Definitions Flashcards
Learn the definitions (174 cards)
1
Q
Demand
A
the amount of a good or service that consumers are willing and able to buy at different price levels
2
Q
Opportunity Cost
A
The next best alternative foregone when an economic decision is made
3
Q
Aggregate supply
A
The total quantity of goods and services produced in an economy (real GDP) over a particular time period at different price levels
4
Q
Primary commodities
A
A raw or unprocessed material that is harvested or extracted.
5
Q
Inferior Good
A
An inferior good is a good whose demand decreases when consumer income rises and vice versa. Their YED value is negative.
6
Q
Consumer Surplus
A
The extra satisfaction gained by consumers from paying a price that is lower than what they are prepared to pay.
7
Q
Cross price elasticity of demand
A
The responsiveness of the demand of one good to a change in the price of another good
8
Q
Common access resources
A
Goods that are rivalrous but non-excludable can be classified as common access resources
9
Q
Potential output
A
Total gross domestic product (GDP) that could be produced by an economy if all its resources were fully employed.
10
Q
Frictional Unemployment
A
Workers are temporarily unemployed while either between jobs or entering the labour force.
11
Q
Supply
A
The willingness and ability of producers to produce a quantity of a good or service at a certain price over a period of time.
12
Q
Ad Valorem Taxes
A
A percentage of the total expenditure is taxed
13
Q
Investment
A
The spending by firms (or the government) on capital
14
Q
Competitive supply
A
Two goods competing for the same resources for production, i.e. agricultural goods compete for farm space.
15
Q
Complementary good
A
Goods that are consumed with each other or goods that have a negative cross-price elasticity of demand
16
Q
Joint supply
A
Goods that are supplied together
17
Q
Underground (Informal) Markets
A
Markets where there is economic activity that is unrecorded (illegal/not taxed) by the government.
18
Q
Green GDP
A
A modified measure of GDP with environmental costs subtracted from GDP
19
Q
Natural Rate of Unemployment
A
The component in total unemployment not influenced by the demand side factor, and is therefore non-cyclical in nature. NRU includes frictional, seasonal and structural unemployment.
20
Q
Indirect taxes
A
Taxes on the expenditure on goods and services that are added to the selling price of a good or service, e.g sales tax.
21
Q
Producer surplus
A
The actual amount that a producer receives from selling their good minus the lowest price the producer would accept
22
Q
Price elasticity of demand
A
Measure of the responsiveness of quantity demanded to a change in price along a given demand curve
23
Q
Demerit goods
A
A good considered to be harmful to people which is over-provided by the market and therefore over-consumed, resulting in negative externalities from consumption
24
Q
Aggregate demand
A
The total demand for all goods and services produced in an economy, compromising of C+ I+G+(X-M)
25
Allocative efficiency
the marginal cost of producing is equal to the marginal benefit to consumers
26
Income Elasticity of Demand
A measure of the responsiveness of demand due to a change in income
27
Sustainability
The ability to meet the needs of the present without compromising the needs and wants of future generations
28
Recessionary Gap
When actual GDP is below potential GDP
29
Subsidies
When money is given to firms, by the government to reduce production costs and prices, as well as increasing supply, consumption, investment and employment. Subsidies also protect domestic industries from imported products.
30
Positive externalities of consumption
When the consumption of a good results in social benefits being greater than private benefits. They are under produced and under consumed.
31
Price Floor
A price set by the government above the equilibrium price below which the price cannot fall below.
32
Price Ceiling
The setting of the price lower than the market equilibrium by the government and no seller can sell the goods at a higher price.
33
Underemployment
The underuse of a worker is employed in a job that does not use the worker’s skill, is part time, or leaves the worker idle
34
Substitute
A good that offers similar benefits to the consumer as another good. Carries a positive XED
35
Price elasticity of supply
A measure if the responsiveness of quantity supplied to a change in price
36
Recession
The low point on the business cycle. It is two consecutive quarters of negative economic growth of GDP.
37
Consumption
The spending from households (consumers) on goods and services.
38
Producer Price Index
The measure of a weighted average price index of inputs and intermediate goods that are bought by producers
39
Business Confidence
Expectations of businesses about the future economic conditions (optimistic or pessimistic) and affects the level of investment
40
Merit Goods
Goods and services that benefit other people/create positive externalities, but are often underallocated by the free-market.
41
Allocative efficiency
The marginal cost of producing is equal to the marginal benefit to consumers
42
Interest rates
Rates at which borrowers are charged or lenders paid for their loan.
43
Deflation
A sustained fall in the average price level of an economy
44
Luxury good
A luxury good is a good for which demand increases more than proportionally as income rises. They are not necessary for living, but are deemed as highly desired within a culture or society
45
Unemployment
Unemployment is people of working age who are actively seeking work but not yet employed.
46
GNI (Gross National Income)
GNI is the sum of a country's gross domestic product (GDP) plus net income (positive or negative) from abroad.
47
Producer surplus
The actual amount that a producer receives from selling their good minus the lowest price for a producer to offer a given amount of good.
48
Positive externalities of production
is a benefit that is enjoyed by a third-party as a result of productions.
49
Direct taxes
a tax, such as income tax, which is levied by government on the income or profits of the person who pays it, rather than on goods or services.
50
Consumer price index
The measure of a weighted average price index of a market
51
Negative externalities of production
The production that creates adverse effects on third parties.
52
Net Exports
Net Exports measures the net income earned from trade with other countries.
53
Inflation
A sustained increase in the price level of an economy
54
Public good
Non-rivalrous and non-excludable goods that are available for all to consume, regardless of who pays and who does not.
55
Specific taxes
A fixed amount of tax is paid per unit sold.
56
Saving
A leakage from the circular flow of income in which present consumption is foregone or money that is not spent by households and is stored in financial institutions.
57
Structural unemployment
Unemployment caused by a decline in the demand for a particular type of labour.
58
Negative externalities of consumption
Negative externalities of consumption refer to external costs created by consumers and it is when MSC \> MSB. When there is a negative consumption externality, thefree market overallocates resources to the productionof the good, and too much of it is produced relative towhat is socially optimum.
59
Consumer confidence
Consumerconfidence is a measure of how optimisticconsumers are about their future income and thefuture of the economy.
60
Disinflation
Disinflation is when the average price level increases at a decreasing rate.
61
Transfer payments
Transfer payments are payments made by thegovernment to individuals specifically for the purposeof redistributing income away from certain groups andtowards other groups; they transfer income from thosewho work and pay taxes towards those who cannotwork and need assistance.
62
Economic growth
Increases in total real output produced by an economy over time.
63
GDP
Gross Domestic Product (GDP) is the dollar value of all final goods and services produced within a country’s borders in one year.
64
Progressive Tax
A progressive tax is a tax that imposes a lower tax rate on low-income earners compared to those with a higher income, making it based on the taxpayer's ability to pay. That means it takes a larger percentage from high-income earners than it does from low-income individuals.
65
Inflationary Gap
When the Short Run Aggregate Supply exceeds Long Run Aggregate Supply
66
Normal goods
Goods and services that have a YED greater than 0.
67
Underemployment
The underuse of a worker is employed in a job that does not use the worker’s skill. This includes workers that are overqualified, or working part-time despite wanting to work full time.
68
Underemployment
The underuse of a worker is employed in a job that does not use the worker’s skill, is part time, or leaves the worker idle
69
Recession
The low point on the business cycle. It is two consecutive quarters of negative economic growth of GDP.
70
Regressive Tax
Taxes where marginal tax rates are below average tax rates and have greater impact on lower income groups
71
Consumer price index
The measure of a weighted average price index of a market basket of consumer good and services that a typical household consumes.
72
Monetary Policy
Actions carried out by the central bank to change interest rates and/or money supply in order to influence Aggregate Demand.
73
Market
The interaction between buyers and sellers in order to exchange goods or services
74
Automatic stabilisers
Government tax and expenditure policies that automatically vary with the level of economic activity and national income, and that act to reduce short-term fluctuation in income
75
Physical capital
Formation of new and improved capital goods, usually used when discussed in the context of national income accounting.
76
Government Spending
All government consumption and investment.
77
Seasonal Unemployment
A level of unemployment that is expected to occur at specific parts of the year.
78
Government Spending
All government expenditure on goods and services
79
Relative Poverty
The inability of an individual or family to maintain a socially acceptable standard of living.
80
Exchange Rates
Exchange rates are the price of a currency in terms of another currency
81
Free Trade
International trade that takes place without any protectionism (trade barriers)
82
List two functions of the WTO
- Encourages countries to lower protectionist barriers and thus increase trade flows between countries - Ensures that countries follow trade agreements and resolves any trade disputes
83
Budget surplus
It is when government income (tax revenue) is greater than government expenditure.
84
natural capital
The world’s stocks of natural assets such as geology, soil, air, water, and all living things
85
trade liberalisation
The removal or reduction of restrictions or barriers on the free exchange of goods between nations.
86
fixed exchange rate
Where the government or central bank ties the value of the official exchange rate to another country’s currency or the price of gold.
87
List 3 components of the current account
Balance of trade in goods Balance of trade in services Income Current Transfers
88
Improvement in terms of trade (HL)
HL - When average export prices increase relative to average import prices
89
Cyclical Unemployment
Cyclical unemployment is involuntary unemployment due to a lack of aggregate demand for goods and services
90
Absolute Poverty
A condition characterised by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education and information
91
Revaluation
An increase in the value of one currency in terms of another currency in a fixed exchange rate system
92
Infant Industries
A new industry that does not benefit from economies of scale and needs protection to compete with imports
93
Foreign Currency Reserves
Used to influence monetary policy, usually held by a central bank or government of a country
94
Preferential Trade Agreement
A trading bloc that gives preferential access to certain products from the participating countries. This is done by reducing tariffs but not by abolishing them completely. A PTA can be established through a trade pact.
95
trade war
A situation in which countries attempt to damage each other’s trade by the imposition of of quotas and or tariffs.
96
crowding out
Increased government intervention exceeds government revenue and so needs to borrow money, forcing interest rates up, thereby reducing investment and consumption
97
Terms of trade (HL)
(HL) the value of a country’s average export prices relative to their average import prices.
98
List two administrative barriers
Any two of: Safety standards Health standards Environmental standards Customs procedures Bureaucratic procedures Product standards Packaging requirements
99
Common Market
Economic integration; countries that have formed a customs union proceed further to eliminate any barriers to trade between them. They have common external policy and agree to freely move factors of production within the common market.
100
Current Account
An economy’s balance of goods, services, income, and current transfers.
101
Human Capital
The stock of knowledge, and the workers’ skill set in relation to the amount of economic value provided.
102
Market-based supply-side policies
Government policies that aim to increase Long Run Aggregate Supply and productivity. Market-based focuses on deregulation of the market
103
Monetary union (What are the elements that make up one?)
It has: Common market A common currency Common central bank Common interest rates
104
Fiscal policy
Government policy that shifts AD (taxes and government spending) in order to affect inflation/unemployment and/or equity
105
Current account deficit
The outflow of money from trade in goods and services, income flows and transfers are larger than the inflows of money.
106
Infrastructure
The large scale physical and organisational structures that add to the capital stock of an economy and are essential for economic activities
107
Tariff
A tax on imports
108
Terms of trade (HL)
(HL) the value of a country’s average export prices relative to their average import prices.
109
Financial Account
A net change in the foreign ownership of domestic financial assets
110
Deterioration in Terms of trade (HL)
when average export prices decrease relative to average import prices
111
Interventionist Supply-side Policy
Any policy based on government intervention in the market intended to affect the supply-side of the economy, usually to shift the LRAS curve to the right, increase potential output and achieve long term economic growth.
112
Managed Float
Periodic intervention by a central bank in order to influence the exchange rate.
113
Trade Creation (HL)
Trade Creation occurs when trade is diverted from a less efficient domestic producer towards a more efficient producer. Countries can then enjoy cheaper imports.
114
Bilateral Trade Agreements
A trade agreement between two countries which aims to lower trade barriers or to increase trade
115
Explicit costs
Costs that are counted by looking through the firm’s accounting reports
116
Open/Formal collusion
A situation where a small number of firms act together to avoid competition by resorting to agreements to fix prices
117
Devaluation
Decrease in the value of a currency in terms of another currency in a fixed market system as a result of government or central bank intervention.
118
Normal profit
-Revenue that covers all cost, including opportunity cost -Total revenue=implicit and explicit costs -Economic profit=0 -Amount of profit needed to keep a firm in business (long run)
119
Total revenue
The total money received by a firm from the sale of a particular quantity of output.
120
Law of diminishing marginal returns
States that an increasing number of variable inputs are added to at least one fixed input, marginal product first increases and then eventually decreases
121
Satisficing
A firm tries to make enough profit in order to satisfy different stakeholder/to pursue other objectives/because decision makers do not have the necessary information in order to maximize profits.
122
Variable Costs
A cost that varies with the level of output.
123
Labour Market Reforms
Reform intended to make labour markets more competitive and flexible, to make wages respond to the forces of supply and demand, to lower labour costs and increase employment by lowering the natural rate of unemployment
124
Trade Creation
HL - When trade is diverted from a less efficient domestic producer towards a more efficient producer as a result of economic integration.
125
Monopoly
It is a market structure where a single firm dominates the market.
126
Monopolistic competition
a market structure with a large number of firms producing similar but differentiated products. Barriers to entry and exit the market are low. Firms are price makers as each firm possesses some market power.
127
Average cost
Average cost (AC), also known as average total cost (ATC), is the average cost per unit of output. To find it, divide the total cost (TC) by the quantity the firm is producing (Q).
128
Perfect competition
A market where there are numerous buyers and sellers and several other conditions such as: - A homogenous product - Free entry and exit - Perfect Knowledge - Perfect Mobility - Absence of Price Control
129
Depreciation
A decrease in the value of a currency in a floating exchange rate system
130
Customs union
A customs union is a form of economic integration where member countries agree to liberalise trade and adopt a common tariff for non-members.
131
Marginal Cost
The cost of producing one extra unit of output
132
Price discrimination
Price discrimination occurs when different customer groups are charged different prices for exactly the same good
133
Merit Goods
Goods and services considered to be beneficial society that would be underprovided by the market and under-consumed
134
Economies of Scale
Economies of scale exist when the average costs for a firm decrease as the firm increases in size.
135
Trade Diversion
HL - When trade protections cause imports to shift from low-cost countries to higher cost countries as a result of economic integration.
136
Oligopoly
A market structure where a small number of firms dominate the industry, interdependence of firms, high barriers to entry, homogeneous or differentiated products, collusive or non-collusive behavior, price rigidity, non-price competition.
137
ECONOMIC COST
Implicit cost and explicit cost of a firm when producing a certain quantity of goods and services
138
productive efficiency
Exists when production takes place at minimum AC or when AC=MC
139
Collusive oligopoly
A situation where a small number of firms work together to avoid competition by resorting to agreements fix prices
140
Abnormal profit
When a firm earns a level of revenue that is greater than the total costs of production, including opportunity costs (or where a firm earns a level of revenue that is greater than that required to ensure that a firm will continue to supply its existing good or service).
141
Preferential Trade Agreement
A preferential trade area (also preferential trade agreement, PTA) is a trading bloc that gives preferential access to certain products from the participating countries. This is done by reducing tariffs but not by abolishing them completely.
142
Cartel
A group of producers in an industry that join together to regulate supply (or fix prices)
143
Diversification
It is a strategy to increase the variety of goods and services produced in order to avoid over-specialisation
144
Current Account Surplus
When the export revenue of good, services, income, and transfer payments is greater than the import expenditure of goods, services, income, and transfer payments in a given year.
145
Poverty trap or poverty cycle
Low incomes lead to low saving which leads to low investment which leads to low growth which leads to low income Low incomes → Low saving → Low investment → Low growth → Low income
146
Market-oriented policies
A policy in which economic decisions are made by the private sector (firms and consumers) where government intervention is limited
147
Consumer price index
The measure of a weighted average price index of a market basket of consumer good and services that a typical household consumes
148
Budget deficit
It is when government expenditure is greater than government income (tax revenue).
149
Quotas
Physical Limits on quantity of imports (set by the government)
150
Dumping
The practice of selling goods in international markets at a price that is below the cost of producing it (usually by providing export subsidies);
151
Micro credit
Micro-credit refers to credit (loans) in small amounts to people who do not ordinarily have access to credit.
152
Sustainable development
It is the development that meets the need for the present without compromising the ability of future generations to meet their own needs
153
Official Development Assistance (ODA)
Aid or financial assistance given from a Government given for the purposes of development and/or welfare
154
Two characteristics of an economically less developed country
Any 2 of the following: -Low levels of GDP per capita -High levels of poverty -Relatively large agricultural sector -Large informal sectors -High birth rates -Poor infrastructure -Underdeveloped capital markets -Heavily indebted -Unable to access international markets -Over-specialized on a narrow range of production -Small tax base -Dependency on primary sector exports
155
Concessional long-term loans
A loan stretched over 25 to 40 years with lower than market interest rates. The loan may include a grace period or be repayable in local currency.
156
multilateral aid
Money given by countries to international (multilateral) institutions which are distributed to countries.
157
Two responsibilities of a central bank
Setting interest rates and money supply
158
Appreciation
A rise in the value of a currency compared to another set currency
159
Free trade area
A group of countries who all come under the same Free Trade Agreement to allow for less trade barriers
160
Implicit costs
The value of opportunity costs
161
Tacit/Informal collusion
A situation where a small number of firms act independently to set the price resulting in a higher revenue from both firms
162
Multinational Corporations (MNCs)
A company that has productive units in more than one country
163
Multilateral aid
Money given by countries to international (multilateral) institutions which are distributed to countries.
164
Tied aid
one country donates money or resources to another on the condition that the funds are used to buy imports from the donor country or linked to a specific project.
165
Concessional long-term loans
A loan stretched over 25 to 40 years with lower than market interest rates. The loan may be include a grace period or be repayable in local currency.
166
Main function of the IMF
Ensure the stability of the international monetary system Promote international monetary system.
167
Official Development Assistance
Aid or financial assistance given from a Government given for the purposes of development and/or welfare
168
Foreign Direct Investment
Long-term investment in another country by a multinational corporation
169
Corruption
Abuse and dishonest use of power
170
Diversification
It is a strategy to increase the variety of goods and services produced in order to avoid over-specialisation
171
Micro-credit
Micro-credit refers to credit (loans) in small amounts to people who do not ordinarily have access to credit.
172
Components of the HDI
Mean years of Schooling Expected years of schooling Life expectancy GNI per capita
173
Sustainable development
It is the development that meets the need for the present without compromising the ability of future generations to meet their own needs
174
Economic development
A broad concept involving at least two of: Improvement in standards of living Reduction in Poverty Improved health and education Reduction in unemployment Greater equality in income distribution Environmental protection Increased economic freedom and choice
