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Economics AS > Definitions > Flashcards

Definitions Flashcards

1
Q

Economics

A

Economics is the study of how a society uses its scarce resources to satisfy its wants.

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2
Q

Scarcity

A

A situation in which resources are not enough to satisfy everybody’s wants.

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3
Q

Opportunity cost

A

The value of the best alternative given up by a decision to do something else.

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4
Q

Positive statements

A

Objective statements that can be tested based on empirical or actual evidence.

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5
Q

Normative statements

A

Subjective statements based on value judgments.

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6
Q

Ceteris paribus

A

With other things held constant.

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7
Q

Free market

A

An economic system where decisions are made by individual buyers and sellers who act in their own self interest, where consumers aim to maximise utility while producers aim to maximise profit.

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8
Q

Planned economies

A

An economic system where economic decisions are made by the state or government.

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9
Q

Production Possibility Curve (PPC)

A

A PPC shows the combinations of two products that can be produced by an economy with full use of all resources, using the best available production methods.

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10
Q

Free good

A

A good that does not require scarce resources.

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11
Q

Public good

A

Non-excludable and non-rivalrous good.

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12
Q

Non-excludable

A

Costly, impossible for one user to exclude others from using a good.

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13
Q

Non-rivalrous

A

When one person uses a good, it does not prevent others from using it.

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14
Q

Merit goods

A

Goods where people do not realise the true personal benefit and have positive externalities.

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15
Q

Demerit goods

A

Goods which harms the consumer and have negative externalities.

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16
Q

Demand

A

The quantity that buyers are willing and able to buy at a particular price.

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17
Q

Normal goods

A

When there is an increase in income, demand for normal goods increases.

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18
Q

Inferior goods

A

When there is an increase in income, demand for inferior goods decreases.

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19
Q

Supply

A

The quantity of a good or service that producers are willing and able to supply at a particular price.

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20
Q

Market price

A

The price at which buyers want to buy the same quantity that sellers want to sell.

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21
Q

Elasticity

A

The responsiveness of the quantity demanded to a change in price.

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22
Q

Income Elasticity of Demand (YED)

A

The responsiveness of demand to a change in the real income of consumers.

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23
Q

Positive YED

A

When income increases, the demand for the good increases.

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24
Q

Negative YED

A

When income increases, the demand for the good decreases.

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25
Q

Cross Elasticity of Demand (XED)

A

The responsiveness of demand for good X following changes in the price of a related good Y.

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26
Q

Price Elasticity of Supply (PES)

A

The responsiveness of the quantity supplied to a change in the price of a product.

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27
Q

Consumer surplus

A

The difference between the value a consumer places on units consumed and the payment needed to actually purchase that product.

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28
Q

Producer surplus

A

The difference bteween the price a producer is willing to accept and what is actually paid.

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29
Q

Tax

A

Charges imposed by government on incomes, profits and some types of consumer goods and services to fund their expenditure.

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30
Q

Subsidies

A

A direct payment or grants by government to producers, make the price paid by consumers less than it should be.

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31
Q

Incidence of tax

A

The extent to which tax burden is borne by producer or the consumer.

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32
Q

Maximum price (price ceiling)

A

Legal maximum on the price at which a good or servicce can be sold and market price must not exceed this price.

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33
Q

Minimum price (price floor)

A

Legal minimum on the price at which a good or service can be sold, market must not go below this price.

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34
Q

Transfer payments

A

Hand-outs or payments made by government to certain members of the community.

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35
Q

National income

A

Total income for an economy

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36
Q

Gross domestic product (GDP)

A

Total amout of goods and services produced in an economy during a period of time.

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37
Q

Groos national income (GNI)

A

Total output produced by a country’s citizens wherever they produce it.

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38
Q

Gross national product (GNP)

A

GDP + Net property income from abroad (income country’s residents earn on their physical/financial assets minus returns on assets held in the country but owned by foreigners)

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39
Q

Net national income (NNI)

A

Gross national income minus the depreciation of fixed capital assets through wear and tear and obsolescence.

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40
Q

Basic price

A

Amount receivable by the producer from the purchaser for a unit of a product minus any tax on the product plus any subsidy on the product.

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41
Q

Open economies

A

Economies involved in trade with other countries

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42
Q

Closed economies

A

Economies that do not trade with other economies (self-sufficient)

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43
Q

Circular flow of income

A

Simple model of the process by which income flows around the economy.

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44
Q

Aggregate demand (AD)

A

Total spending on goods and servcies at a given price level in the economy in a given time period.

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45
Q

Aggregate supply (AS)

A

Total output (real GDP) that producers in an economy are willing and able to supply at different price levels in a given period of time.

46
Q

Short run aggregate supply (SRAS)

A

Total output of an economy that will be supplied in a period of time on the assumption that price of factors of production remain unchanged.

47
Q

Long run aggregate supply (LRAS)

A

Total output of a country supplied in the period when prices of factors of production have fully adjusted to changes in aggregate demand and price level.

48
Q

Economic growth

A

An increase in an economy’s output in the short run; increase in a country’s productive potential in the long run.

49
Q

Nominal GDP

A

A measure of the value of all final goods and services produced within a country’s borders at current market prices.

50
Q

Real GDP

A

A measure of a country’s output in terms of the value of tis goods and services, its investments, its govermment spending and its exports.

51
Q

Frictional unemployment

A

Temporary and arises when people are in-between jobs.

52
Q

Structural unemployment

A

Caused by changing structure of economic activity.

53
Q

Cyclical unemployment

A

Caused by lack of aggregate demand

54
Q

Inflation

A

Sustained increase in economy’s price level over a period of time

55
Q

Consumer price index (CPI)

A

Shows average changes in prices of a representative basket of products purchased by households.

56
Q

Retail price index (RPI)

A

A measure of changes in the prices of consumer goods.

57
Q

Money values / nominal values

A

Values at the prices operating at that time.

58
Q

Real values

A

Values adjusted for inflation.

59
Q

Cost-push inflation

A

Inflation caused by increase in costs of production.

60
Q

Demand-pull inflation

A

Inflation caused by increase in aggregate demand (AD) not matched by equivalent increase in aggregate supply (AS).

61
Q

Deflation

A

Sustained fall in price level (Negative inflation rate)

62
Q

Disinflation

A

Fall in inflation rate (Positive inflation rate)

63
Q

Economic policy

A

Deliberate attempt from government to increase economic welfare.

64
Q

Fiscal policy

A

The use of taxation and government spending to influence aggregate demand.

65
Q

Cyclical budget deficit

A

Budget deficit caused by changes in economic activity.

66
Q

Structural budget deficit

A

Budget deficit caused by an imbalance between government spending and taxation.

67
Q

Direct tax

A

Tax on income of people and firms and cannot be avoided.

68
Q

Indirect tax

A

Tax that is levied on goods or services.

69
Q

Progressive tax

A

Takes a higher percentage from those with higher incomes.

70
Q

Regressive tax

A

Takes a higher percentage from those with lower incomes.

71
Q

Monetary policy

A

Policy instruments to influence the price of quantity of money.

72
Q

Interest rates

A

Price of borrowing and the reward for saving.

73
Q

Money supply

A

Total amount of money in a country.

74
Q

Absolute advantage

A

The ability of a country to produce a product more efficiently than another country.

75
Q

Comparative advantage

A

The ability of one country to produce goods at a lower opportunity cost than another country.

76
Q

Free trade

A

The exchange of products between countries without any restrictions.

77
Q

Economic integration

A

An arrangement among nations that typically includes the reduction or elimination of trade barriers and the coordination of monetary and fiscal policies.

78
Q

Customs union

A

A trade bloc where there is free trade between member countries and a common external tariff on imports from non-members.

79
Q

Economic union

A

A trade bloc where there is free trade between member countries, a common external tariff and some common economic policies, which may include a common currency.

80
Q

Trade creation

A

Where high cost domestic production is replaced by more efficiently produced imports from within the customs union.

81
Q

Trade diversion

A

Where trade with a low-cost country outside a customs union is influenced by higher cost products supplied from within.

82
Q

Trading possibility curve

A

A curve that shows the effects of a country specialising and training.

83
Q

Terms of trade

A

A numerical measure of the relationship between export and import prices.

84
Q

Tariff

A

Taxes usually on imports but may also be imposed on exports.

85
Q

Import duty

A

Taxes collected on imports and some exports by a country’s customs authorities.

86
Q

Quota

A

A non-tariff barrier to trade, restrictions on maximum quantity of imports.

87
Q

Export subsidies

A

Payments to domestic producers by the government.

88
Q

Embargoes

A

A law that bars trade with another country.

89
Q

Voluntary export restraint

A

A situation where two countries make an agreement to limit the volume of their exports to one another over an agreed period of time.

90
Q

Excessive adminstrative burdens (‘red tape’)

A

A government may seek to discourage imports by requiring importers to fill out time consuming forms and set artificially high product standards to restrict foreign competition.

91
Q

Dumping

A

Refers to the selling of the same good to a foreign country at a lower price than that charged to the domestic buyers and often below the marginal cost of production.

92
Q

Balance of payments (BOP)

A

A record or overall statement of a country’s economic transaction with the rest of the world over a period of time.

93
Q

Capital account

A

Within the BOP, a record of capital transfer and acquisition and disposal of non-produced, non-financial assets (physical assets).

94
Q

Marshall-Lerner condition

A

Currency devaluation will only improve trade balance if sum of PED of imports and exports is greater than one.

95
Q

Financial account

A

A record of the transfer of financial assets between the country and the rest of the world.

96
Q

Net errors and omissions

A

Figure included to ensure BOP balances.

97
Q

Hot money

A

Money flowing out of the country in search to maximise interest or capital gain. (short term)

98
Q

Nominal exchange rate

A

Price of one currency in terms of another currency.

99
Q

Trade weighted exchange rate

A

The price of one currency against a basket of currencies.

100
Q

Real effective exchange rate

A

Measures a currency’s value in terms of its real purchasing power.

101
Q

Floating exchange rate

A

Exchange rate that is determined by market forces of demand and supply.

102
Q

Depreciation

A

Fall in currency value caused by market forces

103
Q

Appreciation

A

Rise in currency value caused by market forces

104
Q

Fixed exchange rate

A

An exchange rate set by government and maintained by central bank.

105
Q

Managed float exchange rate

A
  • Combines features of a floating exchange rate and a fixed exchange rate system.
  • Influenced by state intervention.
106
Q

Devaluation

A

Decision by government to lower the international price of the currency.

107
Q

J-curve effect

A

A fall in exchange rate causing an increase in current account deficit before it reduces due tot he time it takes for demand to respond.

108
Q

Revaluation

A

Decision by government to raise the international price of its currency.

109
Q

Expenditure switching policies

A

Policy measures designed to encourage people to switch from buying foreign-produced products to buying domestically produced products.

110
Q

Expenditure dampening policies

A

Policy measures designed to reduce imports and increases exports by reducing demands.

111
Q

Automatic stabilisers

A

Changes in government spending and taxation that occur to reduce fluctuations in aggregate demand without any alteration in government policy.

Economics AS (3 decks)

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