Econdefinitions 💦

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Absolute advantage
where a country is able to produce a good using fewer resources than another country.
Absolute poverty
involves incomes that are at or below a minimum income level which may be defined as a poverty line) needed to secure the basic necessities of life (such as food, shelter, clothing).
Actual growth
is an increase in real output for an economy over time. It is measured as an increase in real GDP.
Aggregate demand
is the total spending in an economy in a given time period at a given price level consisting of consumption, investment, government expenditure and net exports.
Aggregate supply
the total quantity of goods and services produced in an economy at a given price level in a given time period.
Allocative efficiency (HL)
exists where price is equal to marginal cost (or marginal social cost) and resources are allocated in such a way that neither too much nor too little is produced from society's point of view.
Asymmetric information
A type of market failure where buyers and sellers do not have equal access to information, usually resulting in an under allocation of resources to the production of goods and services
Automatic stabilisers
Factors that automatically, without action by the government work toward stabilizing the economy by reducing the short term fluctuations of the business cycle. Two important examples are progressive income taxes and unemployment benefits.
Average costs (HL)
is the total cost divided by the quantity produced.
Average fixed costs (HL)
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Budget deficit
occurs when government expenditure exceeds government revenue (taxation).
Business confidence
is related to the expectations of businesses about the future of economic conditions, (which may be optimistic or pessimistic) and affects the level of investment and durable consumption.
Business cycle
is the periodic fluctuations in real national income/output/GDP around the productive potential or long term trend of the economy. Its stages are slump/trough, recovery/expansion, boom and recession.
Cartel
is a group of producers in an industry that join together to regulate supply (or fix or increase prices).
Collusive oligopoly
is where a few firms act together to restrict competition by resorting to agreements to fix prices or output.
Commodities
is a product extracted from (i.e. hard commodity) or grown on (i.e. soft commodity) the land.
Comparative advantage
where a country has a lower opportunity cost in the production of a good that another country.
Consumption
is spending by households on domestic consumer goods and services over a period of time.
Cross elasticity of demand
is the responsiveness of the demand for one good to a change in the price of another good.
Crowding out (HL)
is a situation where the government spends more (government expenditure) than it receives in revenue (mainly taxation), and needs to borrow money, forcing up interest rates thereby reducing investment and consumption
Demerit good
is a good considered to be harmful to people that would be over-provided by the market and so over-consumed or a good whose consumption creates negative externalities, or a good whose consumption creates costs for third parties, not involved in the purchase or sale of the product.
Demand
is the quantity of goods and services that consumers are willing, and able to buy at each possible price (over a given period of time).
Dumping
where a good is sold in international markets below the cost of production.
Economic growth
is the growth of real output in an economy over time and it is measured by an increase in real GDP.
Potential growth
is an increase in the potential output of an economy through an increase in the quantity/quality of resources.
Economies of scale (HL)
are a fall in long run unit costs that comes about as a result of a firm increasing its scale of operations.
Entrepreneurship
is the factor of production involving organizing of the other factors and/or risk taking.
Equilibrium price
is the market-clearing price, set where Demand equals Supply.
Factors of production (resources)
are the four types of resources used in the production process: land, labor, capital (and possibly entrepreneurship / management / enterprise).
Fiscal policy
is the use of government spending and taxation to shift the AD curve and achieve economic objectives relating to inflation and unemployment.
Gross Domestic Product (GDP) or national
is the total value of all final goods and services produced in an economy in a given time period (usually one year).
GDP per capita
is a measure of real output/ income/ expenditure in the economy in one year per head of the population.
real GDP or real output
is the value of all final domestic goods and services, adjusted for inflation.
Gross National Income/Gross National Product (GNI/GDP)
is made up of GDP plus net property income (current transfers) from abroad. A GNP that is larger than GDP must have a positive figure (balance) for net property income (current transfers).
Green GDP
a measure of GDP that takes into account any environmental costs incurred from the production of the goods and services included in the GDP figures
Gini Coefficient
is a measure of inequality in the distribution of income.
Human resources
are the labor force of a country.
Income elasticity of demand
is the measure of the responsiveness of demand of a good or service to a change in income.
Inflation
is a sustained increase in the general or average level of prices.
Cost push inflation
is inflation caused by an increase in prices of the factors of production (i,e, land, labour, capital and entrepreneurship)
Demand pull inflation
is inflation caused by high demand resulting in aggregate demand outstripping aggregate supply
Deflation
is a sustained decrease in the average level of prices (general price level) in an economy.
Development
refers to the increases in the standard of living of the whole population. Generally measured using HDI.
Inflationary gap
refers to inflationary pressure created by the current (or SR) equilibrium being above the full employment (or LR) equilibrium.
Infrastructure
involves essential facilities and services such as roads, airports, sewage treatment, railways, telecommunications and other utilities typically provided by the government.
Interest rate
is the price of capital or the price of borrowed/loaned money, usually expressed as a percentage.
Investment
is expenditure by firms on capital equipment and is an injection into the economy.
Market
is the interaction between buyers and sellers in order to exchange goods or services or buyers and sellers coming together in order to exchange a good or service.
Maximum price
is a price set below the market equilibrium by the government. Firms may not charge above this price.
Merit goods
are goods or services with strong positive externalities] that would be under-provided by the market and so under-consumed.
Minimum price
is a price set above the market equilibrium by the government. Firms may not charge below this price.
Monetary policy
is a demand-side policy with the Central Bank using changes in the money supply or interest rates to affect AD and achieve economic objectives relating to inflation and unemployment.
Monopolistic competition
is a market when there are many buyers and sellers, producing differentiated products, with no barriers to entry.
Monopoly
is a market structure where there is only one firm in the industry or a single firm dominates the market.
Multiplier (HL)
is the ratio of the induced change in national income to the increase in the level of injections and it is equal to the reciprocal of the mps + mpt + mpm.
Negative externalities
are (spillover) costs to a third party caused by the production, or consumption of a good (or service) or that they occur when MSC is greater than MSB in the market for a good or service.
Nominal
is the value of an economic variable that has not been adjusted for the effects of inflation.
Non-price competition
exists where competition is not in terms of price, but rather in terms of non-price activities designed to differentiate the products (for example on the basis of quality or branding).
Normal profit (HL)
is the amount of revenue needed to cover the total costs of production, including the opportunity costs.
Oligopoly
is a market where few large firms dominate the industry, firms are interdependency, high barriers to entry, homogeneous or differentiated product, and imperfect information.
Opportunity cost
is the cost of an economic decision in terms of the next best alternative foregone.
Price elasticity of demand
is a measure of the responsiveness of quantity demanded to a change in the price of the good.
Price inelastic
is when a change in the price of a product leads to a proportionately smaller change in the quantity (demanded) or PED is less than one or % change in quantity (demanded) is less than the % change in price.
Price discrimination (HL)
exists when a producer charges a different price to customers not justified on the basis of differences in cost.
Product differentiation (HL)
is where a producer attempts to distinguish her product from those of competitors, with the aim of making demand less price elastic.
Productive efficiency (HL)
exists when production is achieved at lowest cost per unit of output. This is achieved at the point where average total cost is at its lowest value.
Rationing
is a way that scarce goods (or services or resources) are allocated or the distribution/allocation of a good (or service or resources) among users (consumers), or a method of distributing a good when there is a shortage.
Real price
is the nominal price of a good or service adjusted for inflation.
Recession
is at least two consecutive quarters of negative economic growth.
Resource allocation (allocation of resources)
is concerned with how resources (land, labor, capital and management) are distributed in an economy.
Revenue maximisation
Occurs at the level of output where the company will earn the highest revenue possible, given by the condition MR=0
(total) Revenue
is equal to price times quantity sold or it is the total money received by a firm from the sale of a particular quantity of output.
Satisificing
the idea that a firm tries to make only enough profit so that stakeholders in the firm are satisified
Savings
is income that is not spent, present consumption foregone, a withdrawal from the circular flow of income or money stored in financial institutions.
Subsidy
is a payment made by the government to producers per unit of output in order to reduce the costs of production or to increase output. This may be used as a form of protectionism.
Supernormal (abnormal) profits
refer to a situation where all costs, including opportunity cost, are more than covered by revenue, OR profits that are above the level that is sufficient to keep the firm in an industry.
Supply
is the willingness and ability of producers to produce a quantity of a good at a given price (in a given time period).
Supply-side policies
are policies designed to increase the potential output of an economy and shift LRAS to the right. They may include tax cuts, reductions in welfare payments, spending on infrastructure etc.
Indirect tax
is an expenditure tax or a tax levied on goods and services and it is imposed by the government.
Profit maximisation
occurs at the level of output where the company will earn the highest profits possible, given by the condition MC=MR
Progressive tax
is where the higher the level of income, the higher the percentage of taxation that is paid (or the higher the average rate of taxation).
Regressive tax
is where the proportion of income paid in tax falls as the income of the taxpayer rises or where the average rate of tax falls as income rises.
Ad valorem taxes
Taxes calculated as a fixed percentage of the price of the good or service; the amount of tax levied per unit increases as the price of the good or service increases
Quota
A legal limit on the quantity or value of a good that can be imported in a given time period.
Tariff
Taxes on imported good designed to protect domestic industries or raise tax revenue.
Tradeable permits
are permits to pollute, issued by a governing body, which sets a maximum amount of pollution allowable. Firms may trade these permits for money.
Transfer payments
are a payment received for which no good or service is exchanged, or a payment made by the government to individuals (for the purpose of redistributing income), or a form of aid where money is transferred from one country to another. e.g. a student grant or a pension.
Unemployment
is people of working age (those in the labor force) actively seeking work at the current wage rate but cannot find one.
Structural unemployment
is long term unemployment caused as a result of a fall in the demand for a particular type of labor occurring as a result of the changing structure of an economy due to changes in the demand/supply and/or technology. It occurs when there is a mismatch between the skills of unemployed workers and the jobs available or as a result of rigidities in the labor market
Underemployment
workers 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
underemployment
exists when workers are employed part-time even though they are available for full-time employment, or workers are employed but work less than they would have wanted to, or when workers are carrying out jobs for which they are over-qualified.
unemployment rate
is the number of workers without a job, who are willing and able to work, expressed as a percentage of the workforce.
Wage
is the payment for labor/working
real wage
is the payment for labor/working adjusted for inflation.
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