A2 Economics Definitions Flashcards
Absolute poverty
When an individual or household’s income is insufficient for them to afford basic shelter, food and clothing.
Absolute advantage
Where a country using a given resource input is able to produce more than other countries with the same input.
Accelerator theory
The theory that the level on investment is related to past changes in national income.
Participation rate
The proportion of the population of working age in a job or actively seeking work.
Actual growth
An increase in the productive potential of the economy matched by an increase in demand.
Adaptive expectations
Where decisions about the future are based on past information.
Adjustable peg
When the value of the fixed exchange rate can be changed as circumstances require.
Allocative efficiency
The optimum allocation of scarce resources that best accords with the consumers’ pattern of demand.
Allocative inefficiency
When resources are not used to produce the goods and services wanted by consumers.
Anglo-Saxon neo-liberalism
Economic reform aimed at boosting the dynamism of economies - in contrast to the “social model” which stresses social objectives.
Anticipated inflation
Where economic agents correctly predict the future rate of inflation.
Automatic stabilisers
Features of government spending and taxation that minimise fluctuations in the economic cycle.
Average cost pricing
When the price is set at the average cost.
Backward bending supply curve for labour.
The individual labour supply curve is thought to be this shape because it is assumed workers will prefer to work fewer hours as their income increases above a certain level.
Base rate
The interest rate a bank sets to determine it’s lending and borrowing rates.
Benefit principle
The argument that taxes should be linked to the benefits received by taxpayers.
Broad money
Money held in banks and building societies that is not immediately accessible.
Canons of taxation
The characteristics of a “good tax”, after Adam Smith.
Capital expenditure
Government spending to improve the productive capacity of the nation, for example, on schools or hospitals.
Capital market discipline
Where firms may be taken over by other firms if they appear to be making lower profits than their assets would suggest.
Casual unemployment
A kind of frictional unemployment occurring when workers are laid off on a short-term basis.
Classical or real-wage unemployment.
Results from real wages being above their market-clearing level, creating an excess supply of labour.
Collusion
Where firms cooperate in their pricing and output policies.
Comparative advantage
Where a country can produce a good with a lower resource cost input than other countries.
Competition Commission
A government organisation responsible for implementing policy in relation to monopolies.
Competition policy
Methods that the UK government and EU authorities use in order to make markets more efficient.
Concentration ratio
The proportion of the market share held by the dominant firms.
Conglomerate merger
Where firms with no obvious connection combine.
Constant returns to scale
Where an increase in factor inputs leads to a proportional increase in factor outputs.
Contestable market
Where there is free entry and free exit of other firms.
Corporate citizenship
Indicates that organisations embrace sustainable development.
Cost-benefit analysis
An investment appraisal technique that takes into account all the private and external costs and benefits of an economic decision.
Credit crunch
A recently coined term used to refer to the reduced willingness of financial institutions to lend to households and one another.
Crowding out
Where a public sector deficit deters private sector investment and consumption.
Dead-weight loss
Reduction in consumer and producer surplus when output is restricted to less than the optimum level.
Decreasing returns to scale
Where an increase in factor inputs leads to a less than proportionate increase in factor inputs.
Direct controls
Controls on imports such as tariffs and quotas.
Dirty float
Manipulation of a floating rate to gain advantages over trading partners.
Discontinuous marginal revenue curve
Region over which a change in marginal costs will not lead to a change in the firm’s price and output levels.
Dominant market position
Where a firm, or group of firms working together, have a market share of 40 per cent.
Dynamic efficiency
Efficiency over time - new products, techniques and processes which increase economic growth.
Economically inactive
The percentage of the population who are either not in work nor seeking it.
Economic rent
The payment received by a factor of production over and above that which is needed to keep it in it’s present occupation.
Elasticity of demand for labour
The responsiveness of quantity demanded of labour to a change in the wage rate.
Elasticity of supply of labour
The responsiveness of quantity of labour supplied to a change in the wage rate.
Enterprise culture
A way of life that emphasises the importance of individuals who create their own businesses and create wealth.
Equilibrium unemployment
When aggregate demand for labour equals aggregate supply of labour.
Eurosclerosis
High unemployment and slow job creation despite economic growth.
Exchange controls
Restrictions on the ability to trade foreign currencies by a county’s central bank.
Expenditure-reducing policies
Policies used to correct current account imbalances by reducing consumer spending power.
Expenditure-switching policies
Policies used to correct current account imbalances by encouraging consumers to buy domestically produced output rather than imports.
First degree price discrimination
When the discriminating firm can charge a separate price to each individual consumer.
Fiscal drag
Increases in the burden of taxation when tax allowances are not increased in line with inflation.
Fischer equation
MV=PY.
Where M is the money supply, V is the velocity of circulation of money, P is the price level and Y is real output.
Foreign direct investment
Investments in the domestic economy in new manufacturing plants by foreign multinational companies.
Game theory
An analysis of how games players react to changing circumstances and plan their response.
Gini coefficient
A statistical measure of the degree of inequality of income or wealth.
Golden rule
The UK government’s fiscal rule that net government borrowing should only be to fund infrastructure projects.
Goodwill
The value of a firm in excess of its asset value including reputation, brand name, trade contacts and general expertise.
Hit and run entry
Where new firms enter the industry, cream off some of the supernormal profits of the incumbents and then exit.
Homogeneous
All products are the same irrespective of who makes them.
Horizontal equity
When people or firms with the same income and financial circumstances pay the same amount of tax.
“Hot money”
Volatile capital movements which take place in the foreign exchange markets due to interest rate changes.
Hysteresis
The tendency for a variable not to return to it’s original value or state when changed for example, unemployment can lead to higher unemployment.
Income effect
Depending upon an individual’s target level of income, he or she can work fewer hours for the same overall pay.
Increasing returns to scale
Where an increase in factor inputs leads to a more than proportionate increase in outputs.
Interdependent
Where actions by one firm will have an effect on the sales and revenue of other large firms in the market.
Intra-area trade
Trade between the members of a trade agreement.
Inventory investment/stock building
Investment by firms in stocks of raw materials and stocks of finished goods ready to be sold.
Involuntary unemployment
When a worker is willing to accept a job at the going rate but is not offered one.
