All Economic definitions

Question 1

Define Abnormal losses

Answer 1

Where businesses are not making enough profit to justify ongoing supply to a market. That is, businesses are making less than ‘normal profits’. These losses are likely to encourage firms to exit the industry.

Question 2

Define Abnormal profits

Answer 2

Where businesses are making more than enough profit to justify ongoing supply to a market. That is, businesses are making more than ‘normal profits’. Also referred to as ‘supernormal profits’ and they are likely to encourage firms to enter the industry.

Question 3

Define ABS

Answer 3

Australian Bureau of Statistics. The government body responsible for gathering and reporting statistical information.

Question 4

Define Absolute advantage

Answer 4

Where a country is more efficient than another country in producing all goods and services in the sense that it can produce more of every good or service using the same inputs as another country.

Question 5

Define Absolute poverty

Answer 5

A situation where a person or a household has insufficient income to purchase the basic necessities such as food, clothing and shelter.

Question 6

Define ACCC

Answer 6

Australian Competition and Consumer Commission.

Question 7

Define Advertising

Answer 7

Paid, non-personal communication used to persuade consumers to buy products. E.g when a business promotes their products with a view to increasing consumer demand and differentiating their products from those of rival businesses.

Question 8

Define Affluenza

Answer 8

The addictive pursuit of more and more goods and services.

Question 9

Define Aggregate Demand

Answer 9

Total expenditure on Australian made goods and services.

Question 10

Define Aggregate demand policies

Answer 10

Government policies such as budgetary policy and monetary policy that are used to stimulate or restrain aggregate demand to promote the achievement of the government’s macroeconomic goals.

Question 11

Define Aggregate supply

Answer 11

The total value of goods and services available for sale in an economy in a given time frame.

Question 12

Define Aggregate supply policies

Answer 12

Any government initiative that is designed to reduce the costs of production and/or improve supply conditions for businesses.

Question 13

Define AIRC

Answer 13

Australian Industrial Relations Commission.

Question 14

Define All ordinaries index

Answer 14

An index comprising the prices of major companies on the Australian stock exchange. An increase in the index indicates that the sharemarket has improved.

Question 15

Define Allocative efficiency

Answer 15

A type of efficiency measured by how well resources are being allocated in the economy. The most efficient allocation of resources occurs when living standards and welfare are maximised and it is not possible to further increase living standards by changing the way resources are allocated

Question 16

Define Anchoring effect

Answer 16

Is where consumers’ judgments are affected by some arbitrary starting value or ‘anchor’.

Question 17

Define Appreciation

Answer 17

When one currency is able to purchase more of another currency. For example, if the Australian dollar appreciates, one AUD will purchase more USD than it could before.

Question 18

Define Assembly plant Asset markets

Answer 18

A factory where manufactured parts are assembled (put together) to create a finished product. The share market and property market.

Question 19

Define Australian Competition and Consumer Commission (ACCC)

Answer 19

The government body responsible for policing the Trade Practices Act (or competition policy) and whose role is to improve competition and efficiency in markets and to foster adherence to fair trading practices.

Question 20

Define Australian Industrial Relations Commission (AIRC)

Answer 20

The government body that was once responsible for the conciliation and arbitration of industrial disputes and the determination of minimum wages. Colloquially, the industrial relations ‘umpire’. It has since been replaced by Fair Work Australia.

Question 21

Define Australian Fair Pay Commission (AFPC)

Answer 21

The government body set up under Workchoices to set minimum wages, but now replaced by Fair Work Australia .

Question 22

Define Availability heuristic

Answer 22

A tendency for consumers to rely on, and use information, that is most convenient and accessible when making decisions.

Question 23

Define Average weekly earnings

Answer 23

Gross (before tax) earnings of employees and derived by dividing total weekly earnings by the number of employees.

Question 24

Define Award system

Answer 24

A feature of the highly ‘centralised’ system of industrial relations that existed in the past where wages and conqitions.

Question 25

Define Awards

Answer 25

Legal documents establishing the minimum wages and conditions applying to various occupations, and normally each Award covers one industry.

Question 26

Define Balance of Payments Payments (BOP}

Answer 26

An accounting summary of all the financial transactions between residents of Australia and residents of the rest of the world. Includes the Current Account and the Capital and Financial Account.

Question 27

Define Balance of trade

Answer 27

The value of all exports minus imports (including both services and goods}. See Balance on Merchandise Trade (BOMT}

Question 28

Define Balance on goods and services (BOGS)

Answer 28

The combination of the Balance on Merchandise Trade (BOMT} and Net Services in the Balance of Payments. Made up of total exports of goods and services less the total imports of goods and services.

Question 29

Define Balance on Merchandise Trade (BOMT)

Answer 29

A sub-account in the Balance of Payments made up of the total value of exports (credits} minus the total value of imports (debits} of goods.

Question 30

Define Balanced budget

Answer 30

When government revenue (or receipts} is equal to government expenses (or expenditure}.

Question 31

Define Barriers to entry

Answer 31

Factors making it difficult for firms to commence operations or enter an industry, such as large 'set-up' costs, government regulations or the market power of incumbent firms already in the industry..

Question 32

Define Behavioural economics

Answer 32

A field of study that seeks to incorporate the insights of psychology into economics, to enhance the explanatory power of economics.

Question 33

Define Behavioural economist

Answer 33

A practitioner of behavioural economics.

Question 34

Define Benefit-cost ratio

Answer 34

A ratio of the benefits to costs where a ratio greater than 1.0 indicates that a project's benefits outweighs the costs, whereas a ratio of less than 1.0 indicates that the costs outweigh the benefits.

Question 35

Define BEPS

Answer 35

A tax avoidance strategy used by MNCs, where profits are shifted from jurisdictions that have high taxes (such as the United States and Australia} jurisdictions that have low (or no} taxes. Often achieved by manipulating transfer prices (contracts between MNCs subsidiaries in different jurisdictions at prices that are designed to minimise tax but not lose money overall for the company}. The term is used in the OECD project designed to stop the practice.

Question 36

Define Bilateral foreign aid

Answer 36

Bilateral foreign aid is aid given from one country government to another country's government,

Question 37

Define Blind recruitment

Answer 37

The practice of removing personally identifiable information from the resumes of applicants including their name, gender, age, education, and even sometimes the number of years of experience, in order to promote a selectin process that achieves more diverse outcomes.

Question 38

Define Bonds Boom

Answer 38

Debt instruments issued by governments or corporations, and used to raise money for the government, often to finance budget deficits. The bond purchaser becomes the lender to the bond issuer.

Question 39

Define BOP

Answer 39

A period of very high rates of growth in production (or real GDP) that is likely to be unsustainable. See Balance of Payments.

Question 40

Define Bounded rationality

Answer 40

The notion that a consumer's ability to make consistently rational decisions is compromised by the availability of information, the complexity of the decision, the brain's cognitive limitations and time constraints.

Question 41

Define Bounded self-interest

Answer 41

The notion that consumers are social beings and as such care about fairness, and are not always driven by narrow self­ interest to maximise their personal benefit. The degree of competition that exists amongst different producers (or sellers) of goods and services in their quest to increase market share.

Question 42

Define Bounded willpower

Answer 42

The notion that consumers do not possess absolute self-control when confronted

Question 43

Define Brand loyalty

Answer 43

The continuing willingness of consumers to purchase and repurchase particular brands of goods and services. This implies that consumers are unwilling to entertain the purchase of other brands. Business seeks to cultivate brand loyalty.

Question 44

Define Budget constraint

Answer 44

The amount of income that consumers have at their disposal to spend on goods and services.

Question 45

Define Budget deficit

Answer 45

When government revenue (or receipts) is less than government expenses (or expenditure).

Question 46

Define Budget outcome

Answer 46

The outcome of the budget, either balanced, surplus or deficit.

Question 47

Define Budget surplus

Answer 47

When government revenue (or receipts) exceeds government expenses (or expenditure).

Question 48

Define Budgetary policy

Answer 48

The manipulation of the level and composition of federal government receipts and outlays in order to assist in the achievement of its economic and social goals for Australia.

Question 49

Define Business

Answer 49

An entity that provides a good or service for sale with the objective of making a profit.

Question 50

Define Business confidence

Answer 50

The general business community's perception of their future levels of sales and profitability (also referred to as business sentiment).

Question 51

Define Business cycle

Answer 51

The cyclical movement of economic activity over time, with periods of above average rates of economic growth and periods of negative or low rates of growth. Also referred to as the economic cycle. 'Booms' and 'busts' can be a feature of the business cycle. The business cycle needs to be judiciously managed by policy makers to avoid such occurrences.

Question 52

Define CAD

Answer 52

Current Account Deficit.

Question 53

Define CAFA

Answer 53

Capital and Financial Account.

Question 54

Define Capacity constraints

Answer 54

Factors that prevent (or constrain) an economy from producing more goods and services, such as skills shortages and infrastructure bottlenecks. It typically occurs when the economy is at productive capacity.

Question 55

Define Capacity utilisation

Answer 55

The rate at which industries are producing in relation to maximum capacity. A high level of capacity utilisation means there is very little spare capacity left to allow a rapid increase in output.

Question 56

Define Capital Account

Answer 56

A sub-account in the CAFA of the BOP and a relatively insignificant account covering capital transfers, the acquisition/ disposal of non-produced, non-financial assets, between residents and non-residents.

Question 56

Define Capitalism

Answer 56

An economic system where the majority of productive resources are owned by private individuals and firms.

Question 56

Define Capital

Answer 56

Resources which have been made by combining labour and natural resources to create a more sophisticated input in the production process (e.g. machinery). Not to be confused with financial capital.

Question 56

Define Cartel conduct

Answer 56

When two or more firms agree not to compete against each other and instead develop joint strategies to manipulate the market at the expense of consumers.

Question 56

Define Capital and Financial Account

Answer 56

The second of the two accounts in the BOP and made up of two sub-accounts, the Capital Account and the Financial Account.

Question 56

Define Carbon Tax

Answer 56

A tax on businesses emitting carbon when producing goods and services. The motivation is to increase the relative price of carbon-intensive products, creating incentives for producers to invest in alternative energies and encourage households to adopt more energy-efficient options (such as solar energy). Australia's carbon tax was repealed in 2014.

Question 57

Define Capital inflow

Answer 57

Funds entering the country in the form of either debt or equity. It often refers to overseas parties being attracted to the relatively higher Australian interest rates and lending to Australians.

Question 57

Define Centrally-planned economy

Answer 57

An economic system in which economic decisions are made by the state or government rather than by the market system. The production of goods and services is undertaken by government-owned enterprises.

Question 58

Define Cash crops

Answer 58

Crops that are grown and sold for export by farmers in developing countries, in order to earn money, including soy and palm oil. They have been blamed for environmental damage and hunger in developing countries.

Question 58

Define Centralised system

Answer 58

Used in relation to industrial relations and refers to the inflexible system of wages determination where wages and conditions were determined predominantly by Awards and negotiated by peak bodies such trade unions, governments and employer representatives.

Question 59

Define Ceteris paribus

Answer 59

Latin phrase meaning 'all other things being equal.' It is used in Economics to isolate the cause and/or effect of a change{s) in variables.

Question 60

Define Chain volume measure of GDP

Answer 60

An estimate of real GDP in the economy. In simple terms, it involves using prices from the previous period and applying them to current period volumes.

Question 61

Define Choice architect Choice architecture

Answer 61

A person or organisation responsible for creating the context in which people make decisions. The context within which a choice is made.

Question 62

Define Climate change

Answer 62

The significant changes to the planet's climate (e.g. global warming) as a result of excessive (carbon and other greenhouse gas emissions).

Question 63

Define Cloud computing

Answer 63

The use of computing resources that are delivered as a service over a network, usually the Internet. Cloud computing entrusts a remote service with the user's data, computation and software. The data is stored on a remotely located server that often serves a number of clients.

Question 64

Define Collective bargaining

Answer 64

A type of wage negotiation where workers join forces and collectively negotiate wages and conditions with employers. See enterprise bargaining.

Question 65

Define Colonialism

Answer 65

An historical process whereby European powers took charge of many areas of Asia, Africa and Latin America, which some economists argue helped to create poverty in developing countries

Question 66

Define Commodity Commodity prices

Answer 66

Raw materials such as minerals and agricultural products.

Question 67

Define Commonwealth Government Securities

Answer 67

The prices for raw materials such as minerals and agricultural products. Government issued debt, typically in the form of government bonds.

Question 68

Define Company taxes

Answer 68

Taxes paid by corporations. Currently at a rate of 30% (of profits in Australia.

Question 69

Define Comparative advantage

Answer 69

A theory stating that that a country should produce those goods and services that where it is more efficient at producing, relative to another country. That is, a country will trade where the opportunity costs of producing a good or service are lower than other countries.

Question 70

Define Competition and Consumer Act

Answer 70

Government legislation designed to promote competition and to prevent anti-competitive behaviour. The Competition and Consumer Act (2010) replaced the Trade Practices Act (1974).

Question 71

Define Competition law

Answer 71

See Trade Practices Act (1974) or Competition and Consumer Act (2010)

Question 72

Define Competitive market

Answer 72

Where all economic agents are price takers. No individual buyer or seller has the market power to influence prices.

Question 73

Define Competitiveness

Answer 73

The degree of competition that exists amongst different producers (or sellers) of goods and services in their quest to increase market share.

Question 74

Define Complement

Answer 74

A good or service that tends to be consumed with another good or service (e.g. sugar is a complement for coffee and butter is a complement for bread).

Question 75

Define Complementary good

Answer 75

A good that is used with another good; for example, coffee and milk, bread and butter, cars and petrol, sushi and soy sauce, an iPod and earphones.

Question 76

Define Conformity bias

Answer 76

A tendency for people to take cues for right or proper behaviour from the actions of others when making decisions

Question 77

Define Conspicuous consumption

Answer 77

Where consumers purchase particular goods and services for the utility derived from the ostentatious exhibition of such 'status' goods and services.

Question 78

Define Consumer confidence

Answer 78

A measure of the degree of positivity or negativity about current and future economic conditions, including future employment, from the perspective of households.

Question 79

Define Consumer durables

Answer 79

Mass produced heavy goods, such as washing machines and refrigerators, that are designed to last for an extended period of time. Increasing demand for and consumption of these often accompanies economic development.

Question 80

Define Consumer price index

Answer 80

An indicator of consumer price inflation, which measures the change in the prices of a basket of goods and services purchased by the average Australian household.

Question 80

Define Consumer sovereignty

Answer 80

Where consumers primarily determine what will be produced via their purchasing decisions.

Question 81

Define Consumer surplus

Answer 81

The 'benefit' consumers receive if they obtain a good or service for less than the maximum they are willing to pay. For example, if someone purchases a house for $500,000 when they were prepared to pay $600,000, they have enjoyed a $100,000 consumer surplus.

Question 82

Define Consumption expenditure

Answer 82

Part of AD and defined as the total value of all expenditures on individual and collective consumption goods incurred by resident households and non-profit institutions.

Question 83

Define Consumers

Answer 83

Economic agents who purchase goods and services.

Question 84

Define Contracting out

Answer 84

When a business pays for other business entities to provide services that were previously provided 'in house'. For example, a business who employed its own cleaners might decide to contract out the task to a private cleaning business.

Question 84

Define Containerisation

Answer 84

a system of freight transport using shipping containers (also called ISO containers) made of weathering steel, made in standardized dimensions.

Question 85

Define Contracting out

Answer 85

When a business pays for other business entities to provide services that were previously provided 'in house'. For example, a business who employed its own cleaners might decide to contract out the task to a private cleaning business.

Question 85

Define Contraction

Answer 85

A downturn in economic activity.

Question 86

Define Contractionary policy

Answer 86

A policy that is designed to constrain or restrict economic activity. For example, a decision by the RBA to raise interest rates to relatively high levels is an example of a restrictive or contractionary policy.

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