Economics Key Terms

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  • Created by: Natalie
  • Created on: 11-04-17 16:38
Abnormal profit
the positive economic profit, arising when total revenue is greater than total economic costs (implicit plus explicit costs)
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absolute advantage
the ability of a country to produce a good using fewer resources than another country
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absolute poverty
inability of an individual or a family to afford a basic standard of goods and services, where this standard is absolute and unchanging over time
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actual output
quantity of output actually produced by an economy
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ad valorem taxes
taxes calculated as a fixed percentage of the price of the good or service
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administrative barriers
trade protection measures taking the form of administrative procedures that countries may use to prevent the free flow of imports into a country
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aggregate demand
total quantity of goods and services that all buyers in an economy want to buy over a particular period of time
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aggregate supply
total quantity of goods and services produced in an economy over a particular time period
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allocative efficiency
allocation of resources that results in producing the combination of goods and services mostly preferred by consumers (P=MC)
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anti-dumping
argument that justifies trade protection policies
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appreciation (of a currency)
increase in the value of a currency in the context of a floating or managed exchange rate system
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appropriate technology
technologies that are well-suited to a country's particular economic, geographical, ecological and climate conditions
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asymmetric information
type of market failure where buyers and sellers do not have equal access to information, usually resulting in an underallocation of resources to the production of goods and services
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automatic stabilisers
factors that automatically work toward stabilising the economy by reducing the short term fluctuations of the business cycle
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average costs
costs per unit of output
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average fixed costs
fixed cost per unit of output
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average product
total quantity of output of a firm per unit of variable input
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average revenue
revenue per unit of output sold
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average tax rate
tax paid divided by the total income, expressed as a percentage
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average total costs
total cost per unit of output
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average variable costs
variable cost per unit of output
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balance of payments
a record of all transactions between the residents of a country and the residents of a country and the residents of all other countries
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balance of trade in goods
part of the balance of payments, the value of exports of goods minus the value of imports of goods
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balance of trade in services
part of the balance of payments, the value of exports of services minus the value of imports of services
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balance on capital account
sum of inflows minus outflows of funds in the capital account of the balance of payments
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balance on current account
sum of inflows minus outflows of funds in the current account of the balance of payments
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balance on financial account
sum of inflows of funds minus outflows in the financial account of the balance of payments
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balanced budget
referring usually to the government's budget, the situation where government tax revenues are equal to government expenditures
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barriers to entry
anything that can prevent a firm from entering an industry and beginning production, as a result limiting the degree of competition in the industry
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bilateral trade agreement
any trade agreement involving two trading parterns
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break-even point
point of production of a firm where its total revenue is exactly equal to its total costs
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break-even price
price at which the firm breaks even, meaning that its total revenues are equal to its total costs
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budget deficit
situation where government tax revenues are less than government expenditures
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budget surplus
where government tax revenues are greater than government expenditure
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business confidence
measure of the degree of optimism among firms in an economy about the future performance of firms and the economy
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business cycle
fluctuations in the growth of real output consisting of alternating periods of expansion and contraction
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cap and trade scheme
scheme which a government authority sets a limit on the amount of pollutants that can legally be emitted by a firm
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capital
man-made aids to production
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capital account
in the balance of payments - refers to the inflows minus outflows of funds
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capital expenditures
government expenditures: public investments, production of physical capital, production of public investments
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capital liberalisation
free movement of financial capital in and out of a country
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capital transfers
part of the capital account of the balance of payments: inflows minus outflows
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carbon tax
tax per unit of carbon emissions of fossil fuels
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cartel
formal agreement between firms in an industry to undertake concerted action to limit competitiverness
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central bank
financial institution that is responsible for regulating the country's financial system and commerical banks, and carrying out monetary policy
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ceteris paribus
all other things remain equal
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circular-flow of income model
model showing the flow of resources from consumers to firms, and the flow of products from firms to consumers
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clean technology
technology that is not polluting, associated with environmental sustainability
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closed economy
economy that has no internation trade
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collusion
agreement among firms to fix prices so to limit competition and maximise profits
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collusive olligopoly
type of oligopoly where firms agree to restrict output or fix the price in order to limit competition
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commercial bank
financial institution whose main functions are to hold deposits for their customers, make loans, transfer funds by cheques and buy government bonds
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common access resource
resources that are not owned by anyone, do not have a price, and are available for anyone to use without payment
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common market
type of trading bloc in which countries that have formed a customs union proceed further to eliminate any remaining tariffs in trade between them
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comparative advantage
country has a lower opportunity cost in the production of a good than another country
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competitive market
market composed of many buyers and sellers acting independently, where none has any market power
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competitive supply
two goods compete with each for the same resources
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competition
many buyers and sellers acting independently, so no one has the ability to influence the price at which the product is sold in the market
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complements
two or more goods that tend to be used together
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composite indicator
summary measure of more than one indicator, often used to measure economic development
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concentration ratio
measure of how much an industry's production is concentrated among the industry's largest firms
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concessional loan
loans that are offered as part of foreign aid, made on concession terms
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conditional assistance
refers to development assistance provided by bilateral or multilateral development organisations
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constant returns to scale
situation where the output of a firm changes in the same proportion as all its imports
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consumer confidence
measure of the degree of optimism of consumers about their future income and the future of the economy
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consumer price index
measure of the cost of living for the typical household; compares the value of a basket in one year with the base year
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consumer surplus
difference between the highest prices consumers are willing to pay for a good and the price actually paid
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consumption
spending by households on goods and services (excludes spending on households)
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contractionary fiscal policy
fiscal policy involving a decrease in government spending or an increase in taxes (or both)
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contractionary monetary policy
increase in interest rates, intended to lower investment and consumption
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core rate of inflation
rate of inflation based on a consumer price index that excludes goods with unstable prices
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corporate indebtedness
degree to which corporations have debts
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corporate social responsibility
practice of some corporations to avoid socially undesirable activities, as well as undertaking socially desirable activities
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cost-push inflation
inflation caused by a fall in AS, resulting from increases in costs of production
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costs of production
total opportunity costs incurred by firms in order to acquire resources for use in production
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credit items
in balance of payments, refers to payments received from other countries
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cross-price elasticity of demand (XED)
measure of the responsiveness of the demand for one good to a change in another good
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crowding-out
possible impacts on real GDP of increased government spending financed by borrowing
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current account
balance of payments, includes the balance of trade plus the valance on services plus inflows minus outflows of income and current transfers
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current account deficit
current account balance has a negative value, debits are larger than credits
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current account surplus
current account balance has a positive value, debits are smaller than credits
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current expenditures
government budget, government spending on day-to-day items
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current transfers
item in the current account of the balance of payments, inflows and outflows of funds for items
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customs union
type of trading bloc, consisting of a group of countries that fulfil the requirements of a free trade area
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cyclical unemployment
type of unemployment that occurs during the downturns of the business cycle, when the economy is in a recessionary gap
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debit items
balance of payments, refers to payments made by other countries entering the balance of payments accounts with a minus sign
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deciles
division of a population into ten equal groups
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decreasing returns to scale
situation where the output of a firm changes less than in proportion to a change in all its inputs
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deficit
deficiency of something compared with something else
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deflation
continuing decrease in the general price level
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demand
indicates the various quantities of a good that consumers are willing and able to buy at different possible prices during a particular time period, ceteris paribus
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demand management
policies that focus on the demand side of the economy
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demand-pull inflation
type of inflation caused by an increase in AD
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demand-side policies
policies that attempt to change AD in order to achieve macroeconomic goals
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demerit goods
goods that are considered to be undesirable for consumers and are overprovided by the market
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depreciation
refers to a decrease in the value of a currency in a free floating or managed exchange rate system
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deregulation
policies involving the elimination or reduction of government regulation of private sector activities
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deterioration in the terms of trade
decrease in the value of the terms of trade index
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devaluation
refers to a decrease in the value of a currency in the context of a fixed exchange rate system
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development aid
foreign aid intended to help economically less developed countries
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direct investment
balance of payments, inflows or outflows of funds for the purpose of foreign direct investment
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direct taxes
taxes paid directly to the government tax authorities by the taxpayer
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diseconomies of scale
increases in the average costs of production that occur as a firm increases its output by varying all its inputs
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disinflation
fall in the rate of inflation but involves a positive rate of inflation
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disposable income
income of consumers that is left over after the payment of income taxes
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distribution of income
how much of an economy's total income different individuals or different groups in the population receive
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dual economy
two different and opposing sets of circumstances that exist simultaneously, often found in LEDCs
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dumping
practice of selling a good in international markets at a price that is below the cost of producing it
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economic costs
sum of explicit costs and implicit costs
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economic development
rises in the standard of living and well-being of a population
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economic efficiency
condition that arises when allocative efficiency is achieved
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economic growth
increases in total real output produced by an economy over time
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economic integration
economic interdependence between countries, usually achieved by agreement between countries to reduce or eliminate trade and other barriers between them
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economic profit
firm's total revenue minus total economic costs (explicit plus implicit)
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LEDCs
countries that have a per capita GNI below a certain level (World Bank's Classification)
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MEDCs
countries that have a per capita GNI above a certain level (World Bank's Classification)
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economics
study of choices leading to the best possible use of scarce resources in order to best satisfy unlimited human needs and wants
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economies of scale
decreases in the average costs of production that occur as a firm increases its output by varying all its inputs
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elasticity
measure of the responsiveness of a variable to changes
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empowerment
creation of conditions for equality of opportunities
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entrepreneurship
one of the factors of production, involving a special human skill that includes the ability to innovate by developing new ways of doing things
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equilbrium
state of balance such that there is no tendency to change
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equilibrium level of output
level of output where the AD curve intersects the AS curve
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equilibrium price
price determined in a market when quantity demanded is equal to quantity supplied
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equilibrium quantity
quantity that is bought and sold when a market is in equilibrium
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equity
condition of being fair or just
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errors and omissions
balance of payments, refers to an item that is included to account for possible omissions and errors in items that are included/excluded
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excess demand
occurs when the quantity of a good demanded is greater than the quantity supplied, shortage
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excess supply
quantity of a good demanded is smaller than the quantity supplied, surplus
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exchange rate
rate at which one currency can be exchanged for another
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excise taxes
taxes imposed on spending on particular goods or services
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excludable
characteristic of a good to which it is possible to exclude people from using the good by charging a price for it
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expansionary fiscal policy
fiscal policy usually pursued in a recession, increase in government spending or a decrease in taxes (or both)
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expansionary monetary policy
monetary policy usually pursued in a recession, decrease in interest rates
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expenditure approach
method used to measure the value of aggregate output of an economy
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expenditure flow
simple circular flow of income, flow of spending from households to firms to buy the goods and services produced by the firms
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expenditure-reducing policies
policies that involve reducing expenditures in the domestic economy so as to bring about a decrease in imports in order to correct a current account deficit
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expenditure-switching policies
policies that involve switching consumption away from imported goods and towards domestically produced goods
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explicit costs
costs of production that involve a money payment by a firm to an outsider
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export promotion
growth and trade strategy where a country attempts to achieve economic growth by expanding its exports
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externality
actions of consumers or producers give rise to positive or negative side-effects on other people who are not part of these actions
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factor endowments
factors of production that a country possesses
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factors of production
all resources or inputs (land, labour, capital and entrepreneurship) used to produce goods and services
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financial account
balance of payments, refers to inflows minus outflows of funds due to foreign direct investment
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fiscal policy
manipulations by the government of its own expenditures and taxes in order to influence the level of AD
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fixed costs
costs that arise from the use of fixed inputs, which do not change as output increases or decreases
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fixed exchange rate
exchange rate that is fixed by the central bank of a country, and is not permitted to change in response to changes in currency supply and demand
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fixed exchange rate system
exchange rate system where exchange rates are fixed by the central bank of each country
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foreign aid
consists of concessional financial flows from the developed world to LEDCs
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foreign debt
total amount of debt incurred by borrowing from foreign creditors
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foreign direct investment (FDI)
investment by firms based in one country in productive activities in another country
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foreign exchange
foreign national currencies
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formal collusion
agreement between firms (usually oligopolies) to limit output or fix prices, in order to restrict competition
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free entry and exit
condition in which firms face no barriers to entering or exiting an industry
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free rider problem
people can enjoy the use of a good without paying for it, arising from non-excludability
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free trade
absence of government intervention of any kind in international trade
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free trade area
type of trading bloc, consisting of a group of countries that agree to eliminate trade barriers between themselves
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freely floating exchange rate
exchange rate determined entirely by market forces
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freely floating exchange rate system
exchange rate system where exchange rates are determined entirely by market forces
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frictional unemployment
type of unemployment that occurs when workers are between jobs
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full employment level of output
level of output at which unemployment is equal to the natural rate of unemployment
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game theory
mathematical technique analysing the behaviour of decision-makers who are dependent on each other
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GDP per capita
indicator of the amount of domestic output per person in the population
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Gini coefficient
summary measure of the information contained in the Lorenz curve of an economy
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GNI per capita
indicator of the amount of income in an economy per person in the population
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governance
exercise of power in the management of an economy's economic and social resources, in order to achieve particular objectives such as economic growth and development
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government budget
type of plan a country's tax revenues and government expenditures
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government intervention
practice of government to intervene in markets, preventing the free functioning of the market, usually for the purpose of achieving particular economic or social objectives
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government spending
spending undertaken by the government
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grant
type of foreign aid consisting of funds that are in effect gifts
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green GDP
GDP adjusted to take into account environmental destruction and/or health consequences of environmental problems
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gross domestic product (GDP)
measure of the value of aggregate output of an economy
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gross national income (GNI)
measure of the total income received by the residents of a country
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growth maximisation
possible goal of firms, differs from the goal of profit maximisation
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hidden unemployment
unemployment that is not counted in official unemployment statistics
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homogenous products
product that is completely standardised and not differentiated
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household indebtedness
degree to which households have debts
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human capital
skills, abilities and knowledge acquired by people
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human development index (HDI)
composite indicator of development which includes indicators that measure three dimensions of development: income per capita, levels of health and educational attainment
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humanitarian aid
foreign aid extended in regions where there are emergencies caused by violent conflicts or natural disasters
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implicit costs
costs of production involving sacrificed income arising from the use of self-owned resources by a firm
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import substiution
growth and trade strategy, country begins to manufacture simple consumer goods oriented towards the domestic market in order to promote its domestic industry
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improvement in the terms of trade
increase in the value of the terms of trade index
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incentive-related policies
policies involving reduction of various types of taxes, in the expectation that the tax cuts will change the incentives faced by tax-payers
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income
current account of the balance of payments, inflows of wages, rent, interest and profits earned abroad minus the same income factors that are sent abroad
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income approach
method used to measure the value of aggregate output of an economy, which adds up all income earned by the factors of production in the course of producing all goods and services within a country
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income elastic demand
relatively high responsiveness of demand to changes in income; YED>1
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income elasticity of demand (YED)
measure of the responsiveness of demand to changes in income
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income flow
circular flow of income model, refers to the flow of income of households that they receive by selling their factors of production to firms
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income inelastic demand
relatively low responsiveness of demand to changes in income, YED < 1
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increasing returns to scale
output of a firm changes more than in proportion to a change in all its inputs
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indebtedness
level of debt owed to creditors
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indirect taxes
taxes levied on spending to buy goods and services
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industrial policies
government policies designed to support the growth of the industrial sector of an economy
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infant industry
new domestic industry that has not had time to establish itself and achieve efficiencies in production
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inferior good
good the demand for which varies negatively with income
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inflation
sustained increase in the general price level
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inflation targeting
type of monetary policy carried out by some central banks that focuses on achieving a particular inflation target
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inflationary gap
situation where real GDP is greater than potential GDP, and unemployment is lower than the natural rate of unemployment
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infrastructure
numerous types of physical capital resulting from investments, making major contributions to economic growth and development
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injections
circular flow of income model, entry into income flow of funds corresponding to investment, government spending or exports
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interet
payment for the use of borrowed money
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interest rate
interest expressed as a percentage
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international monetary fund (IMF)
international financial institution whose purpose is to make short-term loans to governments on commercial terms
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interventionist policy
any policy based on government intervention in the market
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interventionist supply-side policy
any policy based on government intervention in the market intended to affect the supply-side of the economy
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investment
spending by firms or the government on capital goods
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joint supply
production of two or more goods that are derived from a single product
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Keynesian multiplier
ratio of real GDP divided by a change in any of the components of aggregate spending
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labour
factor of production, includes the physical and mental effort that people contribute to the production of goods and services
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labour market flexibility
operation of market forces in the labour market
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labour market reforms
reforms intended to make labour markets more competitive and flexible
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labour market rigidities
factors preventing the forces of supply and demand from operating in the labour market
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land
factor of production, includes all natural resources
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law of demand
law stating that there is a negative casual relationship between the price of a good and quantity of the good demanded, over a particular time period, ceteris paribus
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low of diminishing returns
law that states that as more units of a variable input are added to one or more fixed inputs, the marginal product of the variable input at first increases, but there is a point when the marginal product of the variable input begins to decrease
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law of supply
law stating that there is a positive casual relationship between the price of a good and quantity of the good supplied, over a given time period, ceteris paribus
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leakages
circular flow of income model, withdrawal from the income flow of funds corresponding to savings, taxes or imports
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long run
micro: no fixed inputs; macro: prices of resources change along with changes in the price level
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LRAS curve
curve showing the relationship between real GDP produced and the price level when wages change to reflect changes in the price level, ceteris paribus
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long run average total costs
lowest possible average costs that can be attained by a firm for any level of output when all the firm's inputs are variable
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long-run equilibrium level of output
level of output that results when the economy is in long run equilibrium, where AD and SRAS intersect
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long term growth trend
business cycle diagram, line that runs through the business cycle curve, representing average growth over long periods of time
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Lorenz curve
curve illustrating the degree of equality of income distribution in an economy
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loss
difference between economic costs and total revenue of a firm when economic costs are greater than revenues
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luxuries
goods that are not necessary or essential; PED>1, YED>1
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macroeconomic objectives
full employment, low rate of inflation, economic growth, an equitable distribution of income and external balance
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macroeconomics
branch of economics that examines the economy as a whole by use of aggregates
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managed exchange rates
exchange rates that are for the most part free to float to their market levels
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marginal benefit
extra or additional benefit received from consuming one more unit of a good
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marginal cost
extra or additional cost of producing one more unit of output
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marginal private benefits (MPB)
extra benefit received by consumers when they consume one more unit of a good
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marginal private costs (MPC)
extra cost to producers of producing one more unit of a good
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marginal product
extra output that results from one additional unit of a variable input
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marginal propensity to consume (MPC)
fraction of additional income spend on domestically produced goods and services
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marginal propensity to import (MPI)
fraction of additional income spent on imports
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marginal propensity to save (MPS)
fraction of additional income that is saved
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marginal propensity to tax (MPT)
fraction of additional income that is paid as taxes
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marginal revenue
additional revenue arising from the sale of an additional unit of output
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marginal social benefits (MSB(
extra benefits to society of consuming one more unit of a good
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marginal social costs (MSC)
extra costs to society of producing one more unit of a good
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marginal tax rate
tax rate paid on additional income
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market
where buyers and sellers meet to trade or exchange products
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market demand
sum of all individual consumer demands for a good or service
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market equilibrium
quantity demanded is equal to quantity supplied
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market failure
market fails to allocate resources efficiently
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market power
control that a seller may have over the price of the product it sells
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market structure
characteristics of a market organisation that determine the behaviour of firms within an industry
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market supply
sum of all individual firm supplies of a good or service
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market-based supply-side policy
any policy based on promoting well-functioning, competitive markets in order to influence the supply-side of the economy
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market-oriented policy
policy in which government intervention is limited
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Marshall-Lerner condition
condition stating when depreciation or devaluation of a country's currency will lead to an improvement in the country's balance of trade
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maximum price
legal price set by the government, which is below the market equilibrium
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merit goods
goods that are held to be desirable for consumers, but are underprovided by the market
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microeconomics
branch of economics that examines the behaviour of individual decision-making units, consumers and firms
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minimum price
legal price set by the government by which is above the market equilibrium price
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minimum wage
minimum price of labour set by governments in the labout market, to ensure that low-skilled workers can earn a wage high enough to secure them with access to basic goods and services
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monetary policy
policy carried out by the central bank, aimed to change interest rates in order to influence AD
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monetary union
high form of economic integration, involving the adoption by a group of countries of a single currency
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money
anything that is acceptable as payments for goods and services
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monopolistic competition
large number of firms, substantial control over market price, product differentiation, no barriers to entry
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monopoly
single or dominant large firm in the industry, significant control over price, produces and sells a unique product with no close substitutes, high barriers to entry
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monopoly power
firm has the ability to control the price of the product it sells
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multilateral development assistance
lending to developing countries for the purpose of assisting their development on non-concessional terms by multilateral organisations
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multilateral trade agreement
trade agreement between many countries
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multinational corporation (MNC)
firm involved in foreign direct investment
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national income
total income of an economy, often used to measure an economy's national income and output as well as other measures of economic performance
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national income statistics
statistical data used to measure an economy's national income and output as well as other measures of economic performance
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nationalisation
transfer in ownership of a firm away from the private sector and toward government ownership
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natural capital
expanded meaning of the factor of production land
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natural monopoly
monopoly that can produce for the entire market as a lower average cost than two or more smaller firms
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natural rate of unemployment
unemployment that occurs when the economy is producing at its potential or full employment level of output
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necessities
goods that are necessary or essential; PED
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negative externality
type of externality where the side-effects on third parties are negative or harmful
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negative externality of consumption
negative externality caused by consumption activities (MSB
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negative externality of production
negative externality caused by production activities (MSC>MPC)
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net exports
value of exports minus value of imports
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nominal GDP
GDP measured in terms of current prices
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nominal value
value that is in money terms
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non-collusive oligopoly
type of oligopoly where firms do not make agreements among themselves in order to fix prices or collaborate in some way
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non-excludable
characteristic of some goods where it is not possible to exclude someone from using a good
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non-governmental organisations (NGOs)
non-profit organisations that provide a very wide range of services and humanitarian functions
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non-price competition
firms compete with each other on the basis methods other than price
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non-price determinants of demand
variables that can influence demand, and that determine the position of a demand curve
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non-price determinants of supply
variables that can influence supply, and that determine the position of the supply curve
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non-price rationing
distributing of goods among interested users through means other than price
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non-produced, non-financial assets
capital account of the balance of payments
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non-rivalrous
characteristic of some goods where the consumption of the good by one person does not reduce consumption by someone else
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normal good
good where the demand caries positively with income
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normal profit
minimum amount of revenue that a firm must receive so that the business keeps running
290 of 429
Official Development Assistance (ODA)
foreign aid that is offered by countries or international organisation composed of a number of countries
291 of 429
oligopoly
small number of large firms in the industry, firms have significant control over price, firms are independent, products may be differentiated or homogenous, high barriers to entry
292 of 429
open economy
economy that has international trade
293 of 429
opportunity cost
cost of the (next) best alternative, which is foregone when a choice is made
294 of 429
output approach
method used to measure the value of aggregate output of an economy
295 of 429
overallocation of resources
too many resources are allocated to the production of a good relative to what is socially most desirable
296 of 429
overvalued currency
currency whose value is higher than its free-market value
297 of 429
per capita
per person
298 of 429
perfect competition
large number of small firms, no control over price, all firms sell a homogenous product, no barriers to entry, perfect information
299 of 429
personal income taxes
taxes paid by households on all forms of income
300 of 429
Phillips curve
curve showing the relationship between unemployment and inflation
301 of 429
physical capital
factor of production, doesn't occur naturally
302 of 429
portfolio investment
financial investment
303 of 429
positive externality
type of externality where the side-effects on third parties are positive
304 of 429
positive externality of consumption
positive externality caused by consumption acitivities (MSB>MPB)
305 of 429
positive externality of production
positive externality caused by production activities (MSC
306 of 429
potential output
level of output that can be produced when there is full employment
307 of 429
poverty
inability of an individual or family to afford an adequate standard of goods and services
308 of 429
poverty cycle
arises when low incomes result in low savings, permitting only low investments in physical, human and natural capital
309 of 429
preferential trade agreement
agreement between two or more countries to lower trade barriers between them on particular products
310 of 429
price ceiling
maximum price set by the government
311 of 429
price competition
firm lowers its price to attract customers away from rival firms, thus increasing sales at the expense of other firms
312 of 429
price control
setting of minimum or maximum prices by the government
313 of 429
price deflator
price index used to calculate real GDP from nominal GDP
314 of 429
price discrimination
practice of charging a different price for the same product when the price difference is not justified by differences in costs of production
315 of 429
price elastic demand
relatively high responsiveness of demand to changes in demand; PED>1
316 of 429
price elastic of supply
relatively high responsiveness of supply to changes in price; PES>1
317 of 429
price elasticity of demand (PED)
measure of the quantity of a good demanded to changes in its price
318 of 429
price elasticity of supply (PES)
measure of the responsiveness of the quantity of a good supplied to changes in its price
319 of 429
price floor
minimum price set by the government of a particular good
320 of 429
price inelastic demand
relatively low responsiveness of demand to changes in price; PED
321 of 429
price inelastic supply
relatively low responsiveness of supply to changes in price, PES
322 of 429
price leadership
type of tacit collusion, a dominant firm in the industry sets a price and initiates any price changes
323 of 429
price support
minimum prices set by the government for agricultural products
324 of 429
price taker
firm that accepts a price at which it sells its product
325 of 429
price war
competitive price-cutting by firms
326 of 429
prices as incentives
ability of prices, and changes in prices, to convey information to consumers and producers that motivates them to respond by offering them incentives to behave in their best-self-interest
327 of 429
price as signals
ability of prices, and changes in prices, to communicate information to consumers and producers, on the basis of which they make economic decisions
328 of 429
primary commodity
any product that is produced in the primary sector
329 of 429
primary products
all products produced in the primary sector of an economy
330 of 429
primary sector
part of an economy that is dominated by agriculture
331 of 429
private good
good that is rivalrous and excludable
332 of 429
privatisation
transfer of ownership from the public sector to the private sector
333 of 429
producer price index (PPP)
consists of several indices at prices received by producers of goods at various stages in the production process
334 of 429
producer surplus
difference between the price received by firms for selling their good and the lowest price they are willing to accept to produce the good
335 of 429
product differentiation
each firm in an industry tries to make its product different from those of its competitors
336 of 429
production possibiliteis
all possible combinations of the maximum amounts of two goods that can be produced by an economy
337 of 429
production possibilities curve (PPC)
curve showing production possibilities
338 of 429
productive efficency
occurs when firms produce at the lowest possible cost, ATC is at its minimum
339 of 429
productivity
quantity of output produced for each hour of work of the working population
340 of 429
profit
payment, per unit of time, to owners of management
341 of 429
profit maximisation
involves making profit as large as possible, and achieved by producing the level of output where the difference between total revenue and total costs is the largest
342 of 429
programme aid
foreign aid involving financial supports to sectors
343 of 429
progressive taxation
taxation where, as income increases, fraction of income paid as taxes increases
344 of 429
project aid
foreign aid involving support for specific projects
345 of 429
proportional taxation
taxation where, as income increases, the fraction of income paid as taxes remains constant
346 of 429
public debt
government's accumulation of budget deficits minus budget surpluses
347 of 429
public good
good that is non-rivalrous and non-excludable
348 of 429
purchasing power parity (PPP) exchange rates
special exchange rates between currencies that makes the buying power of each currency equal to the buying power of US$1
349 of 429
quintiles
division of a population into 5 equal groups
350 of 429
quota
type of trade protection that involves setting a legal limit to the quantity of a good that can be imported over a particular time period
351 of 429
rational economic decision making
assumption that in economics decision makers act in their best self interest
352 of 429
real GDP
GDP measured in constant prices
353 of 429
real value
value that has eliminated the influence of changes in the price level
354 of 429
reallocation of resources
reassigning resources to particular uses, so that the allocation of resources changes and becomes a new allocation
355 of 429
recession
economic contraction, where there is falling real GDP and increasing unemployment of resources that last six months or more
356 of 429
recessionary gap
situation where real GDP is less than potential GDP, and unemployment is greater than the natural rate of unemployment
357 of 429
redistribution of income
changing the distribution of income, giving rise to a new distribution
358 of 429
regional trade agreement
trade agreement between several countries that are located within a geographical region
359 of 429
regressive taxation
taxation where, as income increases, the fraction of income paid as taxes decreases
360 of 429
relative poverty
inability of an individual or a family to afford an adequate standard of goods and services
361 of 429
rent
payment, per unit of time, to owners of land resources who supply their land to the production process
362 of 429
reserve assets
foreign currenct reserves that the central bank maintains and can buy or sell to influence the value of the country's currency exchange rate
363 of 429
resources
factors of production, firms use them as inputs in the production process
364 of 429
resource allocation
assigning available resources to specific uses chosen among many possible and competing alternatives
365 of 429
returns to scale
relationship between inputs and output
366 of 429
revaluation
increase in the value of a currency in the context of a fixed exchange rate system
367 of 429
revenue maximisation
objective of some firms to maximise revenue
368 of 429
rivalrous
characteristic of a good according to which its consumption by one person reduces its availability for someone else
369 of 429
satisficing
goal of firms to achieve satisfactory results
370 of 429
scarcity
condition in which available resources are limited
371 of 429
seasonal unemployment
type of unemployment that occurs when the demand for labour in certain industries changes on a seasonal basis because of variations in needs
372 of 429
short run
micro: time period during which at least one input is fixed and cannot be changed by the firm; macro: period of time during which the prices of resources do not change
373 of 429
SRAS curve
curve showing the relationship between price level and quantity of real GDP produced by firms when resource prices do not change
374 of 429
shortage
quantity demanded is greater than quantity supplied
375 of 429
shut-down price
price at which a firm that is making losses and will stop producing in the short run
376 of 429
social optimum
situation that is the best from the social point of view
377 of 429
social safety net
system of government transfers of cash or goods to vulnerable groups
378 of 429
social surplus
sum of consumer and producer surplus
379 of 429
spare capacity
physical capital that firms have available but do not use
380 of 429
specialisation
firm or a country concentrates production on one or a few goods and services
381 of 429
specific tax
tax calculated as an absolute amount per unit of the good or service sold
382 of 429
speculation
buying and selling of something in the hope of making a profit
383 of 429
stagflation
simultaneous appearance of inflation and recession
384 of 429
strategic interdependence
characteristic of oligopolies, mutual interdependence of firms and their strategic behaviour
385 of 429
structural unemployment
type of unemployment that occurs as a result of technological changes and changing patterns of demand
386 of 429
subsidy
amount of money paid by the government to firms, resulting in a higher level of output and lower price for consumers
387 of 429
substitute goods
two or more goods that satisfy a similar need, so that one good can be used in place of another
388 of 429
supernormal profit
positive economic profit, arising when total revenue is greater than total economic costs
389 of 429
supply
various quantities of a good that firms are willing and able to produce and sell at different possible prices during a particular time period, ceteris paribus
390 of 429
supply of money
amount of money in circulation, determined by the central bank of a country
391 of 429
supply shock
events that have a sudden and strong impact on SRAS, leading to SRAS shifts
392 of 429
supply-side policies
variety of policies that focus on AS
393 of 429
surplus
quantity supplied is greater than the quantity demanded
394 of 429
sustainability
mainting the ability of the environment and the economy to continue to produce and satisfy needs and wants into the future
395 of 429
tacit collusion
cooperation that is implicit or understood between cooperating oligopolistic firms, without a formal agreement
396 of 429
tariffs
taxes levied on imported goods
397 of 429
tax incidence
burden of a tax
398 of 429
terms of trade
prices a country receives for its exports to the prices paid for its imports
399 of 429
theory of absolute advantage
if countries specialise in and export the goods in which they have an absolute advantage, there results an improvement in resource allocation
400 of 429
theory of comparative advantage
as long as the opportunity cost in two countries differ, it is possible for all countries to gain from specialisation and trade according to their comparative advantage
401 of 429
third degree price discrimination
when a firm price discriminates among different consumer groups
402 of 429
tied aid
practice whereby donors make the recipient of foreign aid spend a portion of the borrowed funds on the purchase of goods and services from the donor country
403 of 429
total costs
sum of fixed and variable costs
404 of 429
total product
total quantity of output produced by a firm
405 of 429
total revenue
amount of money received by firms when they sell a good
406 of 429
tradable permits
permits that can be issued to firms by a government or an international body, and that can be traded in a market
407 of 429
trade creation
replacement of higher cost products by lower cost imports that result when a trading bloc is formed and trade barriers are removed
408 of 429
trade diversion
replacement of lower cost products by higher cost imports that results when a trading bloc is formed and trade barriers are removed
409 of 429
trade liberalisation
policy of liberalising international trade by eliminating trade protection and barriers to trade
410 of 429
trade protection
government intervention in international trade through the imposition of trade restriction to prevent the free entry of imports into a country and protect the domestic economy from foreign competition
411 of 429
trading bloc
group of countries that have agreed to reduce tariff and other barriers to trade for the purpose of encouraging the development of free or freer trade and cooperation between them
412 of 429
transfer payments
payments made by the government to individuals specifically for the purpose of redistributing income
413 of 429
underallocation of resources
too few resources are allocated to the production of a good relative to what is socially most desirable, resulting in its underproduction
414 of 429
underemployment
number of underemployed people, defined as all people above a particular age who have part-time jobs when they would prefer to have full-time jobs; or have jobs that do not make full use of their skills and education
415 of 429
underground market
market that arises whenever a buying/selling transaction in unrecorded
416 of 429
undervalued currency
currency whose value is lower than its free-market value
417 of 429
unemployment
all people above a particular age who are not working and who are actively looking for a job
418 of 429
unemployment rate
measure of the amount of unemployment in an economy, expressed as a percentage
419 of 429
unit elastic demand
PED value of 1, proportional change
420 of 429
unit elastic supply
PES value of 1, proportional change
421 of 429
value of output flow
circular flow of income model, value of output that is sold by firms and purchased by consumers
422 of 429
variable costs
costs that arise from the use of variable inputs, and they change as output increases or decreases
423 of 429
wage
payment, per unit of time, to those who provide labour
424 of 429
weighted price index
measure of the average prices in one period relative to average prices in a reference period called a base period
425 of 429
welfare
well-being of a population
426 of 429
welfare loss
loss of a portion of social surplus that arises when marginal social benefits are not equal to marginal social costs, due to market failure
427 of 429
World Bank
development assistance organisation, that extends long-term credit to developing country governments for the purpose of promoting economic development and structural change
428 of 429
World Trade Organisation (WTO)
international organisation that provides the institutional and legal framework for the trading system that exists between member nations worldwide
429 of 429

Other cards in this set

Card 2

Front

the ability of a country to produce a good using fewer resources than another country

Back

absolute advantage

Card 3

Front

inability of an individual or a family to afford a basic standard of goods and services, where this standard is absolute and unchanging over time

Back

Preview of the back of card 3

Card 4

Front

quantity of output actually produced by an economy

Back

Preview of the back of card 4

Card 5

Front

taxes calculated as a fixed percentage of the price of the good or service

Back

Preview of the back of card 5
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