Economics Definitions

Key term definitions.

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  • Created by: Flaws49
  • Created on: 26-03-12 12:56

Appreciation or Depreciation of a Currency

a rise or fall in the value of a currency when the currency is floating and market forces determine its value.

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Hot Money

Short term, speculative flows of money across foreign exchanges, made in order to make profit on the difference between the buying and selling price of the currency.

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Average Cost

The average cost of production per unit, calculated by dividing the total cost by the quantity produced.

It is equal to the average variable cost + average fixed cost.

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Marginal Cost

The cost of producing an extra unit of output.

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Total Cost

The cost of producing any given level of output.

It is equal total variable cost + total fixed cost.

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Fixed Costs

Costs which do not vary as the level of production increases or decreases.

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Variable Costs

Costs which vary directly in proportion to the level of output of a firm.

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Economies of Scale.

A fall in the long run average costs of production as output rises.

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Diseconomies of Scale.

A rise in the long run average costs of production as output rises.

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External Economies of Scale.

Falling average costs of production, shown by a downward shift in the average cost curve, which result from a growth in the size of the industry within which a firm operates.

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Internal Economies of Scale.

Economies of scale which arise because of growth in the scale of production within a firm.

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Minimum Efficient Scale of Procution.

The lowest level of output at which long run average cost is minimised.

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Average Revenue.

The everage receipts per unit sold.

It is equal to;    total revenue/quantity sold.

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Marginal Revenue.

The addition to total revenue of an extra unit sold.

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Total Revenue.

The total money recieved from the sale of any given quantity of output.

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Abnormal Profit.

The profit over and above normal profit.

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Break-Even Point.

The levels of output where total revenue = total cost.

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Normal Profit.

The profit that the firm could make by using its resources in their next best use. Normal profit is an economic cost.

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Cost-Plus Pricing.

The technique adopted by firms of fixing a price for their products by adding a fixed percentage profit margin to the long run average cost of production.

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Profit Satisficing.

Making sufficient profit to satisfy the demands of shareholders.

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Barriers to Entry.

Factors which make it difficult or impossible for firms to enter an industry and compete with exisiting producers.

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Concentration Ratio.

The market share of the largest firms in an industry. (e.g 5 firm concentration ratio)

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