Economics Definitions Flashcards
(215 cards)
1
Q
Abnormal profit
A
Where total revenue exceeds total costs
2
Q
Absolute advantage
A
A country will have absolute advantage when its output of a product is greater, per unit of resource used, than any other country
For example - lets say that with one factory, the US can make: 100 cars, and 900 iPhones, and the UK can make: 80 cars, and 500 iPhones
even though the US is more efficient at making cars (it can make 100 per factory), it has to give up making 900 iPhones. The UK on the other hand would only be giving up 500 iPhones to make those 80 cars. Hence the UK has a smaller opportunity cost when making a car, and therefore they comparative advantage in car production (it only gives up 6.25 iPhones whereas the US gives up 9 iPhones per car) - And since the US is more efficient at producing both cars and iPhones, they have Absolute advantage in both areas of production
3
Q
Absolute poverty
A
When someone doesn’t have the income or wealth to meet their basic needs such as food, shelter and water
4
Q
Accelerator process
A
This is where any change in demand for goods/services beyond current capacity will lead to a greater percentage increase in the demand for the capital goods that firms need to produce those goods/services
This happens for three main reasons:
Investment is lumpy - increasing production isn’t a smooth process, if you are running at full capacity then you may need to invest in a whole new factory to meet a much smaller increase in demand
A profit maximising firm will attempt to anticipate future trends to avoid bottlenecks such as time lags - for example, if demand continues to rise, it takes lots of time to build new capital so a firm needs to make the decision to build more capital before it is immediately required.
There are cost advantages in buying in bulk and hence smaller increments of growth are less efficient - therefore growing at a greater rate than demand has less risk (less potential for sunk costs)
(The reverse is true for all three)
5
Q
Aggregate demand
A
The total demand, or total spending, in an economy at a given price level over a given period of time
6
Q
Aggregate supply
A
The total amount of goods and services which can be supplied in an economy at a given price level over a given period of time
7
Q
Aid
A
The transfer of resources from one country to another
8
Q
Allocative efficiency
A
Where the price of a good is equal to the price that consumers are willing and able to pay for it, and social welfare is maximised
9
Q
Asymmetric information
A
This is when buyers have more information than sellers (or vice versa) in a market
10
Q
Automatic stabilisers
A
These are parts of fiscal policies that will automatically react to changes in the economic cycle. For example, during a recession, government spending is likely to increase as it automatically pays out more unemployment benefits to mitigate the recession’s impact, though this comes at the cost of a budget deficit.
11
Q
Average cost
A
The cost of production per unit of output - i.e. a firm’s total cost for a given period of time, divided by the quantity produced
12
Q
Average revenue
A
The revenue per unit sold - i.e. a firm’s total revenue for a given period of time, divided by the quantity produced
13
Q
Backward vertical integration
A
Vertical integration means combining firms at different stages of the production process of the same product .
Backward vertical integration happens when a firm takes over another firm that is further back in the the production process (further away from the end customer) e.g a book printer buying a paper plant
14
Q
Balance of payments
A
A record of a country’s international transactions, i.e. flows of money into and out of a country
15
Q
Bank rate
A
The official rate of interest set by the Monetary Policy Committee of the Bank of England
16
Q
Barriers to entry
A
Barriers to entry are any potential difficulties that make it hard for a firm to enter a market
17
Q
Barriers to exit
A
Barriers to exit are any potential difficulties that make it hard for a firm to leave a market
18
Q
Black market
A
Economic activity that occurs without taxation and government regulation - also called the informal market
19
Q
Budget deficit
A
When government spending is greater than its revenue
20
Q
Budget surplus
A
When government spending is less than its revenue
21
Q
Capital account on the balance of payments
A
A part of the records of a country’s international flows of money, focusing on one-time transfers of wealth that don’t require future repayment - such as debt forgiveness and migrant asset transfers
22
Q
Cartel
A
A group of producers that agree to limit production in order to keep the price of goods/services high
A good example is OPEC, which coordinates oil production among member countries to influence global oil prices.
23
Q
Central bank
A
The institution responsible for issuing a country’s banknotes, acting as a lender of lest resort for other banks, and implementing monetary policy (e.g. setting interest rates)
24
Q
Circular flow of income
A
The continuous movement of national output, income, and expenditure between households and firms in an economy.
Households provide factors of production (land, labor, capital) to firms, which pay income (wages, rent, profit). Firms also produce goods and services, which households purchase. This cycle ensures the identity national output = national income = national expenditure, since one economic agent’s payment becomes another’s income
25
Command economy
An economy where governments, not markets, determine how to allocate resources
26
Comparative advantage
A country has comparative advantage if the opportunity cost of it producing a good is lower than the opportunity cost for other countries
27
Competition policy
Government policy aimed at reducing monopoly power in order to increase efficiency and ensure fairness for consumers
28
Concentration ratio
This shows how dominant the largest n firms in a market are, by adding up their market share
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Conglomerate integration
Mergers or takeovers between firms which operate in completely different markets
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Consumer surplus
When a consumer pays less for a good/ service than they were prepared to (this difference is the consumer surplus)
31
Consumption
The purchase/use of goods or services
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Contestability
A market is contestable if it’s easy for new firms to enter the market i.e. if barriers to entry are low
33
Cost benefit analysis
This involves adding up the total private and external costs and benefits of a major project in order to decide if the project should go ahead
34
Cost-push inflation
Inflation caused by the rising cost of inputs to production
35
Creative destruction
This occurs when the invention and innovation of new products and production methods causes the destruction of existing markets and creates new ones
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Cross elasticity of demand (XED)
This is a measure of how the quantity demanded of one good\service responds to a change in the price of another good/service
37
Current account on the balance of payments
The current account is a part of a country’s balance of payments that records recurring international flows of money. It includes trade in goods, trade in services, income flows (such as salaries, interest, profits, and dividends), and current transfers (such as foreign aid, remittances, and pensions)
38
Cyclical unemployment
Unemployment caused by the shortage of demand for goods and services in economic downturns, since labour is derived demand
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Demand-pull inflation
Inflation caused by excessive growth in AD compared to AS
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Demand-side policy
Government policy that aims to increase AD; for example, a policy to increase consumer spending in an economy
41
Demerger
A firm selling off part(s) of its business to create a separate firm, or firms
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Demerit good
A good or service which has greater social costs when it is consumed than private costs. Demerit goods tend to be overconsumed as their negative externalities aren’t realised
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Dependency ratio
How many people are either too young or too old to work, relative to the number of people of working age
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Deregulation
Removing rules imposed by a government that can restrict the level of competition in a market
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Derived demand
The demand for a good or factor of production due to its use in making another good or providing a service
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Developed countries
A developed country is defined by the ability of their economy to sustain rising living standards and economic freedoms for all its people
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Developing countries
Developing countries are nations with lower levels of industrialization, lower human development indices, and generally lower standards of living compared to more industrialized nations. These countries often face challenges such as lower GDP per capita, limited access to healthcare and education, higher poverty rates, and dependence on agriculture or a few key industries.
48
Diminishing returns
Where adding more of a variable input leads to a smaller increase in output, holding other inputs fixed
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Diseconomies of scale
A firm is experiencing diseconomies of scale when the average cost of production is rising as output rises.
50
Disposable income
Income, including welfare benefits, that is available for households to spend after income tax has been paid
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Dividend
A share in a firm’s profits that is given to the firm’s shareholders
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Divorce of ownership from control
This occur when a firm’s owners are no longer in control of the day-to-day running of the firms (e.g because its run by directors) this can lead to the principal-agent problem, where those in control act in their own self-interest rather that the interests of the owners
53
Dynamic efficiency
This is about firms improving efficiency in the long term by reinvesting profits, with the goal of carrying out research and development into new or improved products, or investing in new technology and training to improve the production process
54
Economic cycle
The economic cycle (also known as the business or trade cycle) refers to the fluctuations in economic activity over time, including periods of growth (booms) and contraction (recessions).
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Economic development
An assessment of living standards and people’s overall welfare in a country
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Economic growth
An increase in an economy’s productive potential. Usually measured as the rate of change of the gross domestic product (GDP), or the GDP per capita
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Economic integration
The process by which the economies of different countries become more closely linked, e.g. through free trade agreements
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Economic rent
The excess a worker is paid above the minimum required to keep them in their current occupation (this minimum payment is their transfer earnings)
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Economically active population
The people in an economy who are capable of and old enough to work
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Economies of scale
A firm is experiencing economies of scale when the average cost of production is falling as output rises
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Emerging countries
Countries experiencing rapid economic growth and industrialisation, whilst also being behind developed countries in terms of infrastructure and living standards
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Equilibrium
A market for a product is in equilibrium when the quantity demanded is equal to the quantity supplied
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Equity
Meaning fairness
64
Exchange rate
The price at which one currency buys another
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Extending property rights
When property rights over a resource are given to an individual or firm, giving them control over usage of that resource
- for example: In some countries, land might be owned by the government or a community, and individuals can only lease or use it temporarily. Extending property rights in this case would mean allowing individuals to own the land outright, giving them more control and the ability to invest in it or sell it. Without property rights, people might not invest in improvements or long-term use because they don’t have full ownership of the land.
66
External growth
A firm growing through merger/ takeovers
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Externalities
The external costs or benefits to a third party that is not involved in the making, buying/selling and consumption of a specific good/service
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Factors of production
These are the four inputs needed to make things that people want. They are: land,labour,capital, and enterprise
69
Financial account on the balance of payments
A part of the record of a country’s international flows of money. It involves the movement of financial assets, such as through foreign direct investment, or portfolio investments in overseas companies.
70
Financial sector
The part of the economy composed of banks and other financial institutions with the main goal of making money available to those who want to spend more than their income, by using the savings of those who don’t currently want to spend - this helps growth as small businesses are unlikely to grow without credit since most businesses require a certain level of capital to be competitive
The financial sector also helps economic growth by making trade easier - to be more specific:
they allow payments to be made quickly and easily (e.g. credit cards), and they provide insurance to cover firms and individuals
71
Fiscal policy
Government policy that determines the levels of government spending and taxation. Often used to increase or decrease aggregate demand in an economy
72
Fisher’s equation of exchange
Fisher’s Equation of Exchange: MV = PT
• M = Money supply
• V = Velocity of money (average number of times a unit of money is spent in a given time frame)
• P = Price level
• T = Transactions (or output in some versions)
The equation states that the total money spent in an economy (MV) equals the total value of goods and services exchanged (PT). It reflects how changes in money supply or velocity affect prices and output.
• If M or V increases, more money is circulating, which can raise P (inflation) or T (real output).
• If V is stable, changes in M directly impact P or T, forming the basis of monetary policy.
73
Fixed costs
Costs that don’t vary with the level of output of a firm in the short run
74
foreign direct investment (FDI)
This is when a firm based in one country makes an investment in a different country
75
Forward vertical integration
When a firm takes over another firm that is further forward in the production process (further away from the end customer)
E.g a leather manufacturer buying a shoe factory
76
Free market
A market where these is no government intervention
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Free rider problem
This means that once a public good is provided it’s impossible to stop someone from benefiting from it, even if they haven’t paid towards it
For example, streetlights:
• Once streetlights are installed, everyone benefits from them, regardless of whether they paid taxes or contributed.
• Because people can use the lights without paying directly, some may avoid contributing (e.g., not paying local taxes or refusing to donate to a community project).
• If too many people act this way, there may be insufficient funding to maintain or expand public lighting.
78
Free trade
International trade without any restrictions from things such as trade barriers
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Frictional unemployment
The unemployment experienced by workers between leaving one job and starting another
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Full employment
When there is no involuntary unemployment in an economy
81
Globalisation
The increasing integration of economies internationally, which is making the world act more like a single economy
82
Government failure
This occurs when government intervention into a market causes misallocation of resources
83
Gross domestic product (GDP)
The total value of all the goods and services produced in a country in a year
84
Hit-and-run tactics
This is when firms enter a market while supernormal profits can be made and then leave the market once prices have been driven down to normal-profit levels
85
Horizontal equity
This means that people in identical circumstances are treated fairly/equally
86
Horizontal integration
Mergers or takeovers between firms that are at the same stage of the production process of similar products
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Human capital
The economic value of a person’s skills
88
Human development index (HDI)
A measure of a country’s economic development, used by the UN, that combines measures of health (life expectancy), education (average/expected years of schooling), and the standard of living (real GNI per capita)
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Imperfect information
A situation where buyers or sellers don’t have full knowledge regarding price, costs, benefits, and availability of a good or service
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Income
Money that a firm or person receives for providing a good or service
91
Income elasticity of demand (YED)
This is a measure of how the demand for a good/service responds to a change in real income
92
Inequity
Another word for unfairness
93
Inflation
The sustained rise in the average price of goods and services over a period of time
94
Infrastructure
The basic facilities and services needed for a country and its economy to function
For example: roads, schools, water supplies, sewerage, railways, hospitals, electricity supplies, telephone/internet access
95
Inorganic growth
Business expansion through mergers, acquisitions, or takeovers rather than internal development. It allows firms to grow quickly by acquiring assets, market share, or expertise from other companies.
96
Interest
Interest is the cost of borrowing money or the return on savings, calculated as a percentage of the amount owed or invested. It can be simple (based on the original principal) or compound (based on the current balance, including past interest).
97
Internal growth
A firm growing as a result of increasing the levels of the factors of production it uses, rather than through takeovers or mergers
98
Investment
Investment is the spending on capital, such as new machinery, with the intention to make a return on any future increase in output
Or, it can also mean buying shares from the stock market - this is done in the hope of making a future profit by selling at a higher price or receiving dividends
99
Labour immobility
This occurs when labour cant easily move around to find jobs (geographical immobility) or easily switch between different occupations due to a skill gap (occupational mobility)
100
Law of diminishing returns
The idea that if a firm increases one variable factor of production while other factors stay fixed, the the marginal returns the firm gets from the variable factor will always eventually begin to decrease
101
Liquidity
How easily an asset can be spent (converted to money)
102
Long run
A time period in which all the factors of production are variable
103
Long Run Aggregate Supply (LRAS)
In the long run it is assumed that, because factors and costs of production can change, an economy will run at full capacity - so LRAS is the sustainable productive potential of an economy
104
Long run Philips curve
A curve that shows the relationship between inflation and unemployment in the long run - it’s always a vertical line positioned at the natural rate of unemployment
105
Macroeconomics
This is the part of economics that looks at the economy as a whole. For example, trends in unemployment and economic growth
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marginal cost
The cost to a firm of producing the final unit of output
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Marginal product
The extra output that’s produced when a firm adds one more unit of one of the factors of production they’re using
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Marginal propensity to consume
The proportion of an increase in income that people will spend (and not save)
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Marginal returns
The same as marginal product
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Marginal revenue
The extra revenue received as a result of selling one more unit of output
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Marginal tax rate
the percentage of tax applied to the next unit of income earned
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Marginal utility
The benefit of consuming one extra unit of a good
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Market failure
This is where the price mechanism fails to allocate resources efficiently
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Merger
Two firms uniting to form a new company
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Merit good
A good or service which provides greater social benefits when it’s consumed than private benefits. Merit goods tend to be underconsumed as their positive externalities are not always realised
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Microeconomics
This is the part of economics concerned with individual people, firms and markets. For example, it covers things like how changes in demand affects the price of a good in a market
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Minimum efficient scale of production (MES)
The lowest level of output at which a firm can achieve the lowest possible average cost of production
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Monetary policy
Government policy that involves controlling the total amount of ‘money’ in an economy (the money supply), and how expensive it is to borrow that money. It involves manipulating interest rates, exchange rates, and restrictions on the supply of money
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Monopoly
A pure monopoly is a market with only one supplier. Some markets will be referred to as a monopoly if there’s more than one supplier, but one supplier dominates the market.
120
Monopoly power
The ability of a firm to be a ‘price maker’ and influence the price of a particular good in a market
121
Monopsony
A market with a single buyer
122
Multinational corporations (MNCs)
Firms which function in at least one other country, aside form their country of origin
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Multiplier effect
The process by which an injection into the circular flow of income creates a proportionally larger increase in national income as the money goes through multiple rounds of spending
124
National debt
The total debt that a country has run up over time
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National minimum wage (NMW)
A legal minimum hourly rate of pay, set for different age groups
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National output
All the goods and services produced in a country in a year
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Nationalised industry
An industry owned by the government
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Natural monopoly
An industry where economies of scale are so great that it significantly more efficient for the market to be composed of a single provider in order for them to achieve the lowest long run average cost
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Natural rate of unemployment (NRU)
The rate of unemployment when the labour market is in equilibrium (i.e. when labour demand is equal to labour supply)
130
Non-pure public good
Also known as a quasi-public good; it is a good which appears to have the characteristics of a public good, but doesnt exhibit them fully
For example, toll roads are partially excludable (you don’t always have to pay) and are partially rivalrous (congestion)
131
Normal profit
A firm is making normal profit when its total revenue is equal to its total costs
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Oligopoly
A market dominated by a few large firms that offer differentiated products, with high barriers to entry. The firms are interdependent and may use competitive or collusive strategies
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Opportunity cost
The value of the next best alternative use of a resource
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Organic growth
Also known as internal growth - it is a firm growing as a result of increasing the levels of factors of production used
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Output gap
The gap between the trend rate of economic growth and actual economic growth. Output gaps can be positive or negative
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Participation rate
The proportion of working age people in an economy that are either in work or actively seeking work
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Per capita
Another way of saying ‘per person’
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Perfect information
This is when buyers and sellers have full knowledge of prices, costs, benefits and availability of products and their alternatives
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Philips curve (long run)
A curve that shows the relationship between inflation and unemployment in the long run - it’s always a vertical line positioned at the natural rate of unemployment (NRU)
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Phillips curve (short run)
A curve that shows the relationship between inflation and unemployment in the short run - as the level of one falls, the other one rises
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Predatory pricing
An aggressive pricing tactic which involves incumbent firms in a market lowering their prices to a level that a new entrant to the market can’t match, in order to force them out of the market
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Price cap
A limit on price rises that makes a market fairer to consumers. A price cap also provides an incentive for firms to increase their efficiency.
Two common price caps are: RPI - X, and RPI - X + K, where RPI is measure of inflation, X is the expected efficiency savings a firm should make instead of passing costs to a consumer, and K is an extra allowance to cover investments into improving efficiency (RPI-x+k is used in the water industry)
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Price discrimination
This occurs when a seller charges different prices to different customers for exactly the same product
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Price elasticity of demand (PED)
This is a measure of how the quantity demanded of a good/service responds to a change in its price
145
price elasticity of supply (PES)
This is a measure of how the quantity supplied of a good/service responds to a change in its price
146
Price maker
A firm that has some power to the control the price it sells at
147
Price mechanism (including all three functions)
The price mechanism ensures efficient allocation of resources by balancing supply and demand through three key functions:
1. Signalling function – Prices convey information about changes in market conditions. A rising price signals higher demand or lower supply, prompting producers to allocate more resources toward production. A falling price signals lower demand or excess supply, leading producers to reduce output. This ensures that resources flow to where they are most needed, preventing shortages and surpluses.
2. Rationing function – Prices help distribute scarce resources to those who value them most. When a good is in short supply, its price rises, reducing demand and ensuring that only those willing and able to pay the higher price obtain it. This prevents excessive consumption and ensures that limited resources are used efficiently rather than being overconsumed by those who may not need them as much.
3. Incentive function – Prices create incentives for consumers and producers to change their behavior. Higher prices encourage firms to produce more, as the potential for profit increases, ensuring that supply meets demand. At the same time, higher prices discourage excessive consumption, while lower prices encourage it. This dynamic ensures that production and consumption adjust automatically to changes in market conditions.
Through these functions, the price mechanism ensures that resources are directed toward their most valued uses, preventing waste and inefficiency without the need for government intervention.
148
Price taker
A firm that has no power to control the price it sells at - it has to accept the market price
149
Price war
A situation where one firm in a market lowers their prices, and other firms follow suit, possibly triggering a series of price cuts as firms to undercut one another - all with the goal of increasing market share
150
Principle-agent problem
The principal-agent problem occurs when an agent (e.g., a manager) makes decisions on behalf of a principal (e.g., a shareholder) but has incentives that do not align with the principal’s best interests, leading to inefficiency or moral hazard
151
Privatisation
When a firm or whole industry changes from being run by the public sector (the government) to the private sector (individuals and firms)
152
Producer surplus
When a producer receives more for a good than they were prepared to accept, this difference is the producer surplus
153
Production possibility frontier (PPF)
A curve which shows the maximum possible outputs of two goods or services using a fixed amount of inputs
154
Productive efficiency
This occurs when products are produced at a level of output where the average cost is lowest
155
Productivity
The average output per unit of factor of production - for example, labour productivity would be the average output per worker (or per worker-hour)
156
Profit
A firm’s total revenue minus its costs
157
Progressive taxation
A tax system where an individual’s tax rises (as a PERCENTAGE of their income) as their income rises
158
Proportional taxation
A tax system where everyone pays the same proportion of tax regardless of their income level
159
Protectionism
When a government uses policies to control the level of international trade and protect its own economy, industries and firms
160
Public good
A good that is non-excludable (people cannot be stopped from consuming it, even if they have not paid) and non-rivalrous (one person’s consumption does not reduce availability for others), such as national defense
161
Public sector
The part of an economy that is owned or run by the government
162
Purchasing Power Parity (PPP)
An adjustment of an exchange rate to reflect the real purchasing power of the two currencies
163
Quantitative easing (QE)
When the central bank (e.g. the Bank of England) digitally creates new money, by spending money that didn’t previously exist in the money supply, in order to buy financial assets, such as government bonds, from banks and financial institutions. To avoid inflation, the central bank intends to recall this money in the future, either when the bond matures or by selling the assets, and then once those assets are sold, they can hold onto the money indefinitely to effectively shrink the money supply back to where it was before the intervention. This temporary increase in the money supply leads to lower interest rates, and encourages banks to lend more, enabling individuals and firms to spend more.
A helpful analogy:
Imagine i write on a piece of paper, [my name] owes you £100, and i use this as currency to buy a chair since the buyer considers me trustworthy - I have effectively made money out of thin air, since now I have a chair and the person i bought it has £100, between the two of us, we have £200 worth of stuff, even though we just started with £100 worth of stuff (the chair). However, some time in the future i will eventually have to pay up. At which point, i can simply sell my chair (hopefully at a higher price) - this piece of paper is then withdrawn from circulation and money supply returns to normal
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Quantity theory of money
This theory is based on the idea that changes in the money supply will cause changes to the price level. It uses the formula MV = PT, which is known as Fisher’s equation of exchange.
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Quasi-public good
A good which appears to have characteristics of a public good, but doesn’t exhibit them fully
166
Quota
A limit on the amount of a good that is allowed to be used, produced or imported
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Real income
A measure of the amount of goods/services that a consumer can afford to purchase with their income, adjusted for inflation
168
Real wage unemployment
Unemployment caused by real wages being pushed above the equilibrium level of unemployment. It can be caused by trade unions negotiating for higher wages, or the introduction of a national minimum wage
169
Recession
This occurs when there’s negative economic growth for at least two consecutive quarters. Typically there’s falling demand, low levels of investment and rising unemployment during a recession.
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Regressive taxation
A tax system where an individual’s tax falls (as a PERCENTAGE of their income) as their income rises
171
Relative poverty
This is when someone has a low income relative to other incomes in their country
172
Returns to scale
How much a firm’s output changes as they increase input (i.e. increase all factors of production). Returns to scale are increasing if output increases more than proportionally with input, constant if output increases proportionally with input, and decreasing if output increases less than proportionally with input.
173
Revenue
The total value of all sales within a time period. It can be calculated with the formula: price per unit * quantity sold
174
Satisficing
Running a firm in a way that does just enough to satisfy important stakeholders in the firm, rather than trying to maximise something (e.g. profit or revenue)
175
Seasonal unemployment
Unemployment due to uneven economic activity during the year
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Shadow banking system
Firms (or parts of firms) that provide credit, but which are not regulated
177
Shadow price
A shadow price is used to quantify the value of something that doesn’t have a market price, like an externality (e.g., an accident or environmental damage). Since it doesn’t have a market price, it’s estimated by looking at the opportunity cost—what could have been done with the resources that went into that event or issue instead. It’s about assessing the cost or value of things in the absence of a direct price.
For example: Let’s say there’s an accident on a toll road. The shadow price might be the cost of the lost time and extra fuel that people incur as a result, even though there’s no direct price for the accident itself. It reflects the “hidden” cost to society from that accident.
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Share
A portion of a company’s value that is sold to raise capital, giving the share’s owner a right to a portion of the company’s profits in exchange
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Shareholders
Individuals (or firms) that own shares in a company
180
Short run
A time period in which at least one of a firm’s factors of production is fixed
181
Short run aggregate supply (SRAS)
This is aggregate supply when the factors of production are fixed
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Short run Philips curve
A curve that shows the relationship between inflation and unemployment in the short run - as the level of one falls, the level of the other rises
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Specialisation
The process of pouring resources into a specific area in order to gain expertise, usually with the intention of exploiting comparative advantage
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Speculation
When things are bought (e.g. shares) in hope that they will increase in value and can be sold for a profit at a later date
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Static efficiency
This occurs when allocative and productive efficiency are both achieved at a particular time
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Structural unemployment
Structural unemployment occurs when workers’ skills do not match the jobs available, often due to technological changes, industry decline, or geographical mismatches in the labor market.
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Subsidy
An amount of money paid by a government to the producer of a particular good\service to lower the cost of production. This should increase supply, which will lower the price and cause demand to extend
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Sunk cost
This is an unrecoverable cost of entering a market (e.g advertising), it can act as a barrier to exit
189
Supernormal profit
A firm is making supernormal profit when its total revenue exceeds its total costs
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Supply-side policy
Government policy that aims to increase aggregate supply in an economy. For example, a policy designed to increase the productive capacity of the economy
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Sustainability
Sustainability is about meeting the needs of the people now, without making it more difficult for people in the future to meet their own needs
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Systemic risk
Systemic risk is the risk that the failure of one part of the financial system (e.g., a major bank) will spread and cause instability or collapse across the entire system, leading to widespread economic disruption.
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Takeover
One firm buying another firm, which then becomes part of the first firm
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Tariff
A form of tax placed on certain imports to make them more expensive and discourage their consumption
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Tax
An amount of money paid to a government. It’s paid directly, e.g. income tax, or indirectly, e.g. excise duty
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Terms of trade
A measure of the relative price of a country’s exports compared to its imports
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Total cost
All the costs for a firm involved in producing a particular amount of output
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Total revenue
The total amount of money a firm receives from its sales, in a particular time period
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Trade creation
The removal of trade barriers within a trading bloc, allowing members to buy from the cheapest source
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Trade diversion
When trade barriers are imposed on non-members of a trading bloc, so trade is diverted away from cheaper non-members
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Trade liberalisation
The reduction or removal of tariffs and other restrictions on international trade
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Trade union
An organisation of workers that acts to represent their interests, e.g. to improve their pay
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Trading blocs
These are associations between the governments of different countries that promote and manage trade between those countries
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Transfer earnings
The minimum pay that will stop a worker from switching to their next best paid occupation
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Unemployment
The level of unemployment is the number of people who are looking for a job but cannot find one. The rate of unemployment is the number of people out of work (but looking for a job) as a percentage of the labour force
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Utility
The ‘benefit’ or ‘well-being’ gained from an action
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Variable costs
Costs that change with the level of output of a firm
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Vertical equity
This means people with different circumstances are treated differently, but fairly
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Vertical integration
Mergers or takeovers between firms at different stages of the production process of the same product. If a firm takes over another firm that’s further forward in the production process it’s called forward vertical integration, and if a firm takes over another firm that’s further back in the production process, it’s backward vertical integration
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Wage differentials
The difference in pay between workers performing similar jobs
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Wage rate
The price of labour, i.e. the rate of pay to employ a worker
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Wealth
The value of someone’s assets
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Working population
The people in an economy who are capable of and old enough to work
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World Trade Organisation (WTO)
The WTO is an international organisation which provides a forum for its members governments to discuss trade agreements and settle disputes, using a set of trade rules. It aims to help trade be as free as possible
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X-inefficiency
Inefficiency caused by unnecessary costs and waste (i.e organisational slack)
