Absolute Advantage

Absolute advantage occurs when one producer can produce more of a good with fewer inputs than another. If a country can

Theme 1: Introduction to Markets and Market Failure

Allocative Efficiency

Allocative efficiency occurs when resources are distributed to produce the combination of goods that maximises total wel

Theme 1: Introduction to Markets and Market Failure

Command Economy

A command economy is a system where the state owns resources and centrally plans production decisions through government

Theme 1: Introduction to Markets and Market Failure

Comparative Advantage

Comparative advantage exists when a producer can make a good at lower opportunity cost than others. It differs from abso

Theme 1: Introduction to Markets and Market Failure

Complements

Complements are goods that are consumed together or in conjunction. They have negative cross-price elasticity - when the

Theme 1: Introduction to Markets and Market Failure

Deadweight Loss

Deadweight loss is the reduction in total economic surplus resulting from market distortion. It represents inefficiency

Theme 1: Introduction to Markets and Market Failure

Demand Curve

The demand curve is a downward-sloping line on a diagram showing the inverse relationship between price and quantity dem

Theme 1: Introduction to Markets and Market Failure

Demerit Goods

Demerit goods are goods with negative externalities where the social cost exceeds the private cost, and consumers undere

Theme 1: Introduction to Markets and Market Failure

Free Market Economy

A free market economy is a system where resources are allocated through market mechanisms (supply and demand), individua

Theme 1: Introduction to Markets and Market Failure

Government Failure

Government failure occurs when government intervention causes greater welfare loss than the market failure it attempts t

Theme 1: Introduction to Markets and Market Failure

Indirect Taxes

Indirect taxes are duties on specific goods and services, adding to their prices. Examples include VAT (value-added tax)

Theme 1: Introduction to Markets and Market Failure

Inferior Goods

Inferior goods have negative income elasticity - as incomes rise, demand falls. These are typically lower-quality or bas

Theme 1: Introduction to Markets and Market Failure

Information Asymmetry

Information asymmetry occurs when buyers and sellers have different information about product quality, price, or other r

Theme 1: Introduction to Markets and Market Failure

Law of Demand

The law of demand states that there is an inverse relationship between price and quantity demanded, ceteris paribus. Whe

Theme 1: Introduction to Markets and Market Failure

Luxury Goods

Luxury goods have income elasticity greater than 1 - demand increases more than proportionately with income. These are g

Theme 1: Introduction to Markets and Market Failure

Market Failure

Market failure occurs when the free market fails to allocate resources efficiently, resulting in deadweight loss. Major

Theme 1: Introduction to Markets and Market Failure

Merit Goods

Merit goods are goods with positive externalities where the social benefit exceeds the private benefit, and consumers un

Theme 1: Introduction to Markets and Market Failure

Mixed Economy

A mixed economy blends free market mechanisms with government intervention and control. The private sector operates thro

Theme 1: Introduction to Markets and Market Failure

Moral Hazard

Moral hazard occurs when an individual or firm changes behaviour after a transaction, taking greater risks because they

Theme 1: Introduction to Markets and Market Failure

Normal Goods

Normal goods are goods with positive income elasticity of demand - as incomes rise, demand increases. Most goods are nor

Theme 1: Introduction to Markets and Market Failure

Price Controls

Price controls are legal limits on prices set by government. A price ceiling sets a maximum price (e.g., rent control);

Theme 1: Introduction to Markets and Market Failure

Price Elasticity of Supply

Price elasticity of supply (PES) measures the responsiveness of quantity supplied to price changes. It is calculated as

Theme 1: Introduction to Markets and Market Failure

Price Mechanism

The price mechanism is the process through which prices adjust to clear markets and allocate resources. Prices fall when

Theme 1: Introduction to Markets and Market Failure

Producer Surplus

Producer surplus is the profit earned by suppliers from selling goods. It is the difference between the market price rec

Theme 1: Introduction to Markets and Market Failure

Rational Decision Making

Rational decision making is the process of comparing marginal costs and marginal benefits of alternatives to make the ch

Theme 1: Introduction to Markets and Market Failure

Regulation

Regulation comprises legally enforceable rules controlling business behaviour, product standards, safety requirements, a

Theme 1: Introduction to Markets and Market Failure

Resources

Resources (also called factors of production) are the inputs required to produce goods and services. The four main categ

Theme 1: Introduction to Markets and Market Failure

Specialisation

Specialisation occurs when economic units (individuals, firms, or countries) concentrate their productive effort on the

Theme 1: Introduction to Markets and Market Failure

Stakeholders

Stakeholders are individuals or groups with interest in firm decisions and outcomes. They include shareholders (owners),

Theme 1: Introduction to Markets and Market Failure

Subsidies

Subsidies are government payments to producers or consumers, reducing the effective price of goods and services. Produce

Theme 1: Introduction to Markets and Market Failure

Substitutes

Substitutes are goods that are interchangeable or serve similar purposes. When one substitute's price increases, demand

Theme 1: Introduction to Markets and Market Failure

Supply Curve

The supply curve is an upward-sloping line showing the positive relationship between price and quantity supplied. It sho

Theme 1: Introduction to Markets and Market Failure

1.1.1: Scarcity

Scarcity is the economic problem arising from the infinite wants of consumers but limited resources available to satisfy

Theme 1: Introduction to Markets and Market Failure

1.1.1: Scarcity

Ceteris paribus, meaning 'all other things being equal,' is a fundamental assumption in economic analysis. It allows eco

Theme 1: Introduction to Markets and Market Failure

1.1.2: Opportunity Cost

Opportunity cost is the benefit foregone from the next best alternative when a choice is made. It reflects the real cost

Theme 1: Introduction to Markets and Market Failure

1.1.2: Opportunity Cost

Economic models rely on assumptions to simplify reality and make analysis tractable. Common assumptions include perfect

Theme 1: Introduction to Markets and Market Failure

1.1.3: Production Possibility Frontier

The Production Possibility Frontier (PPF), also called the Production Possibility Curve (PPC), illustrates the maximum p

Theme 1: Introduction to Markets and Market Failure

1.1.3: Production Possibility Frontier

Positive economics is objective, factual analysis of economic relationships and phenomena that can be tested empirically

Theme 1: Introduction to Markets and Market Failure

1.2.10: Consumer Surplus

Consumer surplus is the welfare gain consumers receive from purchasing goods. It is the difference between the maximum p

Theme 1: Introduction to Markets and Market Failure

1.2.10: Consumer Surplus

Behavioural economics recognises that people do not always act rationally. Cognitive biases, emotions, social influences

Theme 1: Introduction to Markets and Market Failure

1.2.12: Movements vs Shifts

A movement along a demand or supply curve occurs when quantity changes due to a price change - the point moves along the

Theme 1: Introduction to Markets and Market Failure

1.2.12: Movements vs Shifts

Necessity goods are normal goods with low income elasticity of demand (YED between 0 and 1). As income rises, demand inc

Theme 1: Introduction to Markets and Market Failure

1.2.13: Shortage

A shortage occurs when quantity demanded exceeds quantity supplied at a given price. This indicates the price is below t

Theme 1: Introduction to Markets and Market Failure

1.2.13: Shortage

The income effect is the change in quantity demanded resulting from a change in real income (purchasing power) caused by

Theme 1: Introduction to Markets and Market Failure

1.2.14: Surplus

A surplus occurs when quantity supplied exceeds quantity demanded at a given price. This indicates the price is above th

Theme 1: Introduction to Markets and Market Failure

1.2.14: Surplus

The substitution effect is the change in quantity demanded resulting from a change in relative prices, assuming real inc

Theme 1: Introduction to Markets and Market Failure

1.2.3: Equilibrium

Market equilibrium occurs where the demand curve intersects the supply curve, meaning the quantity consumers demand equa

Theme 1: Introduction to Markets and Market Failure

1.2.3: Equilibrium

Diminishing marginal utility states that as consumption of a good increases, the additional satisfaction gained from eac

Theme 1: Introduction to Markets and Market Failure

1.2.6: Price Elasticity of Demand

Price elasticity of demand (PED) measures the responsiveness of quantity demanded to changes in price. It is calculated

Theme 1: Introduction to Markets and Market Failure

1.2.6: Price Elasticity of Demand

Giffen goods are inferior goods where the income effect of a price change outweighs the substitution effect, causing dem

Theme 1: Introduction to Markets and Market Failure

1.2.7: Income Elasticity of Demand

Income elasticity of demand (YED) measures how quantity demanded changes as consumer income changes. It is calculated as

Theme 1: Introduction to Markets and Market Failure

1.2.7: Income Elasticity of Demand

Veblen goods, also called positional goods, are goods where higher prices actually increase demand because consumers des

Theme 1: Introduction to Markets and Market Failure

1.2.8: Cross-Price Elasticity of Demand

Cross-price elasticity of demand (XED) measures how quantity demanded of one good responds to price changes in another g

Theme 1: Introduction to Markets and Market Failure

1.2.8: Cross-Price Elasticity of Demand

Complementarity describes the relationship between goods that are consumed together. Strong complements are goods rarely

Theme 1: Introduction to Markets and Market Failure

1.3.1: Externalities

Externalities are the uncompensated side effects of production or consumption that affect third parties. Negative extern

Theme 1: Introduction to Markets and Market Failure

1.3.1: Externalities

Barriers to entry are obstacles that make it difficult or impossible for new competitors to enter a market. These includ

Theme 1: Introduction to Markets and Market Failure

1.3.2: Negative Externality

A negative externality occurs when production or consumption imposes uncompensated costs on third parties. The social co

Theme 1: Introduction to Markets and Market Failure

1.3.2: Negative Externality

Sunk costs are expenditures that have already been made and cannot be recovered regardless of future decisions. In ratio

Theme 1: Introduction to Markets and Market Failure

1.3.3: Positive Externality

A positive externality occurs when production or consumption provides uncompensated benefits to third parties. The socia

Theme 1: Introduction to Markets and Market Failure

1.3.3: Positive Externality

The free rider problem occurs when a good's non-excludability allows people to benefit without paying. This creates a ma

Theme 1: Introduction to Markets and Market Failure

1.3.4: Public Goods

Public goods are goods and services characterised by non-excludability (cannot prevent non-payers from consuming) and no

Theme 1: Introduction to Markets and Market Failure

1.3.4: Public Goods

The tragedy of the commons occurs when common pool resources (shared but rival goods) are overexploited because users do

Theme 1: Introduction to Markets and Market Failure