation. Generally paid on incomes Indirect Tax Usually levied on the purchase of goods and services. It represents a tax on expenditure Specific Tax A type of indirect tax. It is charged as a fixed amount per unit of a good. (Example: Excise Tax) Ad Valorem Tax Charged as a percentage of the price of a good. (Example: VAT) Subsidy A grant provided by the government, to encourage suppliers to increase production of a good or service, leading to a fall in its price Allocative Or Economic Efficiency Occurs when resources are distributed in such a way that no consumers could be made better off without other consumers becoming worse off Dynamic Efficiency Occurs when resources are allocated efficiently over time Market Failure Occurs when the price mechanism causes an inefficient allocation of resources; the forces of demand and supply lead to a net welfare loss in society Externalities Those costs or benefits which are external to an exchange. They are third part effects ignored by the price mechanism Productive Efficiency Is achieved when production is achieved at lowest cost Static Efficiency Occurs when resources are allocated efficiently at a point in time Technical Efficiency Is achieved when a given quantity of output is produced with the minimum number of inputs External Costs May occur in the production and the consumption of a good or service. (i.e. pollution) Private Costs Costs internal to the firm, which it directly pays for
microeconomics_terms_and_notes.docx