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Terms in this set (94)
any profit above that necessary to keep the firm in business
the total demand for all G & S produced in an economy. AD = C + I + G (X -M)
the socially optimal allocation of resources, identified by P=MC
is government legislation to prevent the selling of an imported good at a price below its
cost of production.
cost of production per unit (calculated by dividing the total costs by the quantity
aid that is given directly from one country to
the regular pattern of increases and decreases in economic activity around the long term
trend. (Correctly labelled diagram would gain the two marks)
a group of producers in an industry (usually oligopoly) who agree to regulate supply so
as to increase price and increase joint profit
an economic system in which resources are allocated by the government and Demand
and Supply have no role to play
a situation where the small number of firms comprising an industry act together to avoid
competition by resorting to agreements to fix prices (or output).
spending by individuals or households on consumer goods and services. It is the
largest component of AD.
Cross elasticity of
a measure of the responsiveness of quantity demanded of one good to a change in price
of another. XED = %change in Qd(a) / %change in P(b)
a situation where, by borrowing money to fund its own spending, the government forces
up interest rates and thus reduces (crowds out) private sector investment.
when revenue from exports of G&S(and investments and transfers) is less than
expenditure on imports (and investments and transfers)
is the willingness and ability to purchase a quantity of a good or service at a given price
level over a given time period.
a fall in the value of one currency against another currency in a floating exchange rate
when the average price of exports falls relative to the average price of imports
Countries which are characterized by such features as low per capita incomes, high
levels of poverty, low standards of living, poor health facilities........ (at least two clear
selling a good in a foreign market at a price below the production costs
Economies of Scale
a fall in long-run unit costs that come about as a result of a firm increasing its scale of
output (+ example?)
An increased real output for an economy over time and measured as an increase in real
GDP. Alternatively, it may be explained as an increase in the potential output of the
economy through an increase in the quantity/quality of resources.
An explanation that it is the factor of production involving organizing of the other
factors and/or risk taking
the market clearing price at which the quantity demanded is equal to the quantity
the increase in the value of one currency in terms of another in a floating exchange rate
the resources needed to produce goods and services. FOP comprise of land, labour,
capital and entrepreneurship.
is the use of government spending and taxation to achieve government economic
stores of foreign currencies held by the central bank or government of a country
investment by firms based in one country (multinational corporations) in productive
activities in another country
when price and output are determined by demand and supply, with no government
importing and exporting with no government intervention
free trade area
an agreement by a group of countries to have no protection on trade among members
but to allow each member to set its own external trade barriers
is the value of all final goods and services produced within a country's geographical
boundaries in a given time limit
a measure of inequality in the distribution of income. It is usually used in conjunction
with the Lorenz Curve.
the labour force of a country; a country's human capital
a policy of deliberately reducing imports and replacing them with domestic production.
It is usually part of a growth or development strategy for an economy
income elasticity of
a measure of the responsiveness of quantity demanded to a change in income
a tax (compulsory payment to the government) levied on goods and services
is a sustained increase in the general or average level of prices. It is a fall in the value or
purchasing power of money.
a situation where AD is higher than the full employment level of output in an economy
thus causing inflationary pressures.
markets in which economic activity is not officially recorded (e.g. illegal black markets,
essential facilities and services (e.g. roads, telecommunications), usually provided by the
government, which allow economic activity to take place more easily
is the price of borrowed money or the price of capital
expenditure by firms on accumulating capital (a component of AD, an injection into the
Policies designed to encourage domestic production of goods rather than imports.
Protectionist measures are usually employed.
an apparently floating exchange rate but with government intervention usually if the
fluctuations are thought unacceptable
the interaction between buyers and sellers in order to exchange goods or services
an economy where resources are allocated by the forces of demand and supply
goods which are considered to be good for society but which are underconsumed and so
underprovided by a free market.
a price imposed by an authority and set above the market price. Prices cannot fall
below this price.
is a demand-side government policy to control the money supply or alter interest rates
a company which has productive units in more than one country
When one country can produce more of a given product with the same or less resources than another country
the process by which an injection into the economy results in a greater increase in
national income (and/or formula)
are the adverse impacts on a third party caused by the production or consumption of a
good or service. The third party is anyone other than the buyer and seller.
adverse impacts on a third party (someone who is not directly involved in the economic
transaction) when a good or service is produced or consumed.
Non-Government Organisations which exist to promote economic development,
sustainable development, humanitarian ideals etc. (Example: Save the Children Fund,
the money value of an economic variable, before it has been adjusted for inflation
Is the return to the entrepreneur. It is the minimum profit needed to keep the business
running. It is identified by AR = AC
a market structure comprising a small number of firms who are interdependent
Is a measure of the real cost of one thing in terms of the next best alternative foregone
when an economic decision is made.
the cost of one thing in terms of the next best alternative foregone (+example)
charging a different price to customers for the same product, for reasons not associated
with cost differences
price elasticity of
a measure of the responsiveness of demand to a change in price of the good (and/or
deliberate action by the producer to distinguish a product from its competition, usually
through branding or packaging.
producing at the lowest cost per unit of output
where the percentage of tax paid increases as income increases
legal rights for individuals to own property/assets
are import barriers that set limits on the quantity or value of imports into a country
the total value of final G & S produced within a country over a given period of time,
adjusted for inflation
the value of final goods and services after adjustment for inflation
the price of something after allowing for the effects of inflation (+ simple numerical
the value of the payment for labour after adjustment for inflation. The purchasing power
is at least two consecutive quarters of negative economic growth. It is illustrated by the
falling section of the trade cycle and it is characterised by high unemployment.
the distribution of the factors of production in the activities of an economy
long term unemployment caused by the fall in demand for a particular type of labour
following a change in the structure of the economy.
government financial assistance to producers to reduce the costs of production (thus
allowing them to reduce prices/compete more effectively)
the willingness and ability of a producer to produce a quantity of a good or service at a
given price (in a given time period).
are policies designed to increase the total supply of goods and services in an economy. A
successful supply side policy implementation would be illustrated by a rightward shift of
the AS curve
policies designed to increase the Aggregate Supply in an economy (illustrated by a
rightward shift of the AS curve)
is the development needed to meet the needs of the present generation without
compromising the ability of future generations to meet their own needs.
a tax on imports
The World Bank
An international organisation which provides financial aid and advice to developing
financial assistance to an LDC, given on the condition that it is used to buy goods and
services from the donor country
the income a firm receives from the sale of its goods. TR = p * q
are permits to pollute, issued by a governing body, which sets a maximum amount of
pollution allowable. Firms may trade these permits for money
people of working age (those in the labour force) willing and able to work actively
seeking work at the current wage rate who are without work.
is the number of workers without a job, who are willing and able to work, expressed as a
percentage of the workforce.
are payments made to the factor of production labour
an international organisation whose main aims aer to provide aid and advice to Less
Developed Countries and to reduce poverty
an international body which tries to reduce trade barriers between countries
When a country produces a good at a lower domestic opportunity cost than another country
Opportunity cost formula
Opportunity cost of producing 1 unit of X = output Y / output X = input X / input Y
when one country can produce more of a given product with same or less resource than another country.
Industry that is newly developed and has not had an opportunity to develop the economies of scale and low costs that are achieved by selling to a large market.