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Flashcards in P1 key terms Deck (78):
1

Absolute poverty

not having enough income to provide basic necessities and survive

2

allocation of resources

how factors of production are used to create goods and services

3

allocative efficiency

achieved when resources are used to yield the maximum benefit to everyone. It is impossible to redistribute them without making someone worse off

4

anti-competitive practises

aim to reduce competition

included price fixing and collusion

5

asymmetric information

occurs when one party in an economic transaction knows more about the product than the other

6

austerity

refers to cuts in public expenditure and tax increases that reduce public borrowing

7

balance of payments

the set of accounts that show export revenue and import costs, capital movements and any other international transactions

8

Bank of England

the UK's central bank

it controls monetary policy

9

barriers to entry

occurs when start up costs make it difficult for new businesses to enter the industry

10

cartel

any agreement between businesses to reduce competition or not to compete with each other. The agreement is usually secret and may be implemented in various ways

11

competition and markets authority (CMA)

investigates UK market behaviour to ensure that all businesses are acting in line with competition policy requirements

12

consumer protection

refers to regulations that protect consumers from unsafe or fraudulent purchases

13

contestable markets

characterised by easy entry

14

current account

part of the balance of payments that covers imports and exports

15

demand-side policies

affect the economy by increasing or reducing aggregate demand

16

de-merit goods

are over-produced by the free market, in quantities that are greater than the optimal level for society. They are generally though to be bad for society as a whole

17

de-regulation

means reducing the number of regulations that affect businesses

18

direct tax

taken at source and goes directly to the government eg. incomes tax and national insurance contributions

19

entry and exit

refer to new businesses entering a particular market and existing businesses leaving

20

EU competition policy

keeps markets competitive wherever there is trade between EU member countries

21

Explicit collusion

occurs when there is a meeting or actual agreement between businesses to avoid competing vigorously and follow a joint strategy

22

External benefits

benefits or positive side effects imposed on a third party who is neither the producer nor the consumer

23

external costs

costs or negative side effects imposed on a third party who is neither the producer nor the consumer

24

financial crises

the period from 2007-9 when banks were endangered by excessive lending

25

fiscal policy

involves changes in the levels of taxation/gov spending in order to affect the level of output

26

free market policies

avoid gov intervention, functioning on the basis of supply and demand

27

free rider policies

avoid gov intervention, functioning on the basis of supply and demand

28

full capacity output

the most that an economy can produce whiteout an increase in the factors of production

29

geographic immobility

occurs when unemployed people cannot move to places where there are job vacancies

30

Gini coefficient

measures income inequality. A coefficient of 0 would mean income is shared equally between all individuals, whilst a coefficient of 1 would mean one person within the population has all the income and everyone else has none. The higher the Gini co-efficient, the higher the level of inequality

31

Governments failure

occurs when government intervention makes the situation worse rather than better. In solving one problem another is created.

32

Imperfect markets

distorted in ways that reduce competition. They include oligopoly and imperfect competition

33

Incentives

(in economics) are payments or rewards that enable or motivate a particular course of action, or count as a reason fro preferring one choice to alternatives.

34

Indirect taxes

added onto prices and go indirectly to the government from the seller. Eg. VAT and Excise duty

35

inequality

occurs where there are large differences in incomes and wealth within the society

36

innovation

refers to the development of new ideas and techniques

37

intellectual property rights

ideas or inventions that are protected by patents or copyright

38

interventionalist policies

designed to control market forces, usually for political reasons

39

marginal cost

the cost of producing one more unity of output

40

market

any medium in which buyers and seller interact and agree to trade at a price

41

market failure

happens when a market does not allocate resources to achieve the greatest possible consumer satisfaction. This allocation of resources is such that a reallocation would make some people better off. Allocative efficiency has not been reached

42

merit goods

can be provided by the private sector and often are, but the quantity that the free market provides is lower than the optimum level for society. They are under-provided by the market mechanism. Public sector activity can create an optimum level of output

43

monetary policy

uses interest rates to vary the costs of borrowing and influence the level of aggregate demand

44

Monetary policy committee

sets interest rates and seeks to prevent inflation from changing significantly

45

moral hazard

means people that take bigger risks when they know they will not personally have to cover the cost or mistake

46

natural monopoly

occurs when the most efficient scale of production is a monopoly. More than one producer or supplier would involve wasteful duplication of resources

47

non-excludable

means that it is impossible to prevent people who have not paid for a good from consuming it.

48

non rivalrous

means that if one person consumed a good it does not affect or reduce the amount left for someone else to consume

49

normal profit

means just enough profit to enable a business to keep going

50

occupational immobiliy

occurs when unemployed people lack the skills needed to do the jobs that are available

51

overheating

occurs when aggregate supply and inflation is accelerating due to shortages

52

perfect competition

a model that describes markets where all products are identical with no differentiation and there are many competing businesses.

53

poverty trap

a situation in which an unemployed person would be even poorer or not much richer in work because they would no longer receive unemployment benefit

54

price discrimination

means charging a higher price to people whose price elasticity of demand is low. The seller must be able to identify the groups of people who are more sensitive to prices.

55

privatisation

means transferring production out of the public sector and into the private sector

56

productive (or technical) efficiency

maximises the effective use of resources.

57

profit signalling mechanism

means by which resources are allocated. The presence of profit in a market attracts more resources and creates more output. Losses drive resources away

58

progressive tax

one that takes a greater percentage of income from richer people than poorer people

59

Prudential Regulation Authority

part of the Bank of England and supervises banks, building societies and insurance companies

60

public sector deficit

occurs when public expenditure is greater than tax revenue. The deficit is covered by borrowing

61

public good

one that the free market will not provide all. There is no incentive for a producer to supply it, it is impossible to charge for it and make a profit and it is impossible to prevent anyone else from consuming it for fre

62

public interest

a loose term but means the welfare of well being of the public in general, as opposed to the selfish interests of individuals, groups and businesses. In the context of this course it can mean the interests of consumers in general rather than businesses

63

redistribution

refers to the use of tax revenue to raise the standard of living for poorer people

64

regualtions

legal and other rules that apply to businesses. They may come from government, the EU or trade associations

65

regulatory body

a public authority or government agency responsible for enforcing government regualtions

66

regulatory capture

happens when the regulator is more influenced by the industry's point of view than the consumer's

67

relative poverty

exists when someone does now have enough income to participate fully in the society in which they live

68

research and development

helps to develop products and processes that are new, better or cheaper

69

restrictive practises

include any action that a business uses to limit competition

70

shocks

unexpected events that affect the economy and often come from outside it. They are not predictable

71

social benefits

the total benefits of producing goods and services and are calculated by adding together private and external benefits

72

social costs

the total costs of producing goods and services and are calculated by adding together the private and external costs

73

supply-side policies

include all measures designed to increase the productive capacity of the economy. They influence aggregate supply rather than aggregate demand

74

tacit collusion/tacit agrrement

occurs when competing firms appear to follow a similar strategy to reach the same aim, such as avoiding price cutting, but without meeting or having any kind of agreements

75

trade

(X-M) the difference between exports, which are part of the overall demand for the UK produced products and imports which are not produced in the UK

76

tradable pollution permits

allow some businesses to pollute the atmosphere up to a certain level but no more. The total allowed can be reduced over time, allowing businesses to reduce their polluting processes gradually. If the business cuts pollution faster than it needs to, it can sell its unused permits to another business. This creates an incentive ot reduce pollution

77

trade-offs

occur when two objectives cannot both be achieved. The more you have of one variable the less you have of the other

78

vacancies

unfilled jobs. When they increase it is likely that there are skills shortages