all theme vocab Flashcards
normal profit
excess profit earned by a firm over and above its opportunity cost of capital
absolute advantage
when a country’s output of a product is greater per unit of resource used than any other country
absolute poverty
this is when someone doesnt have the income or wealth to meet their basic needs like food, shelter, and water
accelerator process
this is where any change in demand for goods and 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
aggregate demand
the total demand or total spending in an economy at a given price level over a given period
C + I + G + (X - M)
aggregate supply
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
aid
the transfer of resources from one country to another
allocative efficiency
this is when the price of a good is equal to the price of that consumers are happy to pay for it. this will happen when all resources are allocated efficiently
asymmetric information
this is when buyers have more information than sellers (or the opposite) in a market
automatic stabilizers
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 because the government will automatically pay out more unemployment benefits which may reduce the problems the recession causes
average costs
the cost of production per unit of output - i.e. a firms total revenue for a given period of time divided by the quantity sold
average revenue
the revenue per unit sold - i.e. a firm’s total revenue for a given period of time, divided by the quantity sold
backward vertical integration
business strategy in which a company acquires or merges with a supplier or producer of inputs or raw materials that are required in the production process of the company’s goods or services
balance of payments
a record of a countrys international transactions i.e. flows of money into and out of a country
bank rate
the official rate of interest set by the Monetary Policy Committee of the Bank of England
barriers to entry
barriers to entry are any potential difficulties that make it hard for a firm to enter the market
barriers to exit
are any potential difficulties that make it hard for a firm to leave the market
black market
economic activity that occurs without taxation and government regulation
budget deficit
when government spending is greater than its revenue
budget surplus
when government spending is less than its revenue
capital account on the balance of payments
a part of the record of a country’s international flows of money. this includes transfers of non-monetary and fixed assets, such as through emigration and immigration
cartel
a group of producers that agree to limit production in order to keep the price of goods or services high
central bank
the institution responsible for issuing a country’s banknotes acting as a lender of last resort for other banks, and implementing monetary policy e.g. setting interest rates
circular flow of income
the flow of national output, income, and expenditure between households and firms
national output = national income = national expenditure
command economy
an economy where governments, not markets, determine how to allocate resources
comparative advantage
a country has a comparative advantage if the opportunity cost of it producing a good is lower than the opportunity cost for other countries
competition policy
government policy aimed at reducing monopoly power in order to increase efficiency and ensure fairness for consumers
concentration ratio
this shows how dominant firms are in a market e.g. if three firms in a market have 90% market share then the three-firm concentration ratio is 90%
conglomerate integration
mergers or takeovers between firms that operate in completely different markets
consumer surplus
when a consumer pays less for good than they were prepared to, this difference is the consumer surplus
consumption
the purchase/use of goods and services
contestability
a market is contestable if tis easy for new firms to enter the market i.e. if barriers to entry are low
cost-push inflation
inflation caused by the rising costs of inputs to production
creative destruction
his occurs when the innovation and invention of new products and production methods causes the destruction of existing markets and creates new ones
cross elasticity of demand (XED)
measure of how the quantity demanded of one good/service responds to a change in the price of another good/service
current account on the balance of payments
a part of the record of a country’s international flows of money. it consists of trade in goods, trade in services, international flows of income (salaries, interest, profit, and dividends), and transfers
cyclical unemployment
unemployment caused by a shortage of demand in an economy e.g. when there’s a slump
demand-pull inflation
inflation caused by excessive growth in aggregate demand in an economy
demand side policy
government policy that aims to increase aggregate demand in an economy. for example, a policy to increase consumer spending in an economy
demerger
a firm selling off part(s) of its business to create a separate firm or firms
demerit goods
a good or service which ahs greater social costs when its consumed than private costs. demerit goods tend to be overconsumed
dependency ratio
how many people are either too young or too old to work relative to the number of people of working age
deregulation
removing rules imposed by a government that can restrict the level of competition in a market
derived demand
the demand for a good or factor of production due to ts use in making another good or providing a service
developed countries
relatively rich, industrialized countries with a high GDP per capita
developing countries
countries that rely on labor intensive industries. they have a relatively low GDP per capita
diminishing returns
the decrease in additional satisfaction/utility gained from every additional unit consumed
diseconomies of scale
a firm is experiencing diseconomies of scale when the average cost of production is rising as output rises
disposable income
income, including welfare benefits, that is available for households to spend after income tax has been paid
dividend
a share in a firm’s profit that is given to the firm’ shareholders
divorce of ownership from control
this occurs when a firm’s owners are no longer in control of the day-to-day running of the firm (e.g. because it’s run by directors). this can lead to the principal-agent problem where those in control act in their own self-interest rather the interest of the owners
dynamic efficiency
this is about firms improving efficiency in the long-term by carrying out research and development into new or improved products, or investing in new technology and training to improve the production process
economic cycle
the economic cycle (business or trade cycle) is the fluctuations in actual growth over a period of time (several years) or decades
economic development
an assessment of living standards and people’s overall welfare in a country
economic growth
an increase in an economy’s productive potential. usually measured as the rate of change of GDP or GDP per capita
economic integration
an increase in an economy’s productive potential usually measured as the rate of change of the GDP or GDP per capita
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 earning)
economicall active population
the people in an economy who are capable of and old enough to work
economies of scale
when the average cost of production falls as output rises
emerging countries
countries which are not yet developed, but which are growing quickly and are further along the development process than other developing countries
equity
fairness
exchange rate
price at which one currency buys another
extending property rights
when property rights over a resource are given to an individual or firm. this gives them control over the usage of that resource
external growth
a firm growing though mergers/takeovers
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 or service
factors of production
these are the four inputs needed to make the things that people want. they are land, labor, capital, and enterprise
financial account on the balance of payments
a part of the record of a country’s international flows o money. this involves the movement of financial assets (e.g. through foreign direct investment)
financial sector
firms that provide financial services (e.g. banks and insurance companies)
fiscal policy
government policy that determines the levels of government spending and taxation. often used to increase or decrease aggregate demand in an economy
fishers equation of exchange
a monetary theory that states the nominal value of money spent equals the product of the money supply, the velocity of money, and the average price level
M x V = P x Y
Where:
M = the money supply
V = the velocity of money
P = the average price level
Y = the level of real output or income in the economy
fixed costs
costs that dont vary with the level of output of a firm in the short run
foreign direct investment (FDI)
this is when a firm based in one country makes an investment in a different country
forward vertical integration
business strategy in which a company acquires or merges with a company involved in the next stage of the supply chain to gain more control over the distribution and sale of its products or services
e.g. car manufacturer acquiring car dealership
free market
a market where there is no government intervention
competition between different suppliers affects supply and demand and as a result determines price
free rider problem
this means that once a public good is provided its impossible to stop someone from benefitting from it even if they haven’t paid towards it
free trade
international trade without any restrictions from things like trade barriers
frictional unemployment
the unemployment experienced by workers between leaving one job and starting another
full employment
the situation where everyone of working age who wants a job at the current wage rate can get one
globalization
the increasing interdependence of countries globally which is making the world more like a single economy
government failure
when government intervention into a market causes misallocation of resources
gross domestic product (GDP)
the total value of all the goods and services in a year
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
horizontal equity
this means that people in identical circumstances are treated fairly i.e. equally
horizontal integration
mergers or takeovers between firms that are at the same stage of the production process of similar products
human capital
the economic value of a persons skills
human development index (HDI)
a measure of a countrys economic development used by the UN that combines measures of health (life expectancy), education (average and expected years in school), and the standard of living (real GNI per capita)
imperfect information
a situation where buyers/sellers don’t have full knowledge regarding price, costs, benefits, and availability of a good or service
income
money that a firm of person receives for providing a good or service
income elasticity of demand (YED)
this is a measure of how the demand for a good or service responds to a change in real income
inequity
unfairness
inflation
the sustained rise in the average price of goods and services over a period of time
infrastructure
the basic facilities and services needed for a country and its economy to function
inorganic growth
refers to a companys expansion through mergers, acquisitions, or partnerships, rather than through its own internal development or investment
interest
the money paid to the lender by someone who borrows capital. this will often be a fixed percentage rate aka interest rate
internal growth
a firm growing as a result of increasing the levels of output. investment can also mean buying shares from the stock market - this is done in the hope of making a future profit or receiving dividend payments
labor immobility
this occurs when labor cant easily move around to find jobs (geographic immobility) or easily switch between different occupations (occupational immobility)
law of diminishing returns
the idea that if a firm increases one variable factor of production while other factors stay fixed, then the marginal returns the firm gets from the variable factor will always eventually begin to decrease
liquidity
how easily an asset can be spent (converted to money)
long run
a time period in which all the factors of production are variable so a firm can expand its capacity
long run aggregate supply
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 productive potential of an economy
long run philips curve
shows that in the long run, increasing employment doesn’t lead to lower inflation as there is no permanent relationship between the two
macroeconomics
this is the part of economics as a whole.
marginal cost
the cost to a firm of producing the final unit of output
marginal product
the extra output thats porduced when a firm adds one more unit of one of the factors of production they’re using
marginal propensity to consume
the proportion of an increase in income that people will spend (and not save)
marginal returns
refers to the increase in output resulting from an additional unit of input, holding all other inputs constant
marginal revenue
extra revenue received as a result of selling one more unit of output
marginal tax rate
the rate of tax you pay on an ‘extra’ money you receive
marginal utility
the benefit of consuming one extra unit of a good
market failure
this is where the price mechanism fails to allocate resources efficiently
merger
two firms uniting to form a new company
merit good
a good or service which provides greater social benefits when it is consumed than private benefits
microeconomics
part of economics concerned with individual people, individual firms, and individuals markets
minimum efficient scale of production (MES)
lowest level of output at which a firm can achieve the lowest possible average cost of production
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 to the money supply
monopoly
a pure monopoly is a market with only one supplier. some market will be referred to as a monopoly if there is more than one supplier but one supplier dominates the market
monopoly power
the ability of a firm to be a price maker and influence the price of a particular good in a market
monopsony
a market with a single buyer
multinational corporations (MNCs)
firms which function in at least one other country aside from their country of origin
multiplier effect
the process by which an injection into the circular flow of income creates a change in the size of national income that’s greater than injection size
national debt
the total debt that country has run up over time
national minimum wage
a legal minimum hourly rate of pay set for different age groups. there’s a national minimum wage in the UK
national output
all the foods and services produced in a country in a year
nationalized industry
an industry owed by the government
natural monopoly
an industry where economies of scale are so great that the lowest long-run average cost can only be achieved if the market is made up of a single provider
natural rate of unemployment
the rate of unemployment when the labor market is in equilibrium
non pure public good
type of public good that is partially excludable or rivalrous, meaning that it is possible to restrict access to the good or that its consumption by one individual reduces the amount available to others e.g. toll roads, ppl cant use if don’t pay and more ppl use more congested
normal profit
a firm is making normal profit when its total revenue is equal to its total costs
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
opportunity cost
the benefit thats given up in order to do something else - its the cost of the choice that’s made
organic growth
refers to the increase in a company’s production, sales, and profits resulting from its own internal resources and investments, rather than from mergers, acquisitions, or other external factors
output gap
the gap between the trend rate of economic growth and actual economic growth - can be negative or positive
participation rate
proportion of working age people in an economy that are either in work or actively seeking work
per capita
another way to say per person
perfect information
this is where buyers and sellers have full knowledge of prices, costs, benefits and availability of products
philips curve (long run)
a curve that shows the relationship between inflation and unemployment in the long run - always a vertical line positioned at the natural rate of unemployment
philips curve (short run)
a curve that shows the relationship between inflation and unemployment in the short run- as the level that a new entrant to the market cant match in order to force them out of the market
predatory pricing
an aggressive pricing tactic that involves incumbent firms in a market lowering their prices to a level that a new entrant to the market cant match in order to force them out of the market
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 efficiency.
price discrimination
occurs when a seller charges different prices to different customers for exactly the same product
price elasticity of demand
measure of how the quantity demanded of a g+s responds to a change in its price
% change in qd / % change in p
price elasticity of supply
measure of how the quantity supplied of a good or service responds to a change in its price
% change in qs / % change in p
price maker
a firm that has some power to control the price it sells at
price mechanism
this is when changes in the demand or supply of a good or service lead to changes in its price and quantity bought/sold
price taker
a firm that has no power to control the price it sells at - it has to accept the market price
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 try to undercut one another
principial-agent problem
refers to a situation where the goals and incentives of the principal (such as a company’s shareholders) and agent (such as its managers) may be misaligned, leading to conflicts of interest and potentially suboptimal outcomes.
privatisation
when a firm or whole industry changes from being run by the public sector to the private sector
producer surplus
when a producer receives more for a good than they were prepared to accept this difference is the producer surplus
production possibility frontier
a curve which shows the maximum possible outputs of two g+s using a fixed amount of inputs
productive efficiency
occurs when products are produced at a level of output where the average cost is lowest
productivity
the average output produced per unit of a factor of production - for example labor productivity would be the average output per worker (or per work-hour)
profit
a firms total revenue minus its total costs
progressive taxation
a tax system whre an individuals tax rises (as a percentage of their income) as their income rises
proportional taxation
a tax system pay the same proportion of tax regardless of their income level
protectionism
when a government uses policies to control the level of international trade and protect its own economy, industries, and firms
public good
a good which people cant be stopped form consuming even if theyve not paid for it and the consumption of it doesnt prevent others from benefitting from it
public sector
a part of the economy that is owned or run by the government
purchasing power parity
an adjustment of an exchange rate to reflect the real purchasing power of the two currencies
quantitative easing
involves a central bank ‘creating new money’ and using it to buy assets owned by financial instituitions and other firms. it increases the money supply which will enable individuals and firms to spend more ro lend it to other people to spend
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 knows as the Fishers equation of exchange
quasi-public good
a good which appears to have the characteristics of a public good but doesnt exhibit them fully
quota
a limit on the amount of a good that is allowed to be used, produced, or imported
real income
a measure of the amount of g+s that a consumer can afford to purchase with their income, adjusted for inflation
real wage development
unemployment caused by real wages being pushed above the equilibrium level of employment. it can be caused by trade unions negotiating for higher wages or the introduction of a national minimum wage
recession
this occurs when theres negative economic growth for at least two consecutive quarters. typically theres falling demand, low levels of investment, and rising unemployment during a recession
regressive taxation
a tax system where an individuals tax falls (as a percentage of their income) as their income rises
relative poverty
this is where someone has a low income relative to other incomes in their country
returns to scale
how much a firms output changes as they increase input (ie 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
revenue
the total value of sales within a time period
satisficing
running a firm in a way that does just enough to satisfy important stakeholders in the firm rather than trying to maximise something like profit or revenue
seasonal unemployment
unemployment due to uneven economic activity during the year
shadow banking system
firms (or part of firms) that provide credit but which are not regulated
share
a share represents a portion of a company’s value - giving the shares owner a right to a portion of the company’s profits
shareholders
individuals or firms that own shares in a company
short run
a time period in which at least one of a firms factors of production is fixed
short run aggregate supply
aggregate supply when the factors of production are fixed
short run philips curve
a graphical representation of the inverse relationship between unemployment and inflation in the short term.
specialisation
means people or countries doing only the theyre best or most efficient at
speculation
when things are bought (e.g. shares) in the hope that they will increase in value and can be sold for a profit at a later date
static efficiency
this occurs when allocative and productive efficiency are both achieved at a particular time
structural unemployment
unemployment caused by the decline of a major industry which is made worse by labor immobility
subsidy
an amount of money paid by a government to the producer of a g+s to lower the price and increase demand for the good/service
sunk cost
this is an unrecoverable cost of entering a market e.g. advertising. it can act as a barrier to exit
supernormal profit
a firm is making supernormal profit when its total revenue exceeds its total costs
supply side policy
government policy that aims to increase aggregate supply in an economy. for example a policy to increase the productive capacity of the economy
sustainability
this is about meeting the needs of people now, without making it more difficult for people in the future to meet their own needs
systemic risk
this is when a problem in one part of the financial sector can cause the whole financial system to collapse
takeover
one firm buying another firm which then becomes part of the first firm
tariff
a form of tax placed on certain imports to make them more expensive and discourage their consumption
tax
an amount of money paid to a government. it’s paid directly e.g. income tax or indirectly e.g. excise duty
terms of trade
a measure of the relative price of a countrys exports compared to its imports
total cost
all the costs for a firm involved in producing a particular amount of output
total revenue
the total amount of money a firm receives from its its sales in a particular time period
trade creation
the removal of trade barriers within a trading bloc allowing members to buy from the cheapest source
trade diversion
when trade barriers are imposed on non-members of a trading bloc so trade is diverted away from any cheaper non-members
trade liberalisation
the reduction or removal of tariffs and other restriction on international trade i.e. reducing protectionism
trade union
an organisation of workers that acts to represent their interests, e.g. to improve their pay
trading blocs
these are associations between the governments of different countries that promote and manage trade between those countries
transfer earnings
the minimum pay that will stop a worker from switching to their next best paid occupation
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 just the percentage figure
utility
the benefit or well being gained from an action
variable costs
costs that vary with the level of output of a firm
vertical equity
this means people with different circumstances are treated differently but fairly
vertical integration
mergers or takeovers between firms at different stages of production process of the same product. if a firm takes over another firm thats further forward in the production process it is forward vertical and if further back then its backwards vertical
wage differentials
the differences that exist in wages between different groups of workers or between workers in the same occupation
wage rate
price of labor
wealth
the value of somebodys assets
working population
refers to individuals who are of working age and are either employed or seeking employment.
world trade organisation
international orgaisation with provides a forum for its member governments to discuss trade agreements and settle disputes using a set of trade rules. it aims to help trade ot be as free as possible.
x-inefficiency
inefficiency caused by unnecessary costs and waste (i.e. organizational slack)
