Alvins' sicker definitions Flashcards
Aggregate demand (AD)
The total demand for a countries goods and services at a given price in a given time period
Aggregate supply (AS)
The total amount that producers in an economy are willing and are able to supply at a given price level in a given time period
Allocative efficiency
Where consumer satisfaction is maximised
Arithmetic mean
The sum of the items divided by the number of the items
Asymmetric information
Information that is not shared equally between two parties
Automatic stabilisers
Forms of government spending and taxation that change automatically to offset fluctuations in economic activity
Average propensity to consume (APC)
The proportion of disposable income spent. It is calculated by consumer expenditure divided by disposable income
Average propensity to save
The proportion of disposable income saved. Calculated by dividing savings by disposable income
Balance of payments
A record of all transactions between one country and the rest of the world
Capital utilisation
The extent to which firms are using their capital goods
Capital
Man made aids to production
Ceteris paribus (other things being equal)
Assumption that other variables will remain unchanged
Choice
The selection of appropriate alternatives
Claimant count
A measure of unemployment that includes those that are receiving unemployment related benefits
Command economy
An economic system in which resources are state owned and are also allocated centrally
Complements
Goods for which there is joint demand
Consumer confidence
How optimistic consumers are about future economic prospects
Consumer price index
A measure of changes in the price of a representative basket of consumer goods and services
Differs from retail price index in methodology and coverage
Cost push inflation
Increase in price level caused by increases in the cost of production
Cross elasticity on demand (XED)
The responsiveness of demand for one product in relation to a change in the price of another product
Cyclical unemployment
Unemployment arising from a lack of aggregate demand
Demand pull inflation
Increase in price level due to the increase in aggregate demand
Demand schedule
The data that is used to draw the demand curve of a product
Demerit goods
Their consumption is more harmful that is actually realised
Developing economy
An economy with a low level of income per head
Direct tax
Tax that taxes the income of firms and people and cannot be avoided
Disposable income
Income, after taxes on income have been deducted and state benefits have been added
Dissave
Spending more than your disposable income
Division of labour
Where the production process is broken down into separate tasks and individual workers will specialise in one task
Economic cycle
The tendency for economy activity to fluctuate outside its trend growth rate, moving from a high level of economic activity to a low level
Economic efficiency
When both allocative and productive efficiency are achieved
Economic growth
An increase in the productive potential of an economy(Can be shown using a PPC graph)
Economically inactive
People of working age who are not willing and/or able to work
Basic economic problem
Wants are infinite but resources are scarce
Resulting in the issue of what to produce, how to produce, and whom to produce to
Economics
The study of how to allocate scare resources in the most efficient way
Economic system
The way in which production is organised in a country or a group of countries
Effective demand
The willingness and ability to buy a product
Efficiency
Where the best use of resources is made for the benefit of consumers
Elastic
Responsive to a change in market conditions
Elasticity
The extent to which buyers and sellers react to changes in the market conditions
Entrepreneurship
The willingness of an entrepreneur To take risks and organise production
Equilibrium price
The price where demand and supply are equal
Equilibrium quantity
The quantity that is demanded at the equilibrium price
External benefits
The benefits that accrue as a consequence of externalities to third parties
Externality
An effect whereby those not directly involved in taking a decision are affected by the actions of others
Deflationary
Of policy measures designed to reduce aggregate demand
Discretionary fiscal policy
Deliberate changes in government spending and taxation designed to influence aggregate demand
Disequilibrium
When supply and demand are not equal within a market
Factor endowment
The stock of factors of production
Factors of production
The resource inputs that are available within a economy to produce goods and servicesLand capital enterprise and labour
Fiscal drag
People’s incomes being dragged into higher tax bands due to tax brackets not being adjusted in line with inflation
Fiscal policy
The taxation and spending decisions of a government
Free market economy/mechanism
The system by which the market forces of demand and supply determine prices and the decisions are made by consumers and firms
Free rider
Someone hi directly benefits from the consumption of a public good but who does not contribute towards its provision
Frictional unemployment
Short term unemployment that occurs between the transition from one job to another
Government bond
A financial asset issued by the central or local government
GDP
The total value of goods and services produce by an economy over a year
Household
A group of people whose spending decisions are connected
Human capital
Education, training and experience that a worker, or a group of workers, possesses
Hyperinflation
When the inflation rate exceeds 50% and causes serious economic problems and political instability
Hysteresis
Unemployment that causes unemployment:
When long term unemployment reduces the workers chance of getting a job as firms fear they are bad workers or that their skills are outdated
Income elastics
Goods for which a change in income produces a greater proportionate change in demand
Income elasticity
The responsiveness of demand to a change in income
Income inelastic
Goods for which a change in income produces a less than proportionate change in demand
Index number
A number showing the variation in, for example, wages or prices, a compared with a chosen base or period or date
Indirect tax
Tax that is levied on goods and services
Inefficiency
Any situation where economic efficiency is not achieved
Scarcity
The idea that we have limited/finite resources that are insufficient to meet infinite wants
Opportunity cost
The value of the next best alternative foregone when a choice is made
PPC (production possibility curve)
Represents the maximum output combinations of 2 goods that can be produced given the current level of resources and technology
Productive potential / productive capacity
The maximum output that an economy is capable of producing
Pareto efficiency
Where one person cannot be made better off without someone else being made worse off
Productive efficiency
Where production takes place using the least amount of resources
Specialisation
The concentration of a worker, group of workers, firm, region or whole economy on the production of a narrow range of goods and services
Exchange
The process by which goods and services are traded
Want
Anything a consumer would like irrespective of whether they have the means to purchase it
Need
The things we actually need to survive. The basic needs are food, water, shelter, and warmth. Everything else we may wish to purchase is a want
Positive statement
A statement based on fact
Normative statement
A statement that is based upon opinion
Economic good
A good which has a positive opportunity cost since it requires the use of economic resources to be able to consume it
Free good
A good with zero opportunity cost since it requires no use o economic resources to be able to consume it
Trade-off
The calculation involved in deciding whether to give up one good for another good
Gross investment
Total value of capital goods created in an economy in a given time period
Capital consumption
Reduction in value of capital goods due to depreciation becoming obsolete in a given time period
Net investment
= Gross investment - capital consumption in a given time period
Effective demand
The quantity of a product that consumers are willing and able to purchase at different gnarled prices over a period of time
Consumer surplus
The difference between the value a consumer is prepared to pay for a good or service and the price that is actually required to make the purchase
First law of demand
Price and quantity demand are inversely related to each other
Ceteris paribus
All other things being equal
Conditions/determinants of demand
Non-price factors that affect the level of demand for a good or service
PED
The responsiveness of quantity demanded of a good to a chinge in its price
Price elastic demand
When quantity demanded is very responsive to a change in price
Price inelastic demand
When quantity demand is not very responsive to a change in price
YED
The responsiveness of quantity demanded to a change in income
Normal good
Goods for which an increase in income leads to an increase in demand
Income elastic demand
When quantity demanded is very responsive to a change in income
Income inelastic demand
When quantity demanded is very responsive to a change in income
Inferior good
Goods for which an increase in income leads to a fall in demand
XED
The responsiveness of quantity demanded of one good to change in price of another good
Complementary good
Goods for which there is joint demand
Substitute good
A competing good in which a consumer makes a choice between one or the other
Goods which have positive XED
Total revenue
Price x quantity sold
Effective supply
The quantity of a product that producers are willing and able to supply at different market prices over a period of time
Producer surplus
The difference between the price actually recieved by producers for a good/service and the price that they are willing to pay
Conditions of supply
Non-price factors that affect the level of supply for a good or service
Indirect tax
A tax levied on the consumption of goods and services
Incidence of taxation
The way in which the burden of taxation is divided between buyers and sellers
Subsidy
A payment (usually from the governement) to encourage production by lowering the costs of production per unit
Price elasticity of supply (PES)
The responsiveness of quantity supplied of a good/service to a change in its price
Determinants of PES
Factors that affect the extent to which QS is responsive to price
Market
Any situation which brings together buyers and sellers for the purpose of trading goods or services
Price system
A method of allocating resources by the free movement of prices
Equilibrium quantity
The quantity that is demanded and supplied at the equilibrium price
Equilibrium price = Market clearing price
The price where quantity supplied and demanded are equal
Market equilibrium
The price and quantity at which demand is equal to supply
Disequilibrium
Any situation position in a market where demand and supply are not equal
Shortage
An excess of demand over supply
Market failure
Where the free market mechanism fails to achieve economic efficiency
Allocative efficiency
Where scarce resources are used to produce the goods and services that consumers actually demand in the quantities they desire, so consumer welfare is maximised
Economic efficiency
Where allocative and productive efficiency are achieved
Allocative inefficiency
Where resources are over or under allocated to the production of a particular good or service
Externality
Where an action taken by one economic agent has an effect on a third party not directly involved in the activity
Negative externality (external cost)
When social costs of an activity are greater than the private costs
Positive externality
When social benefits of an economy are greater than the private benefits
Third party
Person/group of people not directly involved in making a decision
Private cost
The costs directly incurred by those undertaking a particular economic activity
Private benefit
The benefits directly accuring to those undertaking a particular economic activity
Social cost
Private cost + external cost of an economic activity
Social benefit
Private benefit + external benefit of economic activity
Socially optimum output
The output quantity where full social cost is equal to full social benefit
Assymetric information
When information is not equally shared between two parties
Merit good
A good whose consuption is better for consumers than they actually realise. Hence consumers underestimate the private benefits of consumption and will under consume this good in a free market
Demerit good
A good whose consumption is actually more harmful to consumers than they actually realise
Public good
A good which is non excludable and non rivalrous in consumption and will therefore not be provided by the free market due to the free rider problem
Non excludable
A situation where it is technically impossible or financially unviable for individual consumjers to be excluded from consuming a good/service
Private good
A good which is rivalrous and excludable in consumption
Non-rivalrous
Situation where consumption by one person does not reduce its availability for consumption by others
Quasi public good
Goods that have some, but not all, of the characteristics of a public good
Free rider problem
When someone directly benefits from the consumption of a public good without contributing towards its provision
Direct provision
When the government steps into the supply of a good/service
Internalising an externality
An attempt to deal with an externality by bringing it within the price system
Green/Carbon tax
A tax on emissions of greenhouse gases
Tradable pollution permits
A permit which allows the owner to emit a certain amount of pollution and which can be sold to another polluter if it is not required
Provision of information
When the government aims to inform consumers in order to correct market failure e.g. providing info on the benefits of merit goods/problems of consuming demerit goods perhaps via advertising campaigns or via the curriculum in schools. The government may also try to correct assymetric information in this way so that consumers have more power to make effective ones
Regulation
Use of legal systems to place restrictions/basic standards on producers/consumers. Possible legal restrictions include a complete ban, requirement for a permit and compulsory consumption
Property rights system
A system which grants ownership to third parties so that they have the right to sue those creating negative externalities for compensation in order to internalise the externality
Minimum price
A price below which goods cannot be sold by law e.g. lowest price that one unit of alcohol can be sold
Government failure
A market failure that is the result of state intervention
Austerity
Economic policy aimed at reducing a government’s defecit. Austerity can be achieved through increases in government revenues or reducing expenditure
Balanced budget
A budget in which government spending equals revenues
Budget
A statement of a government’s spending and tax revenues for the next financial year
Capital market
A stock or a bond market where firms can raise money for investment purposes
Comparative advantage
The ability to produce a product at lower opportunity cost than other countries, regions, firms or people
Cyclical trade defecit
A trade defecit which arises purely due to changes in the economy’s cycle, eg many countries run a defecit where their economy is growing strongly as increased AD sucks in imports
Demand management policies
This refers to the range of monetary and fiscal policies to influence the AD for goods and services in an economy
Deregulation
The removal of laws and regulations which restrict competition
Developing countries
Countries generally lacking a high degree of industrialisation or other measures of development
Dividends
A share on the profits of firms which is distributed by shareholders
Domestic trade
The exchange of products within an economy
Dumping
When a producer in one country exports a products to another country at a price below that which it charges in its home country or below the costs of supply
Expectations
How we anticipate the future to unfold
Fiscal stimulus
Government measures, normally involving increased public spending and lower tax, which is aimed at giving a jolt to the ecoomy
Foreign direct investment
Investment from one country into another that involves establishing operations or acquiring tangible assets
Free trade
When trade is allowed to occur without any form of restriction such as a tariff or quota
Geographic mobility
The movement of economic resources from one area to another
Golden rule
States that borrowing on state provided goods and services should be zero over the course of one economic cycle. Borrowing is allowed when it finances capital investment
Hot money flows
Flows of short term finance that moves around the world to take advantage of differences in interest rates and possible exchange rate changes
Household wealth
The value of the stock of assets including property, shares, savings and pension funds
Immobility of labour
Barriers to the movement of people between areas (geographical) and jobs (occupational)
Income distribution
The extent to which different groups of households share in the total income of the country
Infrastructure
The transport links, communications networks, sewage systems, energy plants and other facilities neccessary for the efficient running of a country
International trade
The exchange of goods or services across national boundaries
Keynesian economists
Beleive that market failure is a significant problem and that government intervention can improve the situation
Labour force survey
This measures unemployment based on the ILO’s definition of unemployment; those who are actively seeking work and are available to start work, whether or not they are claiming benefits
Labour supply
The number of people able, available and willing to work at prevailing wages
Means tested benefits
Benefits given to people assessed as needing assistance on the basis of their income
Monetarists
People who believe that the only cause of inflation is the money supply growing faster than output
Money supply
The entire quantity of a country’s commercial bills, coins, loans and credit
Mortgages
Loans for house purchases
Natural rate of unemployment
The rate of unemployment that exists when the labour market is in equilibrium
Public sector net cash requirement
This is the amount that the government sector needs to borrow, over and above the tax revenue collected, to finance planned government spending in a given year. Includes borrowing by public corporations and local governments as well as central government
Regional policy
Government measures designed to influence incomes, population and the number of firms in a particular area
Regional unemployment
People who are willing and able to work but do not have work while there are job vacancies in another area
Menu costs
Costs involved in having to change prices as a result of infation
Shoe leather costs
Costs involved in moving money around during a period of inflation in a bid to maitain its real value and costs incurred in searching for a cheaper supplier
Supply-side policies
Policies designed to increase the economy’s long term potential growth
Sustainable economic growth
Economic growth achieved in a way that does not endanger the country’s ability to achieve economic growth in the future
Tariff
Tax on imports
Transfer payments
Money transferred from one group to another not in return for providing a good or service. Such payments can’t be included in calculating GDP
Transmission mechanism
The process trough which monetary policy decisions affect the economy in general and the price level in particular. The transmission mechanism is characterised by long, variable and uncertain time lags. Thus it is difficult to predict the precise effect of monetary policy actions on the economy and price level
Trend growth
The long term growth path of an economy. This is extrapolated from the preceding long term average
Unemployment trap
A situation where some people are financially better off living on unemployment benefits than working
Wealth distribution
The extent to which different groups of households share in the total wealth of the country
Fiscal Stance
The planned level of government spending & taxation depending on the expectations and estimates of potential- rather than actual- economic growth
Fine tuning
Maintenance of a steady rate of economic growth by making small changes to fiscal and/or monetary polic
