Economics theme 2 Key terms

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Aggregate demand
The sum of total of demand from all sources in the economy
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Aggregate supply
Is the total output supplied from all sources in the economy
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Appreciation
Occurs when the interest rises, making imports cheaper
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Balance of trade
The difference in value between visible exports and visible imports
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Base rate
IS set by the bank of england and influences interest rate across the economy
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Boom
A rapid time of growth and expansion in the economy
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capacity utilisation
Measures actual output as a percentage of the theoretical maximum output
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Capital
Includes all assets that can generate income and includes premises, equipment and financial assets
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Capital intensive production
uses large amounts of capital and relatively little labour
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common markets
Have completely free trade internally and a common external trade policy covering the rest of the world
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Comparative advantage
Referes to the theory that if two countries specialise in the product which for them has the lowest opportunity cost, and then trade, real incomes increase.
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Cost push inflation
Is caused by raising costs of production
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Contractionary policies
Slow down economic activity by increasing leakages and reducing injections to the circular flow of money
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cyclical unemployment
Is caused by a downturn in the economic cycle. Spending is falling so output falls and fewer employees are needed
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Demand pull inflation
Is caused by excess aggregate demand. Quantity demanded exceeds total output
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depreciation
Is a fall in the exchange rate that makes imports more expensive and exports cheaper
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Diseconomies of scale
Happen when further increases in size begin to increase average costs and inefficiencies develop
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downturn
The stage of the economic cycle when the boom slows and the rate of GDP decreases
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Economies of scale
Leads to a reduction in average costs brought by an increase of size in the business
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Emerging economies
Have fast growing manufacturers sectors. Some are still poor but some e.g. mexico could soon be developed
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Extension strategies
are ways of lengthening the maturity period in a product life cycle
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External economies of scale
Reduce production costs for all businesses in the industry
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Free tarde areas
Are groups of countries that trade completely freely with each other, with no trade barriers, but each member country retains its own independent trade policies in relation to the rest of the world
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Globalisation
Refers to increasing interdependence of trading economies with increased imports, exports and capital movements
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Human capital
Is the knowledge, experience and skills of an individual or workforce
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income inelastic
Applies to products for which an income change causes a proportionately smaller change to quantity demanded
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Income elastic
applies to products for which an income change causes a proportionately bigger change in quantity demanded
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income elasticity of demand
Measures the proportionate changes in quantity demanded following a change in income
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Inferior good
A good or service that sees and increase in demand following a fall in income and a fall in demand following a rise in income
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inflation
Is measured using either CPI or the RPI
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Injections
investment, government expenditure and exports - increase demand for domestically produced goods and services
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Invisible
exports and imports cannot be touched or handled; they are services e.g. banking, insurance
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just in time
Is a stock control system that does away with the need to hold large quantities of stocks or component inputs
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labour intensive production
Uses large amounts of labour and relatively little capital
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leakages
Reduce the demand for domestically produced goods and services by diverting part of peoples incomes into savings, taxes and spending on imports
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long tail
The mass of niche markets have vastly extended consumer choice, with many small and large businesses selling to small number of consumers
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marketing mix
the range of marketing strategies that businesses use to promote and sell their products or services. includes pricing, design and all forms of advertising
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market power
exists when a successful business with a significant market share can influence prices and output in the market
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Merger
is the joining together of two or more firms into a single business with the approval of the shareholders and managers concerned
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micro marketing
The marketing of product or services designed to meet the needs of a very small section of the market
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minimum efficient scale
the lowest point of average cost curve where all available economies of scale have been put to use
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monopoly power
When a business is big enough to behave like a monopoly and control price or quantity supplied
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monopsony
occurs when there is only one buyer of a product or service
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Monopsony power
Occurs when a firm is the only buyer or is big enough to behave like a monopsony. this means that it can drive down the price of inputs simply by refusing to pay more
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nominal value
Means that the value is expressed in numerical terms at current prices
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Normal good
Any good or service for which quantity demanded rise when incomes rise and falls when income falls
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Organic growth
The firms grows from within using its own resources to expand output
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Outsourcing
means buying inputs from independent suppliers, or locating the whole production bases abroad
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physical capital
Any building, tools and equipment that will help generate output
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Price elastic
A price change causes a proportionately bigger change in quantity demanded
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Price inelastic
A rice change causes a proportionately smaller change to quantity demanded
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Pricing strategy
The way in which a business decides on the price to charge and the factors that influence that decision
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Product innovation
Occurs when new or improved production methods are used, enhancing efficiency and reducing costs
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Public sector deficits
Occur when government spending exceeds tax revenue and it borrows to fund the difference
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real value
Means the effects of inflation have been removed. real value is nominal value minus inflation rate
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Resources
include land (raw materials), labour (the human input), Capital (anything that is used to produced something), Enterprise.
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Structural Unemployment
Happens when people have the wrong skills for the employment on offer, or are located too far from the available jobs
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supply chain
The sequence of processes by which a final product is created. often this involves many different suppliers, perhaps in a range of different location
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Takeover
When one firm makes a bid for another and secures over 50% of the shares. The firm effectively swallows up another one.
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underemployment
Refers to either employed people whose work does not make full use of their qualifications or to those forced to part time work
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Other cards in this set

Card 2

Front

Aggregate supply

Back

Is the total output supplied from all sources in the economy

Card 3

Front

Appreciation

Back

Preview of the front of card 3

Card 4

Front

Balance of trade

Back

Preview of the front of card 4

Card 5

Front

Base rate

Back

Preview of the front of card 5
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