All Vocab for IB Econ Years 1 and 2

Question 1

Absolute advantage

Answer 1

exists when a country is able to produce a good more cheaply in in terms of absolute quantity than another country

Question 2

Absolute poverty

Answer 2

absolute poverty exists when individuals do not have the resources to be able to consume sufficient necessities to survive.

Question 3

Accelerator theory

Answer 3

the theory that the level of planned investment is related to past changes in income. (HL)

Question 4

Active or discretionary fiscal policy

Answer 4

the deliberate manipulation of government expenditure and taxes to influence the economy.

Question 5

Activity or participation rates

Answer 5

the percentage or proportion of any given population in the labour force.

Question 6

Actual growth

Answer 6

Actual increase in in levels of production. Can be represented by a shift of a point closer to the PPC curve. Can be measured as an increase in real GDP.

Question 7

Actual Output

Answer 7

The amount of a product that a firm or an economy actually produces. Can be represented as a real GDP value.

Question 8

Ad valorem f

Answer 8

tax levied as a percentage of the value of the good.

Question 9

Adjustable peg system

Answer 9

an exchange rate system where currencies are fixed in value to another specific currency in the short term but can be devalued or revalued in the longer term.

Question 10

Aggregate

Answer 10

The collective amount, sum or total.

Question 11

Aggregate demand

Answer 11

the total of all demands and expenditures on final goods in the economy at a given time and price level. It is composed of C for consumption, G for government expenditure, I for investments and NX for net exports (X-M). (C+I+G+NX)

Question 12

Aggregate demand curve

Answer 12

shows the relationship between the AVERAGE price level and equilibrium national income. As the price level rises the equilibrium level of national income falls.

Question 13

Aggregate Supply

Answer 13

The total amount of goods and services that all the firms in all the industries in a country will produce at various price levels in a given period of time

Question 14

Aggregate supply curve

Answer 14

Shows the relationship between the average level of prices in the economy and the level of total output

Question 15

Allocative or economic efficiency

Answer 15

occurs when resources are distributed in such a way that no consumers could be made better off without other consumers becoming worse off

Question 16

Amortisation

Answer 16

The running down or payment of a loan by instalments. An example is a repayment mortgage on a house, which is amortised by making monthly payments that over a pre-agreed period of time cover the value of the loan plus interest

Question 17

Anti-competitive practices or restrictive trade practices

Answer 17

tactics used by producers to restrict competition in the market.

Question 18

Appreciation or depreciation of a currency

Answer 18

a rise or fall in the value of a currency in relation to another when the currency is freely floating and market forces determine its value

Question 19

Average cost

Answer 19

the average cost of production per unit, calculated by dividing the total cost by the quantity produced. It is equal to average variable cost + average fixed cost. (HL)

Question 20

Average product

Answer 20

the quantity of output per unit of factor input. It is the total product divided by the level of output. (HL)

Question 21

Average propensity to consume

Answer 21

the proportion of total income spent. It is calculated by C ÷ Y (HL)

Question 22

Average propensity to save

Answer 22

the proportion of a total income which is saved. It is calculated by S ÷ Y. (HL)

Question 23

Average revenue

Answer 23

the average receipts per unit sold. It is equal to total revenue divided by quantity sold. (HL)

Question 24

Balance of payments account

Answer 24

a record of all financial dealings over a period of time between economic agents of one country and all other countries.

Question 25

Balance of trade

Answer 25

visible exports minus visible imports

Question 26

Balanced budget

Answer 26

When total public-sector spending equals total government income during the same period from taxes and charges for public services

Question 27

Bank base rate

Answer 27

the interest rate which a bank sets to determine its borrowing and lending rates. It offers interest rates below its base rate to customers who deposit funds with it, whilst charging interest rates above base rate to borrowers

Question 28

Barrier to exit

Answer 28

factors which make it difficult or impossible for firms to cease production and leave an industry. (HL)

Question 29

Barriers to entry

Answer 29

factors which make it difficult or impossible for firms to enter an industry and compete with existing producers. (HL)

Question 30

Barter

Answer 30

swapping one good for another without the use of money.

Question 31

Base period

Answer 31

the period, such as a year or a month, with which all other values in a series are compared.

Question 32

Basic economic problem

Answer 32

resources have to be allocated between competing uses because wants are infinite whilst resources are scarce. when social benefit is greater than net private benefit, a positive externality or external benefit exists

Question 33

Birth rate

Answer 33

the number of live births as a proportion of the total population.

Question 34

Boom

Answer 34

period of time when the economy is growing strongly and is operating around its productive potential.

Question 35

Bottleneck

Answer 35

a supply side constraint in a particular market in an economy which prevents higher growth for the whole economy. It is usually caused by a limitation of a section of the productive system. For example: If a country has a record production of tomatoes, but the number of trucks that would be available to transport this production is not enough to take all the tomatoes, this could be a bottleneck for the production and export of the tomatoes.

Question 36

Brand

Answer 36

a name, design, symbol or other feature that distinguishes a product from other similar products and which makes it non-homogeneous.

Question 37

Break-even point

Answer 37

the levels of output where total revenue equals total cost. (HL)

Question 38

Break even price

Answer 38

The break-even price represents the price that is required to cover total costs (both fixed and variable). Total profit at the break-even point is zero. Break-even is only possible if a firm’s prices are higher than its variable costs per unit. If so, then each unit of the product sold will generate some “contribution” toward covering fixed costs. (HL)

Question 39

Bretton Woods system

Answer 39

an adjustable peg exchange rate system which was used in the post-Second World War period until its collapse in the early 1970s

Question 40

Budget

Answer 40

a statement of the spending and income plans of an individual, firm or government.

Question 41

Budget deficit

Answer 41

a deficit which arises because government spending is greater than its receipts. Government therefore has to borrow money to finance the difference.

Question 42

Budget surplus

Answer 42

a government surplus arising from government spending being less than its receipts. Government can use the difference to repay part of the National Debt

Question 43

Business or economic or trade cycle

Answer 43

regular fluctuations in the level of economic activity around the productive potential of the economy. In business cycles, the economy veers from recession, when it is operating well below its productive potential, to booms when it is likely to be at or even above its productive potential. THE FOUR PHASES ARE RECESSION, DEPRESSION, RECOVERY AND BOOM

Question 44

Buyer’s market

Answer 44

A market in which supply seems plentiful and prices seem low; the opposite of a seller’s market

Question 45

Black Market

Answer 45

The black market is not a physical place, but rather an economic activity in which merchandise and/or services are bought and sold illegally. It is also called the “underground market”.

Question 46

Bond

Answer 46

A certificate of debt issued by a company or a government to an investor.

Question 47

Capital

Answer 47

is the factor of production that comes from investment in physical and human capital. physical capital is the stock of manufactured resources (ex. machinery, tools..) investment in human capital through education, experience, and improved health care may all attribute to economic growth by increasing the productive potential of the labor force.

Question 48

Capital and financial accounts

Answer 48

that part of the balance of payments account where flows of savings, investment and currency are recorded.

Question 49

Capital productivity

Answer 49

output per unit of capital employed. (HL)

Question 50

Capital-output ratio

Answer 50

the ratio between the amount of capital needed to produce a given quantity of goods and the level of output. (HL)

Question 51

Capacity

Answer 51

The amount a company or an economy can produce using its current resources of production at full tilt

Question 52

Cartel

Answer 52

an organisation of producers which exists to further the interests of its members, often by restricting output through the imposition of quotas, leading to a rise in price.

Question 53

Central bank

Answer 53

the financial institution in a country or group of countries typically responsible for the printing and issuing of notes and coins, setting short term interest rates, managing the country’s gold and currency reserves and issuing government debt.

Question 54

Ceteris paribus

Answer 54

“All else equal”; used as a reminder that all variables other than the ones being studied are assumed to be constant.

Question 55

Choice

Answer 55

economic choices involve the alternative uses of scarce resources

Question 56

Circular flow of income

Answer 56

a model of the economy which shows the flow of money, goods, services and factors of production as well as their payments around the economy.

Question 57

Classical or real-wage unemployment

Answer 57

when real wages are kept at such a high level that the demand for labour is lower than the supply of labour

Question 58

Closed economy

Answer 58

an economy where there is no foreign trade.

Question 59

Collusion

Answer 59

collective agreements between producers which restrict competition. (HL)

Question 60

Collusive oligopoly

Answer 60

when firms in an oligopolistic industry form a cartel and collude, typically to restrict output and raise prices and profits (HL)

Question 61

Command or planned economy

Answer 61

an economic system where government, through a planning process, allocates resources in society

Question 62

Common Access Resources

Answer 62

also known as common pool resources or common property resources, these are resources which have properties similar to public goods in that it is very difficult or impossible to prevent people from using or consuming the resource. Therefore they are vulnerable to overuse/degradation.

Question 63

Common external tariff

Answer 63

a common tariff set by a group of countries imposed on imported goods from non-member countries

Question 64

Common market

Answer 64

a group of countries between which there is free trade in products and factors of production, and which imposes a common external tariff on imported goods from outside the market.

Question 65

Comparative advantage

Answer 65

exists when a country is able to produce a good more cheaply relative to other goods produced domestically than another country. In other words, the country has lower opportunity cost of production than the other country in question.

Question 66

Competitive demand

Answer 66

when two or more goods are substitutes for each other

Question 67

Competitive Market

Answer 67

exists when there is a genuine choice for consumers in terms of who supplies the goods and services they demand

Question 68

Complement Good

Answer 68

A good that should be purchased with other related goods to satisfy a consumer.

Question 69

Concentrated market

Answer 69

a market where most of the output is produced by a few firms.

Question 70

Concentration ratio

Answer 70

the market share of the largest firms in an industry. For instance, a five firm concentration ratio of 60 per cent shows that the five largest firms in the industry have a combined market share of 60 per cent

Question 71

Conglomerate merger

Answer 71

a merger between two firms producing unrelated products.

Question 72

Consumer Price Index (CPI)

Answer 72

a measure of the price level used across the European Union and used by the Bank of England to measure inflation against its target.

Question 73

Consumer surplus

Answer 73

the difference between how much consumers are prepared to pay more for a good and what they actually pay.

Question 74

Consumption

Answer 74

total expenditure by households on goods and services over a period of time. It is also one of the components of the aggregate demand

Question 75

Consumption externalities or external benefits in consumption

Answer 75

when the social costs of consumption are different from the private costs of consumption.

Question 76

Contracted out

Answer 76

getting private sector firms to produce the goods and services which are then provided by the state for its citizens

Question 77

Core inflation

Answer 77

A measure of inflation that factors out the changes in the prices of products that tend to experience volatile price swings, (e.g. food and energy prices). This gives policymakers a better indication of long term changes in the price level

Question 78

Cost-benefit analysis

Answer 78

a procedure, particularly used by governments to evaluate investment projects, which takes into account social cost and benefits

Question 79

Cost-push inflation

Answer 79

inflation caused by increases in the costs of production in the economy.

Question 80

Credible threat

Answer 80

a course of action that other players in a game believe will be taken by another player if they persist in pursuing strategies which are against that player’s interests. (HL)

Question 81

Credit multiplier

Answer 81

the number of times a change in reserves assets will change the assets of the banking system and thus the money supply (HL)

Question 82

Creeping inflation

Answer 82

small rises in the price level over a long period of time

Question 83

Cross or cross-price elasticity of demand

Answer 83

a measure of the responsiveness of quantity demanded of one good to a change in price of another good. It is measured by dividing the percentage change in quantity demanded of one good by the percentage change in price of the other good.

Question 84

Crowding out

Answer 84

when an extra pound of government spending leads to a reduction of one pound in private sector spending. Crowding out implies that changes in government spending or taxation will have no long term impact on the level of aggregate demand (HL)

Question 85

Currency bloc

Answer 85

a group of currencies which are fixed in value against each other but which may float freely against other world currencies

Question 86

Currency board system

Answer 86

a fixed exchange rate system where a country fixes the value of its currency to another currency. Notes and coins in the domestic currency can only be printed to the value of assets in the other currency held by the central bank.

Question 87

Current account

Answer 87

that part of the balance of payments account where payments for the purchase and sale of goods and services are recorded

Question 88

Current account deficit or surplus

Answer 88

a deficit exists when imports are greater than exports; a surplus exists when exports are greater than imports

Question 89

Current balance

Answer 89

the difference between total exports (visible and invisible) and total imports. It can also be calculated by adding the balance of trade to the balance on invisible trade.

Question 90

Customs union

Answer 90

a type of trade bloc which is composed of a free trade area with a common external tariff

Question 91

Cyclical or demand-deficient unemployment

Answer 91

when there is insufficient demand in the economy for all workers who wish to work at current wage rates to obtain a job, caused by changes in the business cycle and AD level

Question 92

Death rate

Answer 92

the number of deaths as a proportion of the total population.

Question 93

Deflation

Answer 93

Deflation is a general decline of prices, often caused by a reduction of supply of money or credit.
Can also be caused by a decrease in government, personal, or investment spending

Question 94

Deflationary gap

Answer 94

The difference between full employment level of output and actual output. For example, in a recession, the deflationary gap may be quite substantial, indicative of the high rates of unemployment and underused resources. Can be shown by the horizontal portion of the Keynesian LRAS curve

Question 95

Dead weight loss

Answer 95

The costs to society created by market inefficiency. Price ceilings (such as price controls and rent controls), price floors (such as minimum wage and living wage laws) and taxation are all said to create deadweight losses. Deadweight loss occurs when supply and Demand are not in equilibrium.

Question 96

Demand

Answer 96

is the willingness and ability to consume a product of various prices

Question 97

Demand curve

Answer 97

is a graphical representation of the law of demand. It is(usually) a downward-sloping curve (or line) illustrating the inverse relationship between price and quantity demanded

Question 98

Demand for money

Answer 98

the total amount of money which households and firms wish to hold at a point in time

Question 99

Demand management

Answer 99

government use of fiscal or other policies to manipulate the level of aggregate demand in the economy

Question 100

Demand-pull inflation

Answer 100

inflation which is caused by excess demand in the economy

Question 101

Demerger

Answer 101

when a firm splits into two or more independent businesses.

Question 102

Dependency ratio

Answer 102

the proportion of dependants (i.e. non-workers) to workers in the population.

Question 103

Depression

Answer 103

a period when there is a particularly deep and long fall in output

Question 104

Deregulation

Answer 104

the process of removing government controls from markets.

Question 105

Derived demand

Answer 105

when the demand for one good is the result of or derived from the demand for another good

Question 106

Devaluation and revaluation

Answer 106

a fall or rise in the value of the currency when the currency is pegged against other currencies

Question 107

Developed and developing or less developed countries

Answer 107

developed countries are the rich industrialised nations of Europe, Japan and North America, whilst developing or less developed countries are the other, poorer, less economically developed nations of the world

Question 108

Direct tax

Answer 108

a tax levied directly on an individual or organisation, such as income tax

Question 109

Diseconomies of scale

Answer 109

a rise in the long run average costs of production as output rises. (HL)

Question 110

Disposable income

Answer 110

The amount of money that households have available for spending and saving after income taxes have been accounted for.

Question 111

Division of labour

Answer 111

specialisation by workers.

Question 112

Domestic economy

Answer 112

the economy of a single country

Question 113

Dual labour market hypothesis

Answer 113

the hypothesis that the labour market is split into two sectors: the formal sector with a relatively skilled, highly paid and stable workforce and the informal sector with a relatively unskilled, low paid and unstable workforce.

Question 114

Dumping

Answer 114

the sale of goods at less than cost of production by foreign producers in the domestic market.

Question 115

Duopoly

Answer 115

an industry where there are only two firms. (HL)

Question 116

Durable goods

Answer 116

goods which are consumed over a long period of time, such as a television set or a car.

Question 117

Dynamic efficiency

Answer 117

occurs when resources are allocated efficiently over time.

Question 118

Economic cost

Answer 118

the opportunity cost of an input to the production process (implicit costs) plus the accounting costs of an input to the production process (explicit costs)

Question 119

Economic development

Answer 119

improvement of welfare and well-being, so economic development is measured not just in monetary terms, but also in term of other indicators, such as education indicators, health indicators, and social indicators.

Question 120

Economic goods

Answer 120

goods which are scarce because their use has an opportunity cost.

Question 121

Economic growth

Answer 121

increase in the productive capacity of the economy (and so a growth of real national income) or the increase of the economic activity of a country within a period of time.

Question 122

Economic recovery

Answer 122

the movement back from where the economy is operating below its productive potential to a point where it is at its productive potential. One of the stages of the business cycle.

Question 123

Economic rent

Answer 123

the payment made to a factor over and above its transfer earnings in the long run.

Question 124

Economic system

Answer 124

a complex network of individuals, organisations and institutions and their social and legal interrelationships

Question 125

Economically active

Answer 125

the number of workers in the workforce who are in a job or are unemployed.

Question 126

Economies of scale

Answer 126

A fall in the long run average costs of production as output rises. (HL)

Question 127

Effective exchange rate and trade weighted exchange rate index

Answer 127

measures of the exchange rate of a country’s currency against a basket of currencies of a country’s major trading partners

Question 128

Elastic demand

Answer 128

where the price elasticity of demand is greater than 1. The responsiveness of demand is proportionally greater than the change in price. Demand is infinitely elastic if price elasticity of demand is infinity

Question 129

Elasticity

Answer 129

a measure of responsiveness, it measures how much something changes when there is a change in one of the factors that determine it

Question 130

Embargo

Answer 130

An extreme quota. A government order that will restrict all trade with a country, or aim to reduce the exchange of specific goods

Question 131

Entrepreneurship (factor of production)

Answer 131

The creativity and innovation an individual puts towards the production of goods and services by combining factors of production and with the willingness to take risks.

Question 132

Equation of exchange (the Fisher equation)

Answer 132

the identity MV PT where M is the money supply, V is the velocity of circulation of money over time, P is the price level and T is the number of transactions over time. (HL)

Question 133

Equilibrium

Answer 133

the point where what is expected or planned is equal to what is realised or actually happens.

Question 134

Equilibrium price

Answer 134

the price at which there is no tendency to change because planned (or desired or ex ante) purchases (i.e. demand) are equal to planned sales (i.e. supply).

Question 135

Equity

Answer 135

fairness.

Question 136

European Monetary System

Answer 136

a currency bloc where the participating currencies were fixed against each other within a band and where the bloc as a whole fluctuated freely against other currencies.

Question 137

Excess demand

Answer 137

where demand is greater than supply

Question 138

Excess supply

Answer 138

where supply is greater than demand

Question 139

Exchange controls

Answer 139

controls on the purchase and sale of foreign currency by a country, usually through its central bank

Question 140

Exchange rate system

Answer 140

a system which determines the conditions under which one currency can be exchanged for another.

Question 141

Expansionary fiscal policy

Answer 141

fiscal policy used to increase aggregate demand.

Question 142

Expenditure reducing

Answer 142

in a balance of payments context, government policies to reduce the level of aggregate demand in order to reduce imports and boost exports.

Question 143

Expenditure switching

Answer 143

in a balance of payments context, government policies to switch production currently being sold domestically, to exports

Question 144

Export and import volumes

Answer 144

the number of exports and imports. In statistics, they are usually expressed in index number form. They can be calculated by dividing the value of total exports or imports by their average price

Question 145

Exports

Answer 145

A function of international trade whereby goods produced in one country are shipped to another country for future sale or trade. The sale of such goods adds to the producing nation’s gross output.

Question 146

External economies of scale

Answer 146

falling average costs of production, shown by a downward shift in the average cost curve, which result from a growth in the size of the industry within which a firm operates. (HL)

Question 147

Externality or spillover effect

Answer 147

the difference between social costs and benefits and private costs and benefits. If net social cost (social cost minus social benefit) is greater than net private cost (private cost minus private benefit), then a negative externality or external cost exists.
Occurs when the actions of consumers or producers give rise to positive or negative side-effects on other people who are not part of these actions, and whose interests are not taken into consideration.

Question 148

Factors of production

Answer 148

the inputs to the production process: land, which is all natural resources; labour, which is the workforce; capital, which is the stock of manufactured resources used in the production of goods and services; entrepreneurs, individuals who seek out profitable opportunities for production and take risks in attempting to exploit these.

Question 149

Fertility rate

Answer 149

the number of live births as a proportion of women of child-bearing age

Question 150

Fine-tuning

Answer 150

the attempt by government to move the economy to a very precise level of unemployment, inflation, etc. It is usually associated with fiscal policy and demand management.

Question 151

First World countries

Answer 151

the rich, developed, nations of Western Europe, Japan and North America.

Question 152

Fixed Costs

Answer 152

Costs that do not vary with level of output production (HL)

Question 153

Fiscal policy

Answer 153

decisions about spending, taxes and borrowing of the government. Those decision would determine the amount of money available on the economy

Question 154

Fixed capital

Answer 154

Fixed capital refers to any kind of real or physical asset (such as land, buildings, vehicles and equipment) that is not used up in the production of a product. It is in contrast with capital such as raw materials, fuel and labor which are used up. Fixed capital is stays in the business almost permanently

Question 155

Fixed exchange rate

Answer 155

a rate of exchange between at least two currencies which is constant over a period of time.

Question 156

Fixed or indirect or overhead costs

Answer 156

costs which do not vary as the level of production increases or decreases.

Question 157

Foreign exchange markets

Answer 157

the markets, organised in major financial centres such as London and New York, where currencies are bought and sold.

Question 158

Foreign Direct Investment (FDI)

Answer 158

Foreign direct investment is investment of foreign assets into domestic structures,equipment, and organizations

Question 159

Formal collusion

Answer 159

when firms make agreements among themselves to restrict competition, typically by reducing output, raising prices and keeping potential competitors out of the market. (HL)

Question 160

Free goods

Answer 160

goods which are unlimited in supply and which therefore have no opportunity cost.

Question 161

Free market economy, or free enterprise economy or capitalist economy or market economy

Answer 161

an economic system which resolves the basic economic problem through the market mechanism.

Question 162

Free market forces

Answer 162

forces in free markets which act to reduce prices when there is excess supply and raise prices when there is excess demand

Question 163

Free or floating exchange rate system

Answer 163

where the value of a currency is determined by free market forces.

Question 164

Free rider

Answer 164

a person or organisation which receives benefits that others have paid for without making any contribution themselves

Question 165

Free trade

Answer 165

An explanation that it is international trade that takes place without any protectionism (trade barriers: tariffs, quotas, embargo..)

Question 166

Free trade area

Answer 166

a group of countries between which there is free trade in goods and services but which allows member countries to set their own level of tariffs against non-member countries.

Question 167

Frictional unemployment

Answer 167

when workers are unemployed for short lengths of time between jobs.

Question 168

Full capacity

Answer 168

the level of output where no extra production can take place in the long run with existing resources. The full capacity level of output for an economy is shown by the neo-classical long run aggregate supply curve.

Question 169

Full employment

Answer 169

the level of output in an economy where all factors of production are fully utilised at given factor prices

Question 170

Functional distribution of income

Answer 170

shows the share of national income received by each factor of production.

Question 171

Functions of money

Answer 171

money must be a medium of exchange, a store of value, a unit of account and a standard for deferred payment

Question 172

Fundamental disequilibrium on the balance of payments

Answer 172

where imports are greater than exports over a long period of time resulting in unsustainable levels of international borrowing.

Question 173

Gearing

Answer 173

the relationship between funds raised from loans and from issuing shares.

Question 174

Gearing ratios

Answer 174

explore the capital structure of a business by comparing the proportions of capital raised by debt and equity

Question 175

Generic brands

Answer 175

products that only contain the name of the product category rather than the company or product name

Question 176

Gini coefficient

Answer 176

The measure of statistical dispersion intended to represent the income distribution of its nation’s residents shown by the area under the line of absolute income equality and the nation’s Lorenz curve

Question 177

Going concern

Answer 177

an accounting concept that assumes a business will continue to trade in the foreseeable future

Question 178

Goods

Answer 178

physical products

Question 179

Green marketing

Answer 179

a strategy which takes into account the effects of marketing on the environment.

Question 180

Gross Domestic Product (GDP)

Answer 180

Is the measurement of the value of all goods and services produced in an economy in a given period of time. (GDP= C+I+G+NX)

Question 181

Gross National Product (GNP)

Answer 181

Is the measurement of the value of all goods and services produced by citizens of a country independently of where they are within a year.

Question 182

Gross profit

Answer 182

total sales revenue or turnover minus cost of sales, the direct costs of production.

Question 183

Gross profit margin or mark-up

Answer 183

gross profit expressed as a percentage of turnover

Question 184

Group norm

Answer 184

the usual characteristics of behaviour of a group

Question 185

Harmonisation

Answer 185

establishing common standards, rules and levels on everything from safety standards to tariffs, taxes and currencies.

Question 186

Hidden, black or informal economy

Answer 186

economic activity where trade and exchange take place, but which goes unreported to the tax authorities and those collecting national income statistics.Workers in the hidden economy are usually motivated by the desire to evade paying taxes

Question 187

Homogeneous goods

Answer 187

goods made by different firms but which are identical

Question 188

Horizontal equity

Answer 188

the identical treatment of identical individuals or groups in society in identical situations.

Question 189

Horizontal merger or integration

Answer 189

a merger between two firms in the same industry at the same stage of production.

Question 190

Hot money

Answer 190

short term, speculative flows of money across foreign exchanges, made in order to make a profit on the difference between the buying and selling price of the currency.

Question 191

Human capital

Answer 191

the value of the productive potential of an individual or group of workers. It is made up of the skills, talents, education and training of an individual or group and represents the value of future earnings and production.

Question 192

Human Development Index(HDI)

Answer 192

A measure of the standards of living, used to rank countries based on their level of human development. It takes into account three primary variables: the level of GDP per capita, (as an indication of income levels), literacy (as an indication of education levels), and life expectancy (as an indication of levels of health). Countries are placed into one of four categories based on their HDI ranking: “very high human development”, “high human development”, “medium human development” and “low human development”

Question 193

Hyper-inflation

Answer 193

large increases in the price level

Question 194

Hypothecated tax

Answer 194

a tax whose revenues are used to pay for a specific item of government spending.

Question 195

Hysteresis

Answer 195

the process whereby a variable does not return to its former value when changed. In terms of the business cycle, it is used to describe the phenomenon of an economy failing to return to its former long term trend rate of growth after a severe recession.

Question 196

Imperfect competition

Answer 196

the situation prevailing in a market in which elements of monopoly allow individual producers or consumers to exercise some control over market prices. (HL)

Question 197

Information failure

Answer 197

when individuals fail to take into account full costs/benefits when making a decision e.g. due to lack of relevant information (or incorrect information) and so over- or under-consume resulting in allocative inefficiency

Question 198

Imputed cost

Answer 198

an economic cost which a firm does not pay for with money to another firm but is the opportunity cost of factors of production which the firm itself owns. (HL)

Question 199

Incidence of tax

Answer 199

the tax burden on the taxpayer

Question 200

Income effect

Answer 200

the impact on quantity demanded of a change in price due to a change in consumers’ real income which results from this change in price.

Question 201

Income elasticity of demand

Answer 201

a measure of the responsiveness of quantity demanded to a change in income. It is measured by dividing the percentage change in quantity demanded by the percentage change in income

Question 202

Index number

Answer 202

an indicator showing the relative value of one number to another from a base of 100. It is often used to present an average of a number of statistics

Question 203

Indexation

Answer 203

adjusting the value of economic variables such as wages or the rate of interest in line with inflation.

Question 204

Indirect tax

Answer 204

a tax levied on goods or services, such as value added tax or excise duties. It is a tax imposed upon expenditure and is placed on the selling price of the product therefore shifting the firms supply curve vertically upwards by the amount of tax imposed

Question 205

Individual demand curve

Answer 205

the demand curve for an individual consumer, firm or other economic unit.

Question 206

Individual supply curve

Answer 206

the supply curve of an individual producer

Question 207

Inelastic demand

Answer 207

where the price elasticity of demand is less than 1. The responsiveness of demand is proportionally less than the change in price. Demand is infinitely inelastic if price elasticity of demand is zero

Question 208

Inferior Good

Answer 208

an inferior good is a good that has a decrease in demand when consumer income rises

Question 209

Inflation

Answer 209

a sustained or continuous increase in the general or average level of prices over a period of time

Question 210

Inflationary gap

Answer 210

Its an output gap where the actual GDP exceeds potential full employment GDP This is shown by the vertical portion of the Keynesian LRAS curve

Question 211

Injections

Answer 211

in the circular flow of income, spending which is not generated by households including investment, government spending and exports

Question 212

Instrument of policy

Answer 212

an economic variable, such as the rate of interest, income tax rates or government spending on education, which is used to achieve a target of government policy.

Question 213

Interest Rates

Answer 213

the price of borrowed or loaned money

Question 214

Internal economies of scale

Answer 214

economies of scale which arise because of the growth in the scale of production within a firm. (HL)

Question 215

Internal market

Answer 215

where parts of an organisation, such as the National Health Service or the BBC, compete against each other to provide services

Question 216

Inventory cycle

Answer 216

fluctuations in national income caused by changes in the level of inventories or stocks in the economy.

Question 217

Investment

Answer 217

the addition of capital stock to the economy or expenditure by firms on capital. It is a component of the GDP=C+I+G+(X-M). Be aware of the different definition for bank investments

Question 218

Invisibles

Answer 218

trade in services, transfers of income and other payments or receipts.

Question 219

Involuntary unemployment

Answer 219

unemployment which exists when workers are unable to find jobs despite being prepared to accept work at the existing wage rate

Question 220

J-Curve Effect

Answer 220

in the short term a devaluation is likely to lead to a deterioration in the current account position before it starts to improve (HL)

Question 221

Joint demand

Answer 221

when two or more complements are bought together.

Question 222

Joint supply

Answer 222

when two or more goods are produced together, so that a change in supply of one good will necessarily change the supply of the other goods with which it is in joint supply.

Question 223

Labour market flexibility

Answer 223

the degree to which demand and supply in a labour market respond to external changes such as changes in demand for a product or population changes to return the market to equilibrium

Question 224

Labour productivity

Answer 224

output per worker

Question 225

Labor(factor of production)

Answer 225

Labor represents the human capital available to transform raw or national resources into consumer goods and/or services

Question 226

Laffer curve

Answer 226

a curve which shows that at low levels of taxation, tax revenues will increase if tax rates are increased; however, if tax rates are high, then a further rise in rates will reduce total tax revenues because of the disincentive effects of the increase in tax. (HL)

Question 227

Land (factor of production)

Answer 227

Land is the economic resource encompassing natural resources found within a nation’s economy (Example: A farm land, oil, minerals).

Question 228

Law

Answer 228

a theory or model which has been verified by empirical evidence

Question 229

Law of demand

Answer 229

As the price of a product falls, the quantity demanded of the product will usually increase (Ceteris Paribus)

Question 230

Law of diminishing returns or variable proportions

Answer 230

if increasing quantities of a variable input are combined with a fixed input, eventually the marginal product and then the average product of that variable input will decline. Diminishing returns are said to exist when this decline occurs.

Question 231

Laissez-Faire

Answer 231

a doctrine opposing governmental interference in economic affairs beyond the minimum necessary for the maintenance of peace and property rights.

Question 232

Limit pricing

Answer 232

when a firm, rather than short run profit maximising, sets a low enough price to deter new entrants from coming into its market.

Question 233

Liquidity

Answer 233

the degree to which an asset can be converted into money without capital loss.

Question 234

Liquidity trap

Answer 234

where the economy is in such a deep depression that interest rates have fallen as far as they will ever go. This means that governments cannot use monetary policy through reducing interest rates to stimulate aggregate demand. Only fiscal policy can help revive demand.

Question 235

Loanable funds theory

Answer 235

the loanable funds theory of interest rate determination argues that the rate of interest is determined by the demand for and supply of loanable funds, in particular for the purchase of capital

Question 236

Logistics

Answer 236

the movement of goods from one place to another along the supply chain from producer to customer, involving transport and warehousing

Question 237

Long run

Answer 237

the period of time when all factor inputs can be varied, but the state of technology remains constant.

Question 238

Long run aggregate supply curve

Answer 238

the aggregate supply curve which assumes that wage rates are variable, both upward and downwards. Classical or supply side economists assume that wage rates are flexible. Keynesian economists assume that wage rates may be ‘sticky downwards’ and hence the economy may operate at less than full employment even in the long run

Question 239

Lorenz curve

Answer 239

shows the extent of inequality of income in society

Question 240

Macroeconomics

Answer 240

the study of the economy as a whole, including inflation, growth, unemployment and distribution of income in the whole economy

Question 241

Managed or dirty float

Answer 241

where the exchange rate is determined by free market forces but governments intervene from time to time to alter the free market price of a currency.

Question 242

Margin

Answer 242

a point of possible change

Question 243

Marginal cost

Answer 243

the cost of producing an extra unit of output (HL)

Question 244

Marginal efficiency of capital

Answer 244

the rate of return on the last unit of capital employed. (HL)

Question 245

Marginal physical product

Answer 245

the physical addition to output of an extra unit of a variable factor of production. (HL)

Question 246

Marginal product

Answer 246

the addition to output produced by an extra unit of input. It is the change in total output divided by the change in the level of inputs. (HL)

Question 247

Marginal propensity to consume

Answer 247

the proportion of a change in income which is spent. It is calculated by ΔC ÷ ΔY. (HL)

Question 248

Marginal propensity to save

Answer 248

the proportion of a change in income which is saved. It is calculated by ΔS ÷ ΔY. (HL)

Question 249

Marginal revenue

Answer 249

the addition to total revenue of an extra unit sold. (HL)

Question 250

Marginal revenue product

Answer 250

• the value of the physical addition to output of an extra unit of a variable factor of production. In a perfectly competitive product market where marginal revenue equals price, it is equal to marginal physical product times the price of the good produced. (HL)

Question 251

Marginal social and private costs and benefits

Answer 251

the social and private costs and benefits of the last unit either produced or consumed.

Question 252

Market

Answer 252

any convenient set of arrangements by which buyers and sellers communicate to exchange goods and services.

Question 253

Market clearing price

Answer 253

the price at which there is neither excess demand nor excess supply but where everything offered for sale is purchased.

Question 254

Market concentration

Answer 254

the degree to which the output of an industry is dominated by its largest producers. (HL)

Question 255

Market Demand

Answer 255

demand by all participants in market for a particular good

Question 256

Market demand curve

Answer 256

the sum of all individual demand curves

Question 257

Market failure

Answer 257

where resources are inefficiently allocated due to imperfections in the working of the market mechanism

Question 258

Market share

Answer 258

the proportion of sales in a market taken by a firm or a group of firms

Question 259

Market structure

Answer 259

the characteristics of a market which determine the behaviour of firms within the market.

Question 260

Market supply curve

Answer 260

the supply curve of all producers within the market. In a perfectly competitive market it can be calculated by summing the supply curves of individual producers.

Question 261

Market System

Answer 261

an economic system that relies upon markets to allocate scare resources and determine prices

Question 262

Marketing mix

Answer 262

different elements within a strategy designed to create demand for a product.

Question 263

Marshall-Lerner condition

Answer 263

devaluation will lead to an improvement in the current account so long as the combined price elasticities of exports and imports are greater than 1. (HL)

Question 264

Maximum Price

Answer 264

A maximum price is a price ceiling set by the government where the price is not allowed to rise above this set level (although it is allowed to fall below). The reason for setting a maximum price is so that the prices of necessities don’t rise too much in times of shortage. Such a situation is common in times of war and/or famine.

Question 265

Merger, amalgamation, integration or takeover

Answer 265

the joining together of two or more firms under common ownership.

Question 266

Merit good

Answer 266

a good which is underprovided by the market mechanism. It is a good that provides positive externalities by helping other members of society such as education and health care.

Question 267

Microeconomics

Answer 267

the study action of the behaviour of individuals or groups within an economy, typically within a market context

Question 268

Minimum efficient scale of production

Answer 268

the lowest level of output at which long run average cost is minimised.

Question 269

Minimum price

Answer 269

A price floor set by the government or an organization. The price may not fall below it, although it can rise above it. For example, the minimum price of oranges is set to $2 per kg then that would mean that the oranges cannot be worth less than $2 per kg

Question 270

Mixed economy

Answer 270

an economy where both the free market mechanism and the government planning process allocate significant proportions of total resources

Question 271

Modes of transport

Answer 271

the means of transport such as bus, train, car, ship, lorry, or aeroplane.

Question 272

Monetarists

Answer 272

economists who believe that the quantity theory of money shows that inflation is always and everywhere caused by excessive increases in the money supply

Question 273

Monetary policy

Answer 273

the attempt by government or a central bank to manipulate the money supply, the supply of credit, interest rates or any other monetary variables, to achieve the fulfilment of policy goals such as price stability

Question 274

Monetary policy accommodation

Answer 274

a change in the nominal money supply which the government permits following a supply side shock in order to keep the real money supply constant.

Question 275

Monetary policy validation

Answer 275

a change in the nominal money supply which the government permits following a change in aggregate demand in order to keep the real money supply constant.

Question 276

Monetary transmission mechanism

Answer 276

the mechanism through which a change in the money supply leads to a change in national income and other real variables such as unemployment.

Question 277

Monetary union

Answer 277

when at least two countries share the same currency

Question 278

Money illusion

Answer 278

when economic agents such as workers believe that changes in money values are the same as changes in real values despite inflation (or deflation) occurring at the time.

Question 279

Money substitutes

Answer 279

those which can be used as a medium of exchange but which are not stores of value. Examples are charge cards or credit cards.

Question 280

Money supply

Answer 280

the total amount of money in circulation in the economy

Question 281

Monopolistic competition

Answer 281

a market structure where a large number of small firms produces nonhomogeneous products and where there are no barriers to entry or exit. (HL)

Question 282

Monopoly

Answer 282

a market structure where one firm supplies all output in the industry without facing competition because of high barriers to entry to the industry. (HL)

Question 283

Multinational company/multinational corporation/transnational corporation

Answer 283

a company with significant production operations in at least two countries

Question 284

Multi-plant monopolist

Answer 284

a monopoly producer working with a number of factories, offices or plants. (HL)

Question 285

Multiplier

Answer 285

the figure used to multiply a change in autonomous expenditure, such as investment, to find the final change in income. It is the ratio of the final change in income to the initial change in autonomous expenditure. (HL)

Question 286

Multiplier effect

Answer 286

an increase in investment or any other autonomous expenditure will lead to an even greater increase in income.

Question 287

Multiplier-accelerator model

Answer 287

a model which describes how the workings of the multiplier theory and the accelerator theory lead to changes in national income.

Question 288

NAIRU, the non-accelerating inflation rate of unemployment

Answer 288

the natural rate of unemployment, the level of unemployment which can be sustained with a change in the inflation rate.

Question 289

Narrow money

Answer 289

money which is primarily used as a medium of exchange

Question 290

Nash equilibrium

Answer 290

in game theory, where neither player is able to improve their position given the choice of the other player; it is an equilibrium because neither player has an incentive to change their choice of strategy given the choice of strategy of the other player. (HL)

Question 291

National Debt

Answer 291

the accumulated borrowings of government

Question 292

National income

Answer 292

the value of the output, expenditure or income of an economy over a period of time.

Question 293

Nationalisation

Answer 293

the transfer of firms or assets from private sector ownership to state ownership.

Question 294

Nationalised industries and public corporations

Answer 294

state owned industries or companies.

Question 295

Natural monopoly

Answer 295

where economies of scale are so large relative to market demand that the dominant producer in the industry will always enjoy lower costs of production than any other potential competitor (HL)

Question 296

Near money

Answer 296

an asset which cannot be used as medium of exchange in itself but is readily convertible into money and is both a unit of account and a store of value

Question 297

Needs

Answer 297

the minimum which is necessary for a person to survive as a human being

Question 298

Necessity

Answer 298

An indispensable thing for survival.Water and food for humans. Have in mind that the level of necessities may vary from person to person. Think of the need of a heavy winter coat in different locations of the globe

Question 299

Net migration

Answer 299

immigration minus emigration

Question 300

Net present value

Answer 300

the present value of social benefits minus the present value of social costs.

Question 301

Neutrality of money

Answer 301

the theory that a change in the quantity of money in the economy will affect only the level of prices and not real variables such as unemployment

Question 302

Nominal GDP

Answer 302

GDP evaluated at a current market price. it is GDP that includes all the changes in market price that occurred due to inflation/deflation. Can increase either as a result of an increase in real output or an increase in the price level

Question 303

Nominal interest rates

Answer 303

interest rates unadjusted for inflation

Question 304

Nominal values

Answer 304

values unadjusted for the effects of inflation (i.e. values at current prices).

Question 305

Non-collusive or competitive oligopoly

Answer 305

when firms in an oligopolistic industry compete amongst themselves and there is no collusion. (HL)

Question 306

Non-durable goods

Answer 306

goods which are consumed almost immediately like an ice-cream or a packet of washing powder

Question 307

Non-homogenous goods

Answer 307

goods which are similar but not identical made by different firms, such as branded goods.

Question 308

Non-renewable resources

Answer 308

resources, such as coal or oil, which once exploited cannot be replaced.

Question 309

Non-sustainable resource

Answer 309

resource which is being economically exploited in such a way that it is being reduced over time.

Question 310

Normal good

Answer 310

a good where demand increases when income increases (i.e. it has a positive income elasticity of demand)

Question 311

Normal profit

Answer 311

When revenue is not greater than or less than the economic costs (accounting and opportunity) (HL)

Question 312

Normative economics

Answer 312

the study and presentation of policy prescriptions involving value judgements about the way in which scarce resources are allocated

Question 313

Normative statement

Answer 313

a statement which cannot be supported or refuted because it is a value judgment.

Question 314

Open economy

Answer 314

an economy where there is trade with other countries

Question 315

Open market operations

Answer 315

the buying and selling of financial securities in exchange for money in order to increase or decrease the size of the money supply

Question 316

Opportunity cost

Answer 316

Is the value of the next best alternative foregone when an economic decision is made

Question 317

Optimal allocation of resources

Answer 317

occurs when resources are efficiently used in such a way as to maximise the welfare or utility of consumers

Question 318

Optimal level of production

Answer 318

the range of output over which long run average cost is lowest.

Question 319

Organisational slack or X-inefficiency

Answer 319

inefficiency arising because a firm or other productive organisation fails to minimise its costs of production (HL)

Question 320

Output gap

Answer 320

the difference between the actual level of GDP and the productive potential of the economy. There is a positive output gap when actual GDP is above the productive potential of the economy and it is in boom. There is a negative output gap when actual GDP is below the productive potential of the economy

Question 321

Over-heating

Answer 321

the economy over-heats if aggregate demand is increased when the economy is already at its full productive potential. The result is increases in inflation with little or no increase in output

Question 322

Pareto efficiency

Answer 322

occurs when no one can be made better off by transferring resources from one industry to another without making someone else worse off. Pareto efficiency is also called allocative efficiency. It exists in an economy if price = marginal cost in all industries. (HL)

Question 323

Partial and general models

Answer 323

a partial model is one with few variables whilst a general model has many.

Question 324

Payoff matrix

Answer 324

in game theory, shows the outcomes of a game for the players given different possible strategies (HL)

Question 325

Per capita GDP

Answer 325

the GDP of a country divided by the amount of people in the country to find the GDP per person

Question 326

Perfect competition

Answer 326

a market structure where there are many buyers and sellers, where there is freedom of entry and exit to the market, where there is perfect knowledge and where all firms produce a homogeneous product (HL)

Question 327

Perfect knowledge or information

Answer 327

exists if all buyers in a market are fully informed of prices and quantities for sale, whilst producers have equal access to information about production techniques.

Question 328

Permanent income

Answer 328

the income a household could spend over its lifetime without reducing the value of its assets. This approximates to the average income of a household over its lifetime.

Question 329

Personal distribution of income

Answer 329

the distribution of the total income of all individuals

Question 330

Population of working age

Answer 330

defined in the UK as men aged 16 to 64 and women aged 16-59

Question 331

Positive economics

Answer 331

the scientific or objective study of the allocation of resources

Question 332

Positive statement

Answer 332

a statement which can be supported or refuted by evidence

Question 333

Poverty or earnings trap

Answer 333

occurs when an individual is little better off or even worse off when gaining an increase in wages because of the combined effect of increased tax and benefit withdrawal.

Question 334

Predatory pricing

Answer 334

a firm driving its prices down to force a competitor out of a market and then putting them back up again once this objective has been achieved (HL)

Question 335

Price discrimination

Answer 335

charging a different price for the same good or service in different markets. (HL)

Question 336

Price elasticity of demand or own elasticity of demand

Answer 336

the proportionate response of changes in quantity demanded to a proportionate change in price, measured by the formula: /\Q over /\P

Question 337

profit

Answer 337

The payment to the entrepreneur in the resource market. () the reward to the owners of a business. It is the difference between a firm’s revenues and its costs

Question 338

Price elasticity of supply

Answer 338

a measure of the responsiveness of quantity supplied to a change in price. It is measured by dividing the percentage change in quantity supplied by the percentage change in price.

Question 339

Price follower

Answer 339

a firm which sets its price by reference to the prices set by the price leader in a market (HL)

Question 340

Price leadership

Answer 340

when one firm, the price leader, sets its own prices and other firms in the market set their prices in relationship to the price leader (HL)

Question 341

Price support schemes

Answer 341

government interventions on the price system such as price floors/ceilings

Question 342

Price level

Answer 342

the average price of goods and services in the economy

Question 343

Price taker

Answer 343

a firm which has no control over the market price and has to accept the market price if it wants to sell its product

Question 344

Primary sector

Answer 344

extractive and agricultural industries

Question 345

Prisoners’ dilemma

Answer 345

a game where, given that neither player knows the strategy of the other player, the optimum strategy for each player leads to a worse situation than if they had known the strategy of the other player and been able to co-operate and co-ordinate their strategies. (HL)

Question 346

Private cost and benefit

Answer 346

the cost or benefit of an activity to an individual economic unit such as a consumer or a firm.

Question 347

Private good

Answer 347

a good where consumption by one person results in the good not being available for consumption by another

Question 348

Privatisation

Answer 348

the opposite of nationalisation, the transfer of organisations or assets from state ownership to private sector ownership

Question 349

Producer surplus

Answer 349

the difference between the market price which firms receive and the price at which they are prepared to supply

Question 350

Production externalities or externalities in production

Answer 350

when the social costs of production differ from the private costs of production.

Question 351

Production function

Answer 351

the relationship between output and different levels and combinations of inputs. (HL)

Question 352

Production possibility frontier (also known as the production possibility curve or the production possibility boundary or the transformation curve)

Answer 352

a curve which shows the maximum potential level of output of one good given a level of output for all other goods in the economy.

Question 353

Productive efficiency

Answer 353

is achieved when production is achieved at lowest cost (HL)

Question 354

Productivity

Answer 354

output per unit of input employed (HL)

Question 355

Profit satisficing

Answer 355

making sufficient profit to satisfy the demands of shareholders (HL)

Question 356

Progressive, regressive and proportional taxes

Answer 356

taxes where the proportion of income paid in tax rises, falls or remains the same respectively as income rises

Question 357

Public choice theory

Answer 357

theories about how and why public spending and taxation decisions are made.

Question 358

Public good or pure public good

Answer 358

a good where consumption by one person does not reduce the amount available for consumption by another person and where once provided, all individuals benefit or suffer whether they wish to or not

Question 359

Public Private Partnerships (PPPs)

Answer 359

a partnership between the public sector and the private sector where the public sector and private sector companies collaborate to deliver services. An example of a PPP is the Public Finance Initiative where the private sector builds and maintains infrastructure like a hospital and leases it to the government

Question 360

Public Sector Net Cash Requirement (PSNCR)

Answer 360

the official name given to the difference between government spending and its receipts in the UK

Question 361

Purchasing power parities (PPP)

Answer 361

an exchange rate of one currency for another which compares how much a typical basket of goods in one country costs compared to that of another country.

Question 362

Purchasing power parity theory

Answer 362

the hypothesis that long run changes in exchange rates are caused by differences in inflation rates between countries

Question 363

Quasi-public good or non-pure public good

Answer 363

Quasi-public goods have characteristics of both private and public goods, including partial excludability, partial rivalry, partial diminishability and partial rejectability. Examples include roads, tunnels and bridges. Markets for these goods are considered to be incomplete markets and their lack of provision by free markets would be considered to be inefficient and a market failure

Question 364

Quasi-rent

Answer 364

economic rent earned only in the short run

Question 365

Quota

Answer 365

a physical limit on the quantity, value or volume of imported products

Question 366

Quantity supply

Answer 366

the amount of good or service the producer is willing and able to supply at each particular price

Question 367

Rate of interest

Answer 367

the price of money, determined by the demand and supply of funds in a money market where there are borrowers and lenders

Question 368

Rate of return or rate of discount

Answer 368

the rate of interest or rate of profit earned on an investment project over time. The rate of discount can be used to calculate the present value of future income.

Question 369

Real GDP

Answer 369

GDP evaluated at the market prices of a base year e.g. if 1990 was a base year then the real GDP for 1995 would be calculated by taking the quantities of goods and services of 1995 and multiplying them by their respective 1990 prices. It measures the value of a nation’s output in a period of time adjusted for any inflation or deflation the economy has experienced. Equals the nominal GDP divided by the GDP deflator price index

Question 370

Real interest rates

Answer 370

nominal interest rates adjusted for inflation

Question 371

Real values

Answer 371

values adjusted for inflation

Question 372

Recession

Answer 372

a period when growth in output falls or becomes negative.The technical definition now used by governments is that a recession occurs when growth in output is negative for two successive quarters

Question 373

Relative poverty

Answer 373

poverty which is defined relative to existing living standards for the average individual.

Question 374

Renewable resources

Answer 374

resources, such as fish stocks or forests, which can be exploited over and over again because they have the potential to renew themselves

Question 375

Replacement ratio

Answer 375

unemployment benefits divided by the wage an unemployed worker could receive if in work (HL)

Question 376

Resale price maintenance

Answer 376

fixing a price at which a customer may sell on a good or service.

Question 377

Reserve assets, high powered money or the monetary base

Answer 377

those assets which banks have to keep either because they are needed to satisfy customers’ requirements (like cash) or because the government forces banks to keep them to operate its monetary policy.

Question 378

Retail Price Index (RPI)

Answer 378

a measure of the price level which has been calculated in the UK for over 60 years and is used in a variety of contexts such as by the government to index welfare benefits.

Question 379

Retained profit

Answer 379

profit kept back by a firm for its own use which is not distributed to shareholders or used to pay taxation (HL)

Question 380

Returns to scale

Answer 380

the change in percentage output resulting from a percentage change in all the factors of production. There are increasing returns to scale if the percentage increase in output is greater than the percentage increase in factors employed, constant returns to scale if it is the same and decreasing returns to scale if it is less

Question 381

Recessionary Gap

Answer 381

The difference between an economy’s equilibrium level of output and its full employment level of output when an economy is in recession

Question 382

Saving (personal)

Answer 382

the portion of households’ disposable income which is not spent over a period of time.

Question 383

Savings function

Answer 383

the relationship between the saving of households and the factors which determine it.

Question 384

Scarce resources

Answer 384

resources which are limited in supply so that choices have to be made about their use.

Question 385

Search costs

Answer 385

costs, such as money and time, spent searching for a job

Question 386

Seasonal unemployment

Answer 386

when workers are unemployed at certain times of the year, such as building workers or agricultural workers in winter

Question 387

Secondary sector

Answer 387

production of goods, mainly manufactured

Question 388

Semi-variable cost

Answer 388

a cost which contains within it a fixed cost element and a variable cost element. (HL)

Question 389

Shift in the demand curve

Answer 389

a movement of the whole demand curve to the right or left of the original caused by a change in any variable affecting demand except price

Question 390

Short run

Answer 390

the period of time when only one factor input to the production process can be varied (HL)

Question 391

Short run aggregate supply

Answer 391

the upward sloping aggregate supply curve which assumes that money wage rates are fixed

Question 392

Short run aggregate supply Curve

Answer 392

An upward sloping curve, relatively flat below the full employment level of output, and relatively steep beyond the full employment level

Question 393

Sight deposit accounts

Answer 393

Accounts with financial institutions where deposits are repayable on demand and where a cheque book is issued. In the UK, they are more commonly called current or cheque accounts

Question 394

Social cost and benefit

Answer 394

the cost or benefit of an activity to society as a whole

Question 395

Specialisation

Answer 395

a system of organisation where economic units such as households or nations are not self-sufficient but concentrate on producing certain goods and services and trading the surplus with others.

Question 396

Specific or unit tax

Answer 396

tax levied on volume

Question 397

Specific tax

Answer 397

A per unit tax, or specific tax, is a tax that is defined as a fixed amount for each unit of a good or service sold. For example, 15 cents of tax for each pack of cigarettes independent of the final price of the pack

Question 398

Stagflation or slumpflation

Answer 398

a situation where an economy faces both rising inflation and rising unemployment. Example: during the oil shocks in the 1970’s

Question 399

Stakeholders

Answer 399

groups of people which have an interest in a firm, such as shareholders, customers, suppliers, workers, the local community in which it operates and government. OR A person, group, or organization that has direct or indirect stake in an organization because it can affect or be affected by the organization’s actions, objectives, and policies.

Question 400

Standard of living

Answer 400

used to describe the general way in which people live, focusing primarily on things like average income, health care availability, life expectancy, educational attainment, etc

Question 401

Static and dynamic models

Answer 401

a static model is one where time is not a variable. In a dynamic model, time is a variable explicit in the model

Question 402

Static efficiency

Answer 402

occurs when resources are allocated efficiently at a point in time

Question 403

Structural unemployment

Answer 403

when the pattern of demand and production changes leaving workers unemployed in labour markets where demand has shrunk. Examples of structural unemployment are regional unemployment, sectoral unemployment or technological unemployment.

Question 404

Subsidy

Answer 404

government support given to a firm per unit of output to reduce production costs per unit, usually designed to encourage production or consumption of a good.

Question 405

Substitute

Answer 405

a good which can be replaced by another to satisfy a want

Question 406

Substitution effect

Answer 406

the impact on quantity demanded due to a change in price, assuming that consumers’ real incomes stay the same

Question 407

Sunk costs

Answer 407

costs of production which are not recoverable if a firm leaves the industry. (HL)

Question 408

Supply

Answer 408

the quantity of goods that suppliers are willing and able to sell at any given price over a period of time

Question 409

Supply chain

Answer 409

the links between producer and customer

Question 410

Strike

Answer 410

an organized work stoppage by employees or union members

Question 411

Supply side economics

Answer 411

the study of how changes in aggregate supply will affect variables such as national income; in particular, how government microeconomic policy might change aggregate supply through individual markets

Question 412

Supply side policies

Answer 412

government policies designed to increase the productive potential of the economy and push the long run aggregate supply curve to the right.

Question 413

Supply side shocks

Answer 413

factors such as changes in wage rates or commodity prices which cause the short run aggregate supply curve to shift

Question 414

Sustainable development

Answer 414

development which meets the needs of the present generation without compromising the needs of future generations

Question 415

Sustainable growth

Answer 415

growth in the productive potential of the economy today which does not lead to a fall in the productive potential of the economy for future generations.

Question 416

Sustainable resource

Answer 416

renewable resource which is being economically exploited in such a way that it will not diminish or run out

Question 417

Synergy

Answer 417

when two or more activities or firms put together can create greater outcome than the sum of the individual parts

Question 418

Soft loan

Answer 418

Loans made by foreign governments or international financial institution to less developed countries at favorable interest rates, lower than those the country would have paid if borrowing from a private bank

Question 419

Tacit collusion

Answer 419

when firms collude without any formal agreement having been reached or even without any explicit communication between the firms having taken place (HL)

Question 420

Target of policy

Answer 420

an economic goal which the government wishes to achieve, such as low unemployment or high growth

Question 421

Tariff, import duty or customs duty

Answer 421

a tax on imported goods which has the effect of raising the domestic price of imports and thus restricting demand for them

Question 422

Technical efficiency

Answer 422

is achieved when a given quantity of output is produced with the minimum number of inputs

Question 423

Terms of trade

Answer 423

the ratio of export prices to import prices

Question 424

Tertiary sector

Answer 424

production of services

Question 425

The business cycle

Answer 425

a representation concerning the patterns of expansion and contraction in the economy, consisting of growth, peak, recession and trough

Question 426

The economics of happiness

Answer 426

investigates exactly what contributes to welfare and attempts to put values on some of these factors

Question 427

The Gold Standard

Answer 427

an exchange rate system under which currencies could be converted into gold at a fixed rate, hence providing a relative price between each currency

Question 428

The law of diminishing marginal utility

Answer 428

for an individual, the satisfaction derived from consuming an extra unit of a good falls the greater the consumption of the good. (HL)

Question 429

The natural rate of unemployment

Answer 429

the proportion of the workforce which chooses voluntarily to remain unemployed when the labour market is in equilibrium

Question 430

The Phillips curve

Answer 430

the line which shows that higher rates of unemployment are associated with lower rates of change of money wage rates and therefore inflation and vice versa.

Question 431

The quantity theory of money

Answer 431

the theory, based on the equation of exchange, that increase in the money supply, M, will lead to increases in the price level P (HL)

Question 432

The scientific method

Answer 432

a method which subjects theories or hypotheses to falsification by empirical evidence.

Question 433

The velocity of circulation of money (or income velocity)

Answer 433

the number of times the stock of money in the economy changes hands over a period of time

Question 434

Theory of comparative advantage

Answer 434

countries will find it mutually advantageous to trade if the opportunity cost of production of goods differs

Question 435

Theory or model

Answer 435

a hypothesis which is capable of refutation by empirical evidence

Question 436

Third World countries

Answer 436

the developing nations of the world in Africa, South America and Asia.

Question 437

Time deposit accounts

Answer 437

accounts where interest is paid but savers are not able to withdraw without either giving notice or paying an interest rate penalty

Question 438

Tied Aid

Answer 438

Aid given by a more developed country to a less developed country that comes with “strings attached”, e.g. the recipient nation must spend any of the money received on goods and services produced by the lending country

Question 439

Total cost

Answer 439

the cost of producing any given level of output. It is equal to total variable cost + total fixed cost (HL)

Question 440

Total physical product

Answer 440

the total output of a given quantity of factors of production

Question 441

Total product

Answer 441

the quantity of output measured in physical units produced by a given number of inputs over a period of time.

Question 442

Total revenue

Answer 442

the total money received from the sale of any given quantity of output.

Question 443

Trade barriers

Answer 443

any measure which artificially restricts international trade

Question 444

Trade creation

Answer 444

the switch from purchasing products from a high cost producer to a lower cost producer

Question 445

Trade diversion

Answer 445

the switch from purchasing products from a low cost producer to a higher cost producer

Question 446

Trade union mark-up

Answer 446

the difference between wage rates in a unionised place of work and the wage rate which would otherwise prevail in the absence of trade unions

Question 447

Trading bloc

Answer 447

a group of countries which have signed an agreement to reduce or eliminate tariffs, quotas and other protectionist barriers between themselves

Question 448

Transfer earnings

Answer 448

• the minimum payment needed to keep a factor of production in its present use. It is the opportunity cost of the factor.

Question 449

Transfer payments

Answer 449

income for which there is no corresponding output, such as unemployment benefits or pension payments

Question 450

Transfer pricing

Answer 450

an accounting technique used by multinational companies for reducing taxes on profits by selling goods at a low price internally from a high tax country to another part of the company in a low tax country.

Question 451

Transport infrastructure

Answer 451

the built environment which services the different modes of transport such as roads, rail tracks and stations, ports, distribution depots and airports.

Question 452

Transition economy

Answer 452

A transition economy is an economy which is changing from a centrally planned economy towards a Market oriented economy. Ex: Eastern european countries who became independent after the collapse of the Soviet Union. Poland, Czech Republic.

Question 453

Total Revenue Test Of Ped

Answer 453

• If the demand for a good is price elastic and the price falls, then the total revenues of producers will increase (as consumers are highly responsive to the lower price so the % increase in Qd will exceed the % decrease in price)

Question 454

Tax incidence - (Sometimes called tax burden)

Answer 454

When an indirect tax is placed on a particular good or group of goods, the incidence, or burden, of the tax is shared by producers and consumers. Buyers will pay a higher price , thus share some of the burden of the tax. But once the tax has been paid to the government, producers end up keeping a lower price, meaning they also share some of the tax burden. The amount of a tax on a particular good paid by consumers is the consumer tax incidence; the amount paid by producers is the producer tax incidence (HL)

Question 455

Underlying rate of inflation

Answer 455

the RPIX, the increase in consumer prices excluding changes in mortgage costs, or the RPIY, which also excludes indirect taxes

Question 456

Under-Employment

Answer 456

When a worker is employed in a part-time job but wishes to be working full time. Or when a worker is employed in a job for which he is vastly over-qualified

Question 457

Unemployment

Answer 457

the state of an individual who is of working age, actively seeking work, but unable to find a job

Question 458

Unemployment trap

Answer 458

occurs when an individual is little better off or even worse off when getting a job after being unemployed because of the combined effect of increased tax and benefit withdrawal.

Question 459

Unemployment rate

Answer 459

the number of unemployed expressed as a percentage of the workforce

Question 460

Unit labour cost

Answer 460

cost of employing labour per unit of output or production (HL)

Question 461

Unitary elasticity

Answer 461

where the value of price elasticity of demand is 1. The responsiveness of demand is proportionally equal to the change in price.

Question 462

Utility

Answer 462

the satisfaction derived from consuming a good

Question 463

Variable or direct or prime costs

Answer 463

costs which vary directly in proportion to the level of output of a firm.

Question 464

Variable costs

Answer 464

Costs directly related to variations in output (HL)

Question 465

Veblen Goods

Answer 465

Ostentatious goods for which the quantity demanded increases as the price rises. Individuals who consume these goods do so only because they are very expensive and therefore a sign of their status and wealth

Question 466

Vertical equity

Answer 466

the different treatment of individuals or groups which are dissimilar in characteristics.

Question 467

Vertical merger or integration

Answer 467

a merger between two firms at different production stages in the same industry.

Question 468

Very long run

Answer 468

the period of time when the state of technology may change (HL)

Question 469

Visibles

Answer 469

trade in goods

Question 470

Voluntary unemployment

Answer 470

workers who choose not to accept employment at the existing wage rate

Question 471

Wage rate

Answer 471

This is the compensation workers receive in exchange for their labor per unit time.

Question 472

Wants

Answer 472

desires for the consumption of goods and services

Question 473

Wealth

Answer 473

a stock of assets which can be used to generate a flow of production or income. For example, physical wealth such as factories and machines is used to make goods and services.

Question 474

Wealth effect

Answer 474

the change in consumption following a change in wealth. This could work as an incentive to spend more as people would feel that they are wealthier. Ex: A house that someone owns has increased in value, so the head of the family decides to go on vacation

Question 475

Welfare

Answer 475

the well being of an economic agent or group of economic agents

Question 476

Welfare economics

Answer 476

the study of how an economy can best allocate resources to maximise the utility or economic welfare of its citizens

Question 477

Withdrawals or leakages

Answer 477

in the circular flow of income, spending by households which does not flow back to domestic firms. It includes savings, taxes and imports

Question 478

Workforce jobs

Answer 478

the number of workers in employment. It excludes the unemployed

Question 479

Workforce or labour force

Answer 479

those economically active of working age who are looking for work

Question 480

Working or circulating capital

Answer 480

resources which are in the production system waiting to be transformed into goods or other materials before being finally sold to the consumer

Question 481

World Bank

Answer 481

An organization aimed at liberalizing trade by facilitating the reduction or elimination of trade barriers between member states

Question 482

World trade organization (WTO

Answer 482

An organization aimed at liberalizing trade by facilitating the reduction or elimination of trade barriers between member states

Question 483

Zero sum game

Answer 483

a game in which the gain of one player is exactly offset by the loss by other players