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Flashcards in P2 key terms Deck (59):
1

Aggregate demand

The sum of total demand from all sources within the economy

2

Aggregate supply

The total output from all sources in the economy

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Appreciation

Occurs when the exchange rate rises, making imports cheaper and raising the price of exports

4

Balance of trade

The difference in value between visible exports and visible imports

5

Base rate

Set by the Bank of England and influences interest rates across the economy

6

Boom

A time of rapid growth and expansion in the economy

7

BRICS

Brazil, Russia, India, China, and since 2019 South Africa

8

Capacity utilisation

Measures actual output as a percentage of the theoretical maximum output

9

Capital

Includes all assets that can generate income and includes prepaid, equipment and financial assets

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Capital intensive production

Uses large amounts of capital and relatively little labour

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Common markets

Have completely free trade internally and a common external trade policy covering the rest of the world

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Comparative advantage

Refers to the theory that if two countries specialise in the product which for them has the lowest opportunity cost, and then trade, real incomes will increase

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Conglomerate intergration

Occurs when two businesses that have nothin in common join together

14

Constant prices

Value every year’s output at the price levels of a base year, removing the effects of inflation

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Consumption

Total household spending on goods and services

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Cost-push inflation

Caused by rising costs of production

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Contractionary policies

Slow down economic activity by increasing leakages and reducing injections into the circular flow of money

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Cyclical unemployment

Caused by a downturn in the economic cycle. Spending is falling so output falls and fewer employees are needed

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Demand pull inflation

Caused by excessive aggregate demand. Quantity demanded exceeds total output

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Depreciation

A fall in the exchange rate that makes imports dearer and exports cheaper

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Diseconomies of scale

Happen when further increases in size begin to increase average costs and inefficiencies develop

22

Disposable income

The amount of income a person can actually spend on goods and services. It measures consumers’ spending power after tax

23

Downturn

The stage of the economic cycle when the boom slows and the rate of growth of GDP decreases

24

Economic cycle

The fluctuations in the levels and rates of GDP growth over a period of time. It is also known as the business cycle or trade cycle.

25

Efficiency

Means organising production so that waste is minimised and costs are the lowest possible

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Emerging economies

Have fast growing manufacturing sectors. Some are still poor but others like Mexico may soon be described as developed.

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Employment

Refers to all those people of working age who have jobs

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Expansionary policies

Stimulate the level of economic activity by reducing leakages and increasing injections into the circular flow of money

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Extension strategies

Ways of lengthening the maturity of the product life cycle

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External economies of scale

Reduce production costs for all businesses in the industry

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Fiscal policy

Adjusts taxation and government expenditure either to stimulate or cool down the economy

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Foreign direct investment

Refers to funds invested in other economies

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Free trade areas

Groups of countries that trade completely freely with each other, with no trade barriers, but each member country retains its own independent trade policies in relation to the rest of the world

34

Globalisation

Refers to the increasing interdependence of trading economies with increased imports, exports and capital movements

35

Horizontal intergration

When two businesses in the same industry join together

36

Human capital

The knowledge, experience and skills of individuals or of the work force

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Income elastic

Applies to products for which an income change causes a proportionally bigger change in quantity demanded

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Income inelastic

Applies to products for which an income change causes a proportionally smaller change in quantity demanded

39

Income elasticity of demand

Measures the proportionate change in quantity demanded following a change in income

40

Inferior good

A good or service that sees an increase in demand following a fall in income and a fall in demand following an increase in income

41

Inflation

Measured using Consumer Price Index (CPI) or Retail Price Index (RPI which includes housing costs)

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Injections

Investment, government spending, exports. Increase demand for domestically produced goods and services

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Inorganic growth

The firm grows by joining with another firm by merger or takeover

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Internal economies of scale

Those that benefit the individual business

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Investment

Spending now on assess that will generate income in the future

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Invisible

Exports and imports cannot be touched or handled as they are services

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Just in Time (JIT)

A stock control system that does away with the need to hold large quantities of stocks or component inputs

48

Kaizen

The Japanese word for continuous improvement. It summarises a whole company approach to quality control

49

Keynes, J.M.

The highly influential economist who in the 1930s explained the importance of maintaining levels of aggregate demand during recessions

50

Labour intensive production

Uses large amounts of labour and relatively little capital

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Lead time

The time taken from having an idea to selling the product to a customer

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Leakages

Reduce the demand for domestically produced goods and services by diverting part of people’s incomes into savings, taxes and spending on imports

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Lean production

Refers to any system of production that minimises costs through eliminating waste

54

Long tail

The mass of niche markets that has vastly extended consumer choice, with small and larger business providing for smaller groups of consumers

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Market leader

The business with the most control over prices and output within its market

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Mean income

Average income (GDP/population)

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Median income

The middle value in all incomes. 50% of incomes are above it and 50% are below

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Merger

The joining together of two or more firms into a single business with the approval of the shareholders and management concerned

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Micro marketing

The marketing of product or services designed to meet the needs of a very small section of the market