Unit 4B Definitions

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Absolute poverty
Is not having enough income to provide the basic necessities and survive
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Aggregate demand
Is the total of all demand in the economy from consumption, investment, government expenditure and net amount of trade (AD = C + I + G (X-M))
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Aggregate supply
Is the total of all the goods and services produced in our economy over a period of time
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Allocation of resources
How resources are shared out/ distributed in an economic system
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Allocative efficiency
Is achieved when resources are used to yield maximum benefit to everyone it is impossible to redistribute them without making someone worse off.
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Animal spirits
Was a phrase used by John Maynard Keynes to describe the way business people relied on hunches or instinct to make decisions rather than a rational analysis of facts
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Cartel
Is any agreement between businesses to reduce competition or not to compete with each other agreement is usually secret may be implementing various ways
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The competition commission
Is an independent public body which conducts in-depth enquiries into mergers, markets and the regulation of the major regulated industries. It has the powers to impose changes on the companies concerned or ban proposed mergers
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Consumer sovereignty
 happens when the consumer has control. The buying decisions of the consumer dictate what is produced in the market. Well businesses can produce and try to sell whatever they want it is the consumer decision as to whether to buy it or not.
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Consumption
Is the total of all the spending by individuals on private consumption
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Cost benefit analysis (CBA)
Attempts to calculate the potential costs and benefits of the projects to make a decision one way or the other.
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Demerit good
Are overproduced by the free market, in quantities that are greater than optimum level for society. They are generally thought to be bad for society as a whole.
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Direct tax
Is taken at source and goes directly to the government, e.g. income tax and national insurance
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Economic shots
Are unexpected events that affect the economy and often come from outside of it, they are unexpected and unpredictable
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Equality
Means equality of outcome in terms of income and wealth
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Equity
In economics is concerned with fairness, the idea that all citizens have the say of changes in chances in life. It does not mean that there are equal outcomes in terms of income or wealth distribution.
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Explicit collusion
Occurs when there is a meeting or actual agreement between businesses to avoid competing vigourously and follow joint strategy.
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External benefits
are benefit or positive side effects for a third party who is neither the producer nor the consumer.
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External cost
are costs or negative side effects imposed on a third party who is neither a producer nor the consumer.
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Fiscal policy
Involved changes in the levels of taxation and/or Government expenditure in order to affect the economy
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Free rider problem
Occurs when public goods are underprovided or not provided at all because of individuals are able to consume the goods despite paying little or nothing towards the cost.
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Government expenditure
Is the total spending by the government over the year
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Government failure
Occurs when government intervention makes the situation worse rather than better. In competition policy this can mean that one source of market imperfection is dealt with a replaced by another
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Incentive
(in economics) is any factor (Financial or non-financial) that enables or motivate a particular course of action, all counts as a reason for preferring one choice to the alternatives.
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Indirect taxes
Are added onto prices and go indirectly to the government from the seller. E.g. VAT and excise duty.
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Investment
Is the total of all the spending by businesses on premises and capital equipment.
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Marginal social benefit (MSB)
Is the change in total social benefit to society as a whole for producing one further unit, or taking one further action, in an economy
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Marginal social cost (MSC)
Is the change in the total social cost to society as a whole for producing one further unit, or taking one further action, in an economy
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Market
Any medium which buys and sellers interact and agreed to trade price.
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Profit signalling mechanism
The means by which resources are allocated, the presence of profit in market attracts more resources and loss sends them away
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Market failure
Happens when a market does not efficiently allocate resources to achieve the greatest possible consumer satisfaction. The allocation of resources is such that a relocation would make some people better off. Allocative efficiency has not been reached.
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Market power
Is the ability of a producer to exert some level of control over market; this may include setting prices, restricting output, influencing other producers, Setting barriers to entry, and influencing suppliers.
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Merit goods
Can be provided by the private sector and often are, but the quantity that the free-market provides is lower than optimum levels of society. They are under provided by the market mechanism
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Monetary policy
Uses interest rates to vary the cost of borrowing and influence the level of aggregate demand.
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Monopoly power
Arises when a business is big enough to behave like monopoly and has some control over price (or quantity supplied) and can maintain barriers to entry.
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A natural monopoly
Occurs when the most efficient scale of production is monopoly. More than one produce supplier would involve wasteful duplication of resources.
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Non excludable
Means there is impossible to prevent people who have not paid for a good from consuming it.
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Non-rivalrous
Means that if one person consumes a good it does not affect or reduce the amount left for someone else to consume.
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Overheating
Is an expression used to describe them onset and spread of inflation throughout our economy.
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Poverty trap
Is a situation in which someone would be even poorer or not much richer if they had a job because they would no longer receive financial help from government.
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Private sector
The part of the economy that is controlled owned by individuals, or companies that are owned by individuals.
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Progressive tax
Is one that takes a greater percentage of income from which people than poorer people.
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Public deficit
Happens when a government spending exceeds the government income and it must borrow to fund the difference.
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Public sector
The part of the economy that is controlled owned by the government and funded from tax revenue.
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Public good
Is one that the free market Will not provide it all. There is no incentive for a producer to supply it, it is impossible to change for it and make a profit and it is impossible to prevent anyone else from consuming it free
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Public interest
Is a loose term but means the welfare or well-being of the public in general, as opposed to the selfish interest of individuals, groups and businesses. In the context of this course it means the interests of consumers in general rather than businesse
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Regressive tax
Is one that takes a greater percentage of income from poor people and richer people.
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Regulatory body
Is a public authority or government agency responsible for exercising autonomous control over the sphere of the business activity
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Regulatory Capture
Happens when the regulator is more influenced by the industry's point of view and the consumers.
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Relative poverty
Exist when someone does not have enough income to participate in the society in which they live.
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Restrictive practices
Include any action business uses the limit competition.
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Social benefits
Are the total benefits for producing goods and services and calculated by adding together the private and external benefits.
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Social costs
Are the total costs for producing goods and services and are calculator by adding together the private and external costs
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Supply-side policies
Include all measures designed to increase the productive capacity of the economy. Insurance anger supply rather than aggregate demand.
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Tacic collusion
Occurs when competing firms appear to follow a similar strategy to reach to the same aim, such as avoiding price cutting, but without meeting or having an actual agreement as such
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Trade balance (X-M)
Is the difference between exports, which are part of the overall demand for UK produced products, and imports which are not produced the UK
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Trade-offs
Occurs when two objectives cannot both be achieved the more you have of one variable the less you have of the other.
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Card 2

Front

Aggregate demand

Back

Is the total of all demand in the economy from consumption, investment, government expenditure and net amount of trade (AD = C + I + G (X-M))

Card 3

Front

Aggregate supply

Back

Preview of the front of card 3

Card 4

Front

Allocation of resources

Back

Preview of the front of card 4

Card 5

Front

Allocative efficiency

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