All Vocab for IB Econ Years 1 and 2 Flashcards
Absolute advantage
exists when a country is able to produce a good more cheaply in in terms of absolute quantity than another country
Absolute poverty
absolute poverty exists when individuals do not have the resources to be able to consume sufficient necessities to survive.
Accelerator theory
the theory that the level of planned investment is related to past changes in income. (HL)
Active or discretionary fiscal policy
the deliberate manipulation of government expenditure and taxes to influence the economy.
Activity or participation rates
the percentage or proportion of any given population in the labour force.
Actual growth
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.
Actual Output
The amount of a product that a firm or an economy actually produces. Can be represented as a real GDP value.
Ad valorem f
tax levied as a percentage of the value of the good.
Adjustable peg system
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.
Aggregate
The collective amount, sum or total.
Aggregate demand
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)
Aggregate demand curve
shows the relationship between the AVERAGE price level and equilibrium national income. As the price level rises the equilibrium level of national income falls.
Aggregate Supply
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
Aggregate supply curve
Shows the relationship between the average level of prices in the economy and the level of total output
Allocative or economic efficiency
occurs when resources are distributed in such a way that no consumers could be made better off without other consumers becoming worse off
Amortisation
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
Anti-competitive practices or restrictive trade practices
tactics used by producers to restrict competition in the market.
Appreciation or depreciation of a currency
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
Average cost
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)
Average product
the quantity of output per unit of factor input. It is the total product divided by the level of output. (HL)
Average propensity to consume
the proportion of total income spent. It is calculated by C ÷ Y (HL)
Average propensity to save
the proportion of a total income which is saved. It is calculated by S ÷ Y. (HL)
Average revenue
the average receipts per unit sold. It is equal to total revenue divided by quantity sold. (HL)
Balance of payments account
a record of all financial dealings over a period of time between economic agents of one country and all other countries.
Balance of trade
visible exports minus visible imports
Balanced budget
When total public-sector spending equals total government income during the same period from taxes and charges for public services
Bank base rate
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
Barrier to exit
factors which make it difficult or impossible for firms to cease production and leave an industry. (HL)
Barriers to entry
factors which make it difficult or impossible for firms to enter an industry and compete with existing producers. (HL)
Barter
swapping one good for another without the use of money.
Base period
the period, such as a year or a month, with which all other values in a series are compared.
Basic economic problem
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
Birth rate
the number of live births as a proportion of the total population.
Boom
period of time when the economy is growing strongly and is operating around its productive potential.
Bottleneck
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.
Brand
a name, design, symbol or other feature that distinguishes a product from other similar products and which makes it non-homogeneous.
Break-even point
the levels of output where total revenue equals total cost. (HL)
Break even price
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)
Bretton Woods system
an adjustable peg exchange rate system which was used in the post-Second World War period until its collapse in the early 1970s
Budget
a statement of the spending and income plans of an individual, firm or government.
Budget deficit
a deficit which arises because government spending is greater than its receipts. Government therefore has to borrow money to finance the difference.
Budget surplus
a government surplus arising from government spending being less than its receipts. Government can use the difference to repay part of the National Debt
Business or economic or trade cycle
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
Buyer’s market
A market in which supply seems plentiful and prices seem low; the opposite of a seller’s market
Black Market
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”.
Bond
A certificate of debt issued by a company or a government to an investor.
Capital
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.
Capital and financial accounts
that part of the balance of payments account where flows of savings, investment and currency are recorded.
Capital productivity
output per unit of capital employed. (HL)
Capital-output ratio
the ratio between the amount of capital needed to produce a given quantity of goods and the level of output. (HL)
Capacity
The amount a company or an economy can produce using its current resources of production at full tilt
Cartel
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.
Central bank
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.
Ceteris paribus
“All else equal”; used as a reminder that all variables other than the ones being studied are assumed to be constant.
Choice
economic choices involve the alternative uses of scarce resources
Circular flow of income
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.
Classical or real-wage unemployment
when real wages are kept at such a high level that the demand for labour is lower than the supply of labour
Closed economy
an economy where there is no foreign trade.
Collusion
collective agreements between producers which restrict competition. (HL)
Collusive oligopoly
when firms in an oligopolistic industry form a cartel and collude, typically to restrict output and raise prices and profits (HL)
Command or planned economy
an economic system where government, through a planning process, allocates resources in society
Common Access Resources
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.
Common external tariff
a common tariff set by a group of countries imposed on imported goods from non-member countries
Common market
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.
Comparative advantage
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.
Competitive demand
when two or more goods are substitutes for each other
Competitive Market
exists when there is a genuine choice for consumers in terms of who supplies the goods and services they demand
Complement Good
A good that should be purchased with other related goods to satisfy a consumer.
Concentrated market
a market where most of the output is produced by a few firms.
Concentration ratio
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
Conglomerate merger
a merger between two firms producing unrelated products.
Consumer Price Index (CPI)
a measure of the price level used across the European Union and used by the Bank of England to measure inflation against its target.
Consumer surplus
the difference between how much consumers are prepared to pay more for a good and what they actually pay.
Consumption
total expenditure by households on goods and services over a period of time. It is also one of the components of the aggregate demand
Consumption externalities or external benefits in consumption
when the social costs of consumption are different from the private costs of consumption.
Contracted out
getting private sector firms to produce the goods and services which are then provided by the state for its citizens
Core inflation
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
Cost-benefit analysis
a procedure, particularly used by governments to evaluate investment projects, which takes into account social cost and benefits
Cost-push inflation
inflation caused by increases in the costs of production in the economy.
Credible threat
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)
Credit multiplier
the number of times a change in reserves assets will change the assets of the banking system and thus the money supply (HL)
Creeping inflation
small rises in the price level over a long period of time
Cross or cross-price elasticity of demand
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.
Crowding out
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)
Currency bloc
a group of currencies which are fixed in value against each other but which may float freely against other world currencies
Currency board system
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.
Current account
that part of the balance of payments account where payments for the purchase and sale of goods and services are recorded
Current account deficit or surplus
a deficit exists when imports are greater than exports; a surplus exists when exports are greater than imports
Current balance
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.
Customs union
a type of trade bloc which is composed of a free trade area with a common external tariff
Cyclical or demand-deficient unemployment
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
Death rate
the number of deaths as a proportion of the total population.
Deflation
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
Deflationary gap
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
Dead weight loss
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.
Demand
is the willingness and ability to consume a product of various prices
Demand curve
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
Demand for money
the total amount of money which households and firms wish to hold at a point in time
Demand management
government use of fiscal or other policies to manipulate the level of aggregate demand in the economy
Demand-pull inflation
inflation which is caused by excess demand in the economy
Demerger
when a firm splits into two or more independent businesses.
Dependency ratio
the proportion of dependants (i.e. non-workers) to workers in the population.
Depression
a period when there is a particularly deep and long fall in output
Deregulation
the process of removing government controls from markets.
Derived demand
when the demand for one good is the result of or derived from the demand for another good
Devaluation and revaluation
a fall or rise in the value of the currency when the currency is pegged against other currencies
Developed and developing or less developed countries
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
Direct tax
a tax levied directly on an individual or organisation, such as income tax
Diseconomies of scale
a rise in the long run average costs of production as output rises. (HL)
Disposable income
The amount of money that households have available for spending and saving after income taxes have been accounted for.
Division of labour
specialisation by workers.
Domestic economy
the economy of a single country
Dual labour market hypothesis
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.
Dumping
the sale of goods at less than cost of production by foreign producers in the domestic market.
Duopoly
an industry where there are only two firms. (HL)
Durable goods
goods which are consumed over a long period of time, such as a television set or a car.
Dynamic efficiency
occurs when resources are allocated efficiently over time.
Economic cost
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)
Economic development
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.
Economic goods
goods which are scarce because their use has an opportunity cost.
Economic growth
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.
Economic recovery
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.
Economic rent
the payment made to a factor over and above its transfer earnings in the long run.
Economic system
a complex network of individuals, organisations and institutions and their social and legal interrelationships
Economically active
the number of workers in the workforce who are in a job or are unemployed.
Economies of scale
A fall in the long run average costs of production as output rises. (HL)
Effective exchange rate and trade weighted exchange rate index
measures of the exchange rate of a country’s currency against a basket of currencies of a country’s major trading partners
Elastic demand
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
Elasticity
a measure of responsiveness, it measures how much something changes when there is a change in one of the factors that determine it
Embargo
An extreme quota. A government order that will restrict all trade with a country, or aim to reduce the exchange of specific goods
Entrepreneurship (factor of production)
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.
Equation of exchange (the Fisher equation)
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)
Equilibrium
the point where what is expected or planned is equal to what is realised or actually happens.
Equilibrium price
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).
Equity
fairness.
European Monetary System
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.
Excess demand
where demand is greater than supply
Excess supply
where supply is greater than demand
Exchange controls
controls on the purchase and sale of foreign currency by a country, usually through its central bank
Exchange rate system
a system which determines the conditions under which one currency can be exchanged for another.
Expansionary fiscal policy
fiscal policy used to increase aggregate demand.
Expenditure reducing
in a balance of payments context, government policies to reduce the level of aggregate demand in order to reduce imports and boost exports.
Expenditure switching
in a balance of payments context, government policies to switch production currently being sold domestically, to exports
Export and import volumes
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
Exports
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.
External economies of scale
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)
Externality or spillover effect
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.
Factors of production
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.
Fertility rate
the number of live births as a proportion of women of child-bearing age
Fine-tuning
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.
First World countries
the rich, developed, nations of Western Europe, Japan and North America.
Fixed Costs
Costs that do not vary with level of output production (HL)
Fiscal policy
decisions about spending, taxes and borrowing of the government. Those decision would determine the amount of money available on the economy
Fixed capital
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
Fixed exchange rate
a rate of exchange between at least two currencies which is constant over a period of time.
Fixed or indirect or overhead costs
costs which do not vary as the level of production increases or decreases.
Foreign exchange markets
the markets, organised in major financial centres such as London and New York, where currencies are bought and sold.
Foreign Direct Investment (FDI)
Foreign direct investment is investment of foreign assets into domestic structures,equipment, and organizations
Formal collusion
when firms make agreements among themselves to restrict competition, typically by reducing output, raising prices and keeping potential competitors out of the market. (HL)
Free goods
goods which are unlimited in supply and which therefore have no opportunity cost.
Free market economy, or free enterprise economy or capitalist economy or market economy
an economic system which resolves the basic economic problem through the market mechanism.
Free market forces
forces in free markets which act to reduce prices when there is excess supply and raise prices when there is excess demand
Free or floating exchange rate system
where the value of a currency is determined by free market forces.
Free rider
a person or organisation which receives benefits that others have paid for without making any contribution themselves
Free trade
An explanation that it is international trade that takes place without any protectionism (trade barriers: tariffs, quotas, embargo..)
Free trade area
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.
Frictional unemployment
when workers are unemployed for short lengths of time between jobs.
Full capacity
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.
Full employment
the level of output in an economy where all factors of production are fully utilised at given factor prices
Functional distribution of income
shows the share of national income received by each factor of production.
Functions of money
money must be a medium of exchange, a store of value, a unit of account and a standard for deferred payment
Fundamental disequilibrium on the balance of payments
where imports are greater than exports over a long period of time resulting in unsustainable levels of international borrowing.
Gearing
the relationship between funds raised from loans and from issuing shares.
Gearing ratios
explore the capital structure of a business by comparing the proportions of capital raised by debt and equity
Generic brands
products that only contain the name of the product category rather than the company or product name
Gini coefficient
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
Going concern
an accounting concept that assumes a business will continue to trade in the foreseeable future
Goods
physical products
Green marketing
a strategy which takes into account the effects of marketing on the environment.
Gross Domestic Product (GDP)
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)
Gross National Product (GNP)
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.
Gross profit
total sales revenue or turnover minus cost of sales, the direct costs of production.
Gross profit margin or mark-up
gross profit expressed as a percentage of turnover
Group norm
the usual characteristics of behaviour of a group
Harmonisation
establishing common standards, rules and levels on everything from safety standards to tariffs, taxes and currencies.
Hidden, black or informal economy
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
Homogeneous goods
goods made by different firms but which are identical
Horizontal equity
the identical treatment of identical individuals or groups in society in identical situations.
Horizontal merger or integration
a merger between two firms in the same industry at the same stage of production.
Hot money
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.
Human capital
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.
Human Development Index(HDI)
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”
Hyper-inflation
large increases in the price level
Hypothecated tax
a tax whose revenues are used to pay for a specific item of government spending.
Hysteresis
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.
Imperfect competition
the situation prevailing in a market in which elements of monopoly allow individual producers or consumers to exercise some control over market prices. (HL)
Information failure
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
Imputed cost
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)
Incidence of tax
the tax burden on the taxpayer
Income effect
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.
Income elasticity of demand
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
Index number
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
Indexation
adjusting the value of economic variables such as wages or the rate of interest in line with inflation.
Indirect tax
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
Individual demand curve
the demand curve for an individual consumer, firm or other economic unit.
Individual supply curve
the supply curve of an individual producer
Inelastic demand
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
Inferior Good
an inferior good is a good that has a decrease in demand when consumer income rises
Inflation
a sustained or continuous increase in the general or average level of prices over a period of time
Inflationary gap
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
Injections
in the circular flow of income, spending which is not generated by households including investment, government spending and exports
Instrument of policy
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.
Interest Rates
the price of borrowed or loaned money
Internal economies of scale
economies of scale which arise because of the growth in the scale of production within a firm. (HL)
Internal market
where parts of an organisation, such as the National Health Service or the BBC, compete against each other to provide services
Inventory cycle
fluctuations in national income caused by changes in the level of inventories or stocks in the economy.
Investment
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
Invisibles
trade in services, transfers of income and other payments or receipts.
Involuntary unemployment
unemployment which exists when workers are unable to find jobs despite being prepared to accept work at the existing wage rate
J-Curve Effect
in the short term a devaluation is likely to lead to a deterioration in the current account position before it starts to improve (HL)
Joint demand
when two or more complements are bought together.
Joint supply
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.
Labour market flexibility
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
Labour productivity
output per worker
Labor(factor of production)
Labor represents the human capital available to transform raw or national resources into consumer goods and/or services
Laffer curve
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)
Land (factor of production)
Land is the economic resource encompassing natural resources found within a nation’s economy (Example: A farm land, oil, minerals).
Law
a theory or model which has been verified by empirical evidence
Law of demand
As the price of a product falls, the quantity demanded of the product will usually increase (Ceteris Paribus)
Law of diminishing returns or variable proportions
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.
Laissez-Faire
a doctrine opposing governmental interference in economic affairs beyond the minimum necessary for the maintenance of peace and property rights.
Limit pricing
when a firm, rather than short run profit maximising, sets a low enough price to deter new entrants from coming into its market.
Liquidity
the degree to which an asset can be converted into money without capital loss.
Liquidity trap
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.
Loanable funds theory
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
Logistics
the movement of goods from one place to another along the supply chain from producer to customer, involving transport and warehousing
Long run
the period of time when all factor inputs can be varied, but the state of technology remains constant.
Long run aggregate supply curve
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
Lorenz curve
shows the extent of inequality of income in society
Macroeconomics
the study of the economy as a whole, including inflation, growth, unemployment and distribution of income in the whole economy
Managed or dirty float
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.
Margin
a point of possible change
Marginal cost
the cost of producing an extra unit of output (HL)
Marginal efficiency of capital
the rate of return on the last unit of capital employed. (HL)
Marginal physical product
the physical addition to output of an extra unit of a variable factor of production. (HL)
Marginal product
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)
Marginal propensity to consume
the proportion of a change in income which is spent. It is calculated by ΔC ÷ ΔY. (HL)
Marginal propensity to save
the proportion of a change in income which is saved. It is calculated by ΔS ÷ ΔY. (HL)
Marginal revenue
the addition to total revenue of an extra unit sold. (HL)
Marginal revenue product
- 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)
Marginal social and private costs and benefits
the social and private costs and benefits of the last unit either produced or consumed.
Market
any convenient set of arrangements by which buyers and sellers communicate to exchange goods and services.
Market clearing price
the price at which there is neither excess demand nor excess supply but where everything offered for sale is purchased.
Market concentration
the degree to which the output of an industry is dominated by its largest producers. (HL)
Market Demand
demand by all participants in market for a particular good
Market demand curve
the sum of all individual demand curves
Market failure
where resources are inefficiently allocated due to imperfections in the working of the market mechanism
Market share
the proportion of sales in a market taken by a firm or a group of firms
Market structure
the characteristics of a market which determine the behaviour of firms within the market.
Market supply curve
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.
Market System
an economic system that relies upon markets to allocate scare resources and determine prices
Marketing mix
different elements within a strategy designed to create demand for a product.
Marshall-Lerner condition
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)
Maximum Price
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.
Merger, amalgamation, integration or takeover
the joining together of two or more firms under common ownership.
Merit good
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.
Microeconomics
the study action of the behaviour of individuals or groups within an economy, typically within a market context
Minimum efficient scale of production
the lowest level of output at which long run average cost is minimised.
Minimum price
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
Mixed economy
an economy where both the free market mechanism and the government planning process allocate significant proportions of total resources
Modes of transport
the means of transport such as bus, train, car, ship, lorry, or aeroplane.
Monetarists
economists who believe that the quantity theory of money shows that inflation is always and everywhere caused by excessive increases in the money supply
Monetary policy
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
Monetary policy accommodation
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.
Monetary policy validation
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.
Monetary transmission mechanism
the mechanism through which a change in the money supply leads to a change in national income and other real variables such as unemployment.
Monetary union
when at least two countries share the same currency
Money illusion
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.
Money substitutes
those which can be used as a medium of exchange but which are not stores of value. Examples are charge cards or credit cards.
Money supply
the total amount of money in circulation in the economy
Monopolistic competition
a market structure where a large number of small firms produces nonhomogeneous products and where there are no barriers to entry or exit. (HL)
Monopoly
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)
Multinational company/multinational corporation/transnational corporation
a company with significant production operations in at least two countries
Multi-plant monopolist
a monopoly producer working with a number of factories, offices or plants. (HL)
Multiplier
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)
Multiplier effect
an increase in investment or any other autonomous expenditure will lead to an even greater increase in income.
Multiplier-accelerator model
a model which describes how the workings of the multiplier theory and the accelerator theory lead to changes in national income.
NAIRU, the non-accelerating inflation rate of unemployment
the natural rate of unemployment, the level of unemployment which can be sustained with a change in the inflation rate.
Narrow money
money which is primarily used as a medium of exchange
Nash equilibrium
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)
National Debt
the accumulated borrowings of government
National income
the value of the output, expenditure or income of an economy over a period of time.
Nationalisation
the transfer of firms or assets from private sector ownership to state ownership.
Nationalised industries and public corporations
state owned industries or companies.
Natural monopoly
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)
Near money
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
Needs
the minimum which is necessary for a person to survive as a human being
Necessity
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
Net migration
immigration minus emigration
Net present value
the present value of social benefits minus the present value of social costs.
Neutrality of money
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
Nominal GDP
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
Nominal interest rates
interest rates unadjusted for inflation
Nominal values
values unadjusted for the effects of inflation (i.e. values at current prices).
Non-collusive or competitive oligopoly
when firms in an oligopolistic industry compete amongst themselves and there is no collusion. (HL)
Non-durable goods
goods which are consumed almost immediately like an ice-cream or a packet of washing powder
Non-homogenous goods
goods which are similar but not identical made by different firms, such as branded goods.
Non-renewable resources
resources, such as coal or oil, which once exploited cannot be replaced.
Non-sustainable resource
resource which is being economically exploited in such a way that it is being reduced over time.
Normal good
a good where demand increases when income increases (i.e. it has a positive income elasticity of demand)
Normal profit
When revenue is not greater than or less than the economic costs (accounting and opportunity) (HL)
Normative economics
the study and presentation of policy prescriptions involving value judgements about the way in which scarce resources are allocated
Normative statement
a statement which cannot be supported or refuted because it is a value judgment.
Open economy
an economy where there is trade with other countries
Open market operations
the buying and selling of financial securities in exchange for money in order to increase or decrease the size of the money supply
Opportunity cost
Is the value of the next best alternative foregone when an economic decision is made
Optimal allocation of resources
occurs when resources are efficiently used in such a way as to maximise the welfare or utility of consumers
Optimal level of production
the range of output over which long run average cost is lowest.
Organisational slack or X-inefficiency
inefficiency arising because a firm or other productive organisation fails to minimise its costs of production (HL)
Output gap
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
Over-heating
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
Pareto efficiency
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)
Partial and general models
a partial model is one with few variables whilst a general model has many.
Payoff matrix
in game theory, shows the outcomes of a game for the players given different possible strategies (HL)
Per capita GDP
the GDP of a country divided by the amount of people in the country to find the GDP per person
Perfect competition
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)
Perfect knowledge or information
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.
Permanent income
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.
Personal distribution of income
the distribution of the total income of all individuals
Population of working age
defined in the UK as men aged 16 to 64 and women aged 16-59
Positive economics
the scientific or objective study of the allocation of resources
Positive statement
a statement which can be supported or refuted by evidence
Poverty or earnings trap
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.
Predatory pricing
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)
Price discrimination
charging a different price for the same good or service in different markets. (HL)
Price elasticity of demand or own elasticity of demand
the proportionate response of changes in quantity demanded to a proportionate change in price, measured by the formula: /\Q over /\P
profit
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
Price elasticity of supply
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.
Price follower
a firm which sets its price by reference to the prices set by the price leader in a market (HL)
Price leadership
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)
Price support schemes
government interventions on the price system such as price floors/ceilings
Price level
the average price of goods and services in the economy
Price taker
a firm which has no control over the market price and has to accept the market price if it wants to sell its product
Primary sector
extractive and agricultural industries
Prisoners’ dilemma
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)
Private cost and benefit
the cost or benefit of an activity to an individual economic unit such as a consumer or a firm.
Private good
a good where consumption by one person results in the good not being available for consumption by another
Privatisation
the opposite of nationalisation, the transfer of organisations or assets from state ownership to private sector ownership
Producer surplus
the difference between the market price which firms receive and the price at which they are prepared to supply
Production externalities or externalities in production
when the social costs of production differ from the private costs of production.
Production function
the relationship between output and different levels and combinations of inputs. (HL)
Production possibility frontier (also known as the production possibility curve or the production possibility boundary or the transformation curve)
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.
Productive efficiency
is achieved when production is achieved at lowest cost (HL)
Productivity
output per unit of input employed (HL)
Profit satisficing
making sufficient profit to satisfy the demands of shareholders (HL)
Progressive, regressive and proportional taxes
taxes where the proportion of income paid in tax rises, falls or remains the same respectively as income rises
Public choice theory
theories about how and why public spending and taxation decisions are made.
Public good or pure public good
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
Public Private Partnerships (PPPs)
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
Public Sector Net Cash Requirement (PSNCR)
the official name given to the difference between government spending and its receipts in the UK
Purchasing power parities (PPP)
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.
Purchasing power parity theory
the hypothesis that long run changes in exchange rates are caused by differences in inflation rates between countries
Quasi-public good or non-pure public good
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
Quasi-rent
economic rent earned only in the short run
Quota
a physical limit on the quantity, value or volume of imported products
Quantity supply
the amount of good or service the producer is willing and able to supply at each particular price
Rate of interest
the price of money, determined by the demand and supply of funds in a money market where there are borrowers and lenders
Rate of return or rate of discount
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.
Real GDP
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
Real interest rates
nominal interest rates adjusted for inflation
Real values
values adjusted for inflation
Recession
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
Relative poverty
poverty which is defined relative to existing living standards for the average individual.
Renewable resources
resources, such as fish stocks or forests, which can be exploited over and over again because they have the potential to renew themselves
Replacement ratio
unemployment benefits divided by the wage an unemployed worker could receive if in work (HL)
Resale price maintenance
fixing a price at which a customer may sell on a good or service.
Reserve assets, high powered money or the monetary base
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.
Retail Price Index (RPI)
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.
Retained profit
profit kept back by a firm for its own use which is not distributed to shareholders or used to pay taxation (HL)
Returns to scale
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
Recessionary Gap
The difference between an economy’s equilibrium level of output and its full employment level of output when an economy is in recession
Saving (personal)
the portion of households’ disposable income which is not spent over a period of time.
Savings function
the relationship between the saving of households and the factors which determine it.
Scarce resources
resources which are limited in supply so that choices have to be made about their use.
Search costs
costs, such as money and time, spent searching for a job
Seasonal unemployment
when workers are unemployed at certain times of the year, such as building workers or agricultural workers in winter
Secondary sector
production of goods, mainly manufactured
Semi-variable cost
a cost which contains within it a fixed cost element and a variable cost element. (HL)
Shift in the demand curve
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
Short run
the period of time when only one factor input to the production process can be varied (HL)
Short run aggregate supply
the upward sloping aggregate supply curve which assumes that money wage rates are fixed
Short run aggregate supply Curve
An upward sloping curve, relatively flat below the full employment level of output, and relatively steep beyond the full employment level
Sight deposit accounts
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
Social cost and benefit
the cost or benefit of an activity to society as a whole
Specialisation
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.
Specific or unit tax
tax levied on volume
Specific tax
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
Stagflation or slumpflation
a situation where an economy faces both rising inflation and rising unemployment. Example: during the oil shocks in the 1970’s
Stakeholders
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.
Standard of living
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
Static and dynamic models
a static model is one where time is not a variable. In a dynamic model, time is a variable explicit in the model
Static efficiency
occurs when resources are allocated efficiently at a point in time
Structural unemployment
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.
Subsidy
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.
Substitute
a good which can be replaced by another to satisfy a want
Substitution effect
the impact on quantity demanded due to a change in price, assuming that consumers’ real incomes stay the same
Sunk costs
costs of production which are not recoverable if a firm leaves the industry. (HL)
Supply
the quantity of goods that suppliers are willing and able to sell at any given price over a period of time
Supply chain
the links between producer and customer
Strike
an organized work stoppage by employees or union members
Supply side economics
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
Supply side policies
government policies designed to increase the productive potential of the economy and push the long run aggregate supply curve to the right.
Supply side shocks
factors such as changes in wage rates or commodity prices which cause the short run aggregate supply curve to shift
Sustainable development
development which meets the needs of the present generation without compromising the needs of future generations
Sustainable growth
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.
Sustainable resource
renewable resource which is being economically exploited in such a way that it will not diminish or run out
Synergy
when two or more activities or firms put together can create greater outcome than the sum of the individual parts
Soft loan
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
Tacit collusion
when firms collude without any formal agreement having been reached or even without any explicit communication between the firms having taken place (HL)
Target of policy
an economic goal which the government wishes to achieve, such as low unemployment or high growth
Tariff, import duty or customs duty
a tax on imported goods which has the effect of raising the domestic price of imports and thus restricting demand for them
Technical efficiency
is achieved when a given quantity of output is produced with the minimum number of inputs
Terms of trade
the ratio of export prices to import prices
Tertiary sector
production of services
The business cycle
a representation concerning the patterns of expansion and contraction in the economy, consisting of growth, peak, recession and trough
The economics of happiness
investigates exactly what contributes to welfare and attempts to put values on some of these factors
The Gold Standard
an exchange rate system under which currencies could be converted into gold at a fixed rate, hence providing a relative price between each currency
The law of diminishing marginal utility
for an individual, the satisfaction derived from consuming an extra unit of a good falls the greater the consumption of the good. (HL)
The natural rate of unemployment
the proportion of the workforce which chooses voluntarily to remain unemployed when the labour market is in equilibrium
The Phillips curve
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.
The quantity theory of money
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)
The scientific method
a method which subjects theories or hypotheses to falsification by empirical evidence.
The velocity of circulation of money (or income velocity)
the number of times the stock of money in the economy changes hands over a period of time
Theory of comparative advantage
countries will find it mutually advantageous to trade if the opportunity cost of production of goods differs
Theory or model
a hypothesis which is capable of refutation by empirical evidence
Third World countries
the developing nations of the world in Africa, South America and Asia.
Time deposit accounts
accounts where interest is paid but savers are not able to withdraw without either giving notice or paying an interest rate penalty
Tied Aid
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
Total cost
the cost of producing any given level of output. It is equal to total variable cost + total fixed cost (HL)
Total physical product
the total output of a given quantity of factors of production
Total product
the quantity of output measured in physical units produced by a given number of inputs over a period of time.
Total revenue
the total money received from the sale of any given quantity of output.
Trade barriers
any measure which artificially restricts international trade
Trade creation
the switch from purchasing products from a high cost producer to a lower cost producer
Trade diversion
the switch from purchasing products from a low cost producer to a higher cost producer
Trade union mark-up
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
Trading bloc
a group of countries which have signed an agreement to reduce or eliminate tariffs, quotas and other protectionist barriers between themselves
Transfer earnings
- the minimum payment needed to keep a factor of production in its present use. It is the opportunity cost of the factor.
Transfer payments
income for which there is no corresponding output, such as unemployment benefits or pension payments
Transfer pricing
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.
Transport infrastructure
the built environment which services the different modes of transport such as roads, rail tracks and stations, ports, distribution depots and airports.
Transition economy
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.
Total Revenue Test Of Ped
- 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)
Tax incidence - (Sometimes called tax burden)
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)
Underlying rate of inflation
the RPIX, the increase in consumer prices excluding changes in mortgage costs, or the RPIY, which also excludes indirect taxes
Under-Employment
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
Unemployment
the state of an individual who is of working age, actively seeking work, but unable to find a job
Unemployment trap
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.
Unemployment rate
the number of unemployed expressed as a percentage of the workforce
Unit labour cost
cost of employing labour per unit of output or production (HL)
Unitary elasticity
where the value of price elasticity of demand is 1. The responsiveness of demand is proportionally equal to the change in price.
Utility
the satisfaction derived from consuming a good
Variable or direct or prime costs
costs which vary directly in proportion to the level of output of a firm.
Variable costs
Costs directly related to variations in output (HL)
Veblen Goods
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
Vertical equity
the different treatment of individuals or groups which are dissimilar in characteristics.
Vertical merger or integration
a merger between two firms at different production stages in the same industry.
Very long run
the period of time when the state of technology may change (HL)
Visibles
trade in goods
Voluntary unemployment
workers who choose not to accept employment at the existing wage rate
Wage rate
This is the compensation workers receive in exchange for their labor per unit time.
Wants
desires for the consumption of goods and services
Wealth
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.
Wealth effect
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
Welfare
the well being of an economic agent or group of economic agents
Welfare economics
the study of how an economy can best allocate resources to maximise the utility or economic welfare of its citizens
Withdrawals or leakages
in the circular flow of income, spending by households which does not flow back to domestic firms. It includes savings, taxes and imports
Workforce jobs
the number of workers in employment. It excludes the unemployed
Workforce or labour force
those economically active of working age who are looking for work
Working or circulating capital
resources which are in the production system waiting to be transformed into goods or other materials before being finally sold to the consumer
World Bank
An organization aimed at liberalizing trade by facilitating the reduction or elimination of trade barriers between member states
World trade organization (WTO
An organization aimed at liberalizing trade by facilitating the reduction or elimination of trade barriers between member states
Zero sum game
a game in which the gain of one player is exactly offset by the loss by other players
