Definitions

Question 1

absolute advantage

Answer 1

a country has an absolute advantage over other countries in producing a good when it can produce the same amount of the good with a smaller amount of resources

Question 2

accounting costs

Answer 2

accounting costs are costs computed by accountants which include only explicit costs

Question 3

accounting profit

Answer 3

accounting profit is the excess of total revenue over accounting costs

Question 4

actual economic growth

Answer 4

actual economic growth is an increase in actual output

Question 5

ad valorem tax

Answer 5

an ad valorem tax is an indirect tax of a certain percentage of the price of the good

Question 6

adverse selection

Answer 6

adverse selection is a situation where the parties on the side of the market who have more information self-select in a way that adversely affects the parties on the other side of the market who have less information

Question 7

aggregate demand

Answer 7

aggregate demand is the total demand for the goods and services produced in the economy over a period of time and is comprised of consumption expenditure, investment expenditure, government expenditure on goods and services and net exports

Question 8

aggregate supply

Answer 8

aggregate supply is the total supply of goods and services in the economy over a period of time and is determined by the production capacity and the cost of production in the economy

Question 9

allocative efficiency (economy)

Answer 9

the economy is allocatively efficient shen it is impossible to change the allocation of resources in a way that will increase the welfare of society. this occurs when the economy is producing at the point on the possibility curve that is tangent to the social indifference curve where the marginal rate of transformation is equal to the marginal rate of substitution. productive efficiency is a necessary condition for allocative efficiency. in other words, for the economy to be allocatively efficient, it must be productively efficient

Question 10

allocative efficiency (firm)

Answer 10

a firm is allocatively inefficient when it cannot change the allocation of resources in the economy in a way that will increase the welfare of society. this occurs when it charges a price equal to its marginal cost, assuming no externalities. when the price of a good is equal to the marginal cost, the marginal cost, the marginal benefit that consumers place on the last unit of the good is equal to the forgone benefit that they place on the amount of other goods that could have been produced using the same resources. therefore, the firm cannot change its output level to increase the total benefit for consumers and hence is allocatively efficient

Question 11

appreciation

Answer 11

an appreciation of a currency refers to an increase in the exchange rate under the floating exchange rate system

Question 12

asymmetric information

Answer 12

asymmetric information is a situation where come economic agents involved in a transaction have more information than other economic agents which leads to adverse selection and moral hazard

Question 13

austerity measures

Answer 13

austerity measures refer to the measures used by the government to reduce a budget deficit which include spending cuts and tax increases.

Question 14

average cost

Answer 14

average cost is the cost per unit of output

Question 15

average fixed cost

Answer 15

average fixed cost is the fixed cost per unit of output

Question 16

average propensity to consume out of disposable/national income

Answer 16

the average propensity to consume is the proportion of disposable/national income that is spent on consumption

Question 17

average propensity to save out of disposable/national income

Answer 17

the average propensity to save is the proportion of disposable/national income that is saved

Question 18

average propensity to tax/average rate of tax

Answer 18

the average propensity to tax or the average rate of tax is the proportion of national income that is taxed

Question 19

average revenue

Answer 19

average revenue is the revenue per unit of a good

Question 20

average variable cost

Answer 20

average variable cost is the variable cost per unit output

Question 21

balance of payments

Answer 21

the balance of payments is a record of all the transactions between the residents of the economy and the rest of the rest of the world over a period of time and is made up of the current account and the capital and financial account

Question 22

balance of trade

Answer 22

balance of trade, or the trade balance, is the exports of goods and services minus the imports of goods and services

Question 23

bank rate

Answer 23

bank rate refers to the interest rate charged on loans made on loans made by the central bank to banks

Question 24

barrier to entry

Answer 24

barrier to entry is an obstacle which restricts potential firms from entering a market to compete with the incumbent firm or firms

Question 25

block pricing

Answer 25

block pricing is a pricing scheme where a certain price is charged for the first so many units of a good for which there are no substitutes, a lower price for the next so many units and so on

Question 26

budget deficit

Answer 26

budget deficit occurs when government expenditure exceeds government revenue

Question 27

budget surplus

Answer 27

budget surplus occurs when government revenue exceeds government expenditure

Question 28

business cycle

Answer 28

business cycle, or the trade cycle, refers to the periodic fluctuations of national output and hence national income around long-term trend

Question 29

capital and financial account (kfa)

Answer 29

capital and financial account is made of the capital account and the financial account. the capital account is part of the balance of payments which records capital transfers such as the transfers of funds by migrants, development aid funds, the acquisition and disposal of non-produced, non-financial assets such as land, patents, copyrights and franchises. the capital account balance is the inward capital transfers minus the outward capital transfers. the financial account is part of the balance of payments which records changes in the holdings of shares, government securities, corporate bonds, deposits, loans, official reserves. the financial account balance is the sum of direct investment (net), portfolio investment (net), other investment (net) and official reserves (net)

Question 30

ceteris paribus

Answer 30

other things being equal

Question 31

circular flow of income and expenditure

Answer 31

the circular flow of income and expenditure shows the flow of income and expenditure between the different sectors in the economy

Question 32

club goods

Answer 32

goods that are excludable and non-rivalrous

Question 33

command system

Answer 33

command system is an economic system in which the three fundamental economic decisions of what and how much to produce, how to produced and for whom to produce are made by the government with no involvement of private individuals

Question 34

common resources

Answer 34

goods that are non-excludable and rivalrous

Question 35

comparative advantage

Answer 35

a country has a comparative advantage over other countries in producing a good when it can produce the same amount of the good at a lower opportunity cost. in other words, it can produce the same amount of the good by forgoing a smaller amount of other goods

Question 36

complements

Answer 36

goods that are consumed in conjunction with one another such as car and petrol

Question 37

conglomerate merger

Answer 37

a conglomerate merger is a merger between two firms that produce different and unrelated goods. in the case where the two firms produce different but related goods, the act is known as a lateral merger

Question 38

constant returns to scale

Answer 38

same percentage/proportionate increase in the quantities of all the factor inputs used in the production process leads to the same percentage/proportionate increase in total output

Question 39

consumer expenditure

Answer 39

consumer expenditure on a good is the amount of money that consumers spend on the good which is the product of the price and the quantity