List of the Most Important Definitions for Chapter 2: Price System and the Theory of the Firm (CIE-AS)

This list is for Chapter 2 (AS):

 

1. Ad-valorem tax: An indirect tax with a percentage rate levied against the price of a good

2. Change in demand: This is when there is a change in the conditions of demand which is something other than the price of that product itself

3. Change in quantity demanded: This is when the demand for a product changes as a result of a change in the price of that product

4. Complementary goods: Goods which are consumed together

5. Composite demand: Demand for a good that has multiple uses

6. Consumer surplus: It is how much extra that the consumers are willing and able to pay on top of what they actually need to pay

7. Cross elasticity of demand (XED): It measures the responsiveness of demand (quantity demanded) for a good to a change in the price of another good

8. Demand: The quantity of a product that the consumers are willing and able to buy at a given price per period of time

9. Derived demand: This is when the demand for a component depends upon the final demand for a product which uses that component

10. Direct taxation: A tax that is imposed upon the incomes of individuals and firms

11. Disequilibrium: A situation where there is an imbalance between quantity demanded and quantity supplied in the market, leading to excess demand or excess supply

12. Elastic: Sensitive or responsive to price changes

13. Equilibrium: A situation where the quantity demanded in the marketplace is exactly equal to the quantity supplied

14. Equilibrium price: The price at which a market clears

15. Equilibrium quantity: A situation where a market clears, with consumers getting all they want while producers are not being left with unsold goods

16. Income elasticity of demand (YED): It measures the responsiveness of demand for a good to a change in income

 

17. Incidence of tax: It refers to the burden of taxation of which upon who it will fall onto

18. Indirect tax: A tax which is imposed upon expenditure such as GST/ VAT

19. Inelastic: Insensitive or irresponsive to price changes

20. Inferior good: A good in which the demand falls whenever there is a rise in income

21. Joint demand: This is a situation in which two items are used simultaneously because they are complements

22. Joint supply: A situation where the process of producing one product leads to the production of another product

23. Law of demand: A theory which states that there is an inverse relationship between the price of a product and its quantity demanded

24. Law of supply: A theory which states that there is a direct relationship between the price of a product and its quantity supplied

25. Normal good: A good in which the demand rises whenever there is a rise in income

26. Perfectly elastic in demand: A theoretical scenario whereby the responsiveness of demand for a good/ service to a change in price is infinite

27. Perfectly inelastic in demand: It is when the price of a good/ service changes but has no effect onto the quantity demanded at all

28. Perfectly elastic in supply: A theoretical scenario in which the responsiveness of supply for a good/ service to a change in price is infinite

29. Perfectly inelastic in supply: It is when the price of a good/ service changes but has no effect at all onto the quantity supplied

30. Perishability: The length of time in which a product is likely to decay or rot

31. Price elastic in demand: It is when the price of a good/ service changes, it leads to a larger than proportionate change in the quantity demanded

32. Price inelastic in demand: It is when the price of a good/ service changes, it leads to a smaller than proportionate change in the quantity demanded

33. Price elastic in supply: It is when the price of a good/ service changes, it leads to a larger than proportionate change in the quantity supplied

34. Price inelastic in supply: It is when the price of a good/ service changes, it leads to a smaller than proportionate change in the quantity supplied

35. Price mechanism: The interaction of market demand and market supply to allocate scarce resources

36. Price elasticity of demand (PED): It measures the responsiveness of quantity demanded for a good to a change in its own price

37. Price elasticity of supply (PES): It measures the responsiveness of quantity supplied for a good to a change in its own price

38. Producer surplus: The difference between the market price and the lowest price that firms are willing and able to supply at

39. Specific tax: An indirect tax which is fixed in amount for every unit of output

40. Subsidies: A grant given by the government to the producers usually with the aim of reducing the production costs

41. Substitute goods: Goods that can be used in placed of another

42. Supply: The quantity of a product that firms are willing and able to sell at given price per period of time

43. Total revenue: Total monetary receipts from the sale of a good or service

44. Unitary elasticity of demand: A change in the price of a good will lead to an exact proportionate change in its quantity demanded

45. Unitary elasticity of supply: A change in the price of a good will lead to an exact proportionate change in its quantity supplied