CGP Flashcards
Absolute advantage
A country will have an absolute advantage when its output of a product is greater per unit of resource used than any other country
Absolute poverty
This is when someone doesn’t have the income or wealth to meet their basic needs, such as food, shelter and water
Accelerator process
This is where any change in demand for goods/services beyond current capacity will lead to a greater percentage increase in the demand For the capital goods that firms need to produce these goods/services
Aggregate demand
The total demand or total spending, in an economy at a given price level over a given period of time. It’s made of consumption, investment, government spending and net exports
AD=C+I+G+(X-M)
Aggregate supply
The total amount of goods and services which can be supplied in and economy at a given price level over a given period of time.
Aid
The transfer resources from one country to another
Allocative efficiency
This is when the price of a good is equal to the price the consumers are happy to pay for it this will happen when all resources are allocated efficiently
Asymmetric information
This is when buyers have more information on sellers (or the opposite) on the market
Automatic stabilisers
These are parts of fiscal policies that will automatically react to changes in the economic cycle. For examples, during recession, government spending is likely to increase because the government will automatically pay out more unemployment benefits, which may reduce the problems recession causes
Average cost
The cost of production per unit of output – I.E. a firms total cost for a given period of time, divided by the quantity produced.
Average revenue
The revenue per unit sold – I.E. a firms total revenue for a given period of time, divided by the quantity sold
Balance of Payments
A record of the countries international transactions, I.E. flows of money into and out of the country
Bank rate
The official rate of interest set by the monetary policy committee of the Bank of England
Barriers to entry
Barriers to entry are any potential difficulties that may make it hard for a firm to enter the market
Barriers to exit
Barriers to exit or any potential difficulties that may make it hard for a firm to leave the market
Black Market
Economic activity that occurs without taxation and government regulation. Also called the informal market
Budget deficit
When government spending is greater than its revenue
Budget surplus
When government spending is less than its revenue
Capital account on the balance of payments
A part of the record of the countries international flows of money. This includes transfers of non-monetary and fixed assets, such as through Emigration and immigration
Cartel
A group of producers that agree to limit production in order to keep the price of a good or service high
Central bank
The institution responsible for issuing a countries banknotes, acting as a lender of last resort for other banks, and implementing monetary policy ( E.G.setting interest rates)
Circular flow of income
The flow of national output, income and expenditure between households and firms
National output = national income = national expenditure
Command economy
An economy where governments, not market, determine how to allocate resources
Comparative advantage
A country has a comparative advantage if the opportunity cost of producing a good is lower than the opportunity cost for other countries
Competition policy
Government policy aimed at reducing monopoly power in order to increase efficiency and ensure fairness for consumers
Concentration ratio
This shows how dominant firms are in the market, he.G.if three firms in the market have 90% market share then the three firm concentration ratio is 90%
Conglomerate integration
Mergers or takeovers between firms which operate in completely different markets
Consumer surplus
When a consumer pays less for a good then they were prepared to, this difference is the consumer surplus
Consumption
The purchase/use of goods or services
Contestability
In market is contestable if it’s easy for new firms to enter the market I.E.if barriers to entry are low
Cost benefit analysis (CBA)
This involves adding up the total private and external costs and benefits of a major project in order to decide if the project should go ahead.
Cost push inflation
Inflation caused by the rising cost of inputs to production
Creative destruction
This occurs when the innovation and invention of new products and production methods cause the destruction of existing markets and create new ones
Cross elasticities of demand (XED)
This is a measure of how the quantity demanded of one good/service response to a change in the price of a another good/service
Count account on the balance of payments
A part of the record of a countries international flows of money. They consist of: trade in goods, trading services, international flows of income (salaries, interest, profit and dividends), and transfers
Cyclical unemployment
Unemployment caused by a shortage of demand in an economy, E.G. When there is a slump
Demand pull inflation
Inflation caused by excessive growth in an aggregate demand compare to the aggregate supply
Demerger
If firm selling off part(S) of its business to create a separate firm or firms
Demerit good
A good or service which has greater social cost when it consumed in private costs. Demerit goods tend to be over consumed
Dependency ratio
How many people are either too young or too old to work, relative to the number of people of working age
Deregulation
Removing rules imposed by government that can restrict the level of competition in the market
Derived demand
The mind of a good or factor of production due to its use in making another good or providing a service
Developed countries
Relatively rich, industrialised countries with a high GDP per capita
Diseconomies of scale
A firm is experiencing this diseconomies of scale when the average cost of production is rising as output rises
Disposable income
Income, including welfare benefits, that is available for households to spend after income tax has been paid.
Dividend
And share in the firms profits that is given to firms shareholders
Divorce of ownership from control
Principal- Agent Problem
This occurs when a firms owners on no longer in control of the day-to-day running of the firm (E.G.because it’s run by directors). This can lead to the principal agent problem, where those in control act in their own self interest, rather than the interest of the owners.
Dynamic efficiency
This is about firms improving efficiency in the long term by carrying out research and development into new or improved products, or investing in new technology and training to improve the production process. The comparison of two snapshot
Economic cycle
The economic cycle is the fluctuations in actual growth over a period of time (several years or decades)
Economic development
An assessment of living standards and peoples overall welfare in the country
Economic growth
An increase in economy’s productive potential. Usually measured as the rate of change of the gross domestic product (GDP), or the GDP per capita
Economic integration
The process by which the economies of different countries become more closely linked, E.G.through free trade agreements
Economic rent
The access a worker is paid above the minimum required to keep them in the current occupation (this minimum payment is the transfer earnings)
Economically active population
The people in economy who are capable of and old enough to work
Economies of scale
If firm is experiencing economies of scale when the average cost of production is falling as output rises
Emerging countries
Countries which are not yet developed, but which are growing quickly and are further along the development process and other developing countries
Equilibrium
A market for a product is in equilibrium with the quantity supplied is equal to the quantity demanded
Equity
This means Fairness.
Exchange rate
The price at which one currency buys another
Extending property rights
When property rights over a resaws a given to an individual or firm. This gives them control over the usage of that resource
External growth
Affirm going through mergers/takeovers
Externalities
The external costs or benefits to a third party that is not involved in the making, buying/selling and consumption of a specific good/service
Factors of production
These are the four inputs needed to meet the things that people want they are: land, labour, capital and enterprise
Financial account on the balance of payments
A part of the record of the countries international flows of money. This involves the movement of financial assets (E.G.through a foreign direct investment FDI)
Financial sector
Firms to provide financial services (E.G.banks and insurance companies)
Fiscal policy
Government policy that determines the level of government spending and taxation. Often used to increase or decrease aggregate demand in an economy
Fishers equation of exchange
See quantity theory of money
Fixed costs
Course the duvet with the level of output of a firm in the short run
Foreign direct investment (FDI)
This is when a firm based in one country makes an investment in a different country
Freemarket
A market where there is no government intervention. Competition between different suppliers affect supply and demand, and as a result determines prices.
Free rider problem
This means that once a public good is provided it’s impossible to stop someone from benefitting from it , even if they haven’t paid towards it
Free trade
International trade without any restrictions from things such as trade barriers
Frictional unemployment
The unemployment experience by workers between leaving one job and starting another
Full employment
The situation where everyone of working age who wants a job at the Current wage can get one
Globalisation
The increasing integration of economies internationally, which is making the world more like a single economy
Government Failure
This occurs when government intervention into the market causes a miss allocation of resources
Gross domestic product (GDP)
The total value of all goods and services produced in the country in a year
Hit and run tactics
This is one fund and your market while supernormal profit can be made and then leave the market when the prices have been driven down to normal profit levels
Horizontal equity
This means that people in identical circumstances are treated fairly
Horizontal integration
Mergers or takeovers between firms that are at the same stage of the production process of similar products
Human capital
Economic value of a person skills
Human development index (HDI)
A measure of the countries economic development, used by the UN, that combines measures of health (life expectancy), education (average and expected years in school), and the standard living (real GNI per capita).
Imperfect information
A situation where buyers and/or sellers don’t have full knowledge regarding prices, costs, benefits and availability of a good or service
Income
Money that a firm or person receives from providing a good or service
Income elasticities of demand (YED)
This is a measure of how the demand for a good/service response to a change in real income
Inequity
Another word for unfairness
Inflation
This is persistent rise in the average price of goods and services over a period of time.
Infrastructure
The basic facilities and services needed for the country and it economy to function
Inorganic growth
See external growth
Interest
The money paid to the lender by someone who borrows capital. This will often be a fixed percentage ratio – known as an interest rate
Internal growth
A firm growing as a result of increasing the levels of the factors of production of users, rather than through mergers or takeovers
Investment
The purchase of capital, such as new machinery, in the hope that this will help generate an increased level of output. Investment can also mean buying shares from stock market – this is done in the hope of making a future profit or receiving dividend payments
Labour immobility
This occurs when Labour can’t easily move around to find jobs (geographically immobility) or easily switch between different occupations (occupational immobility)
Laws of diminishing returns
The idea that if a firm increases one variable factor of production while other factors stay fixed, then the marginal returns the firm get from the variable factor will always eventually begin to decrease
Liquidity
How easily an asset can be spent, converted to money,
Long run
A time period in which all the facts the production of able, so a firm can expand its capacity
Long run aggregate supply
In the long run it’s assumed that because factors and costs of production can change, an economy will run at full capacity - so LRAS is the productive potential of an economy
Marginal product
The extra output that is produced when a firm add one more unit of one of the factors of production they are using
Marginal cost
The cost of a firm of producing the final unit of output
Marginal propensity to consume
The proportion of an increase in income that people will spend (and not save)
Marginal returns
See marginal product
Marginal revenue
The extra revenue received as a result of selling one more unit of output
Marginal tax rate
Rate at which you pay on any ‘extra’ Money you receive
Marginal utility
The benefit of consuming one extra unit of a good
Market failure
This is where the price mechanism fails to allocate resources efficiently
Merger
Two firms uniting to form a new company
Minimum efficient scale of production (MES)
The lowest level of output at which a firm can achieve the lowest possible average cost of production
Monetary policy
Government policy that involves controlling the total amount of ‘money’ in an economy (the money supply), and how expensive it is to borrow that money. It involves manipulating interest rate, exchange rate and restrictions on the supply of money.
Monopoly
If your monopoly is the market where only one supplier occurs. Some markets will be referred to as a monopoly if there’s more than one supplier, but one supplier dominates the market
Monopoly power
The ability of a firm to be a price maker and influence the price of a particular good in the market
Monopsony
A market with a single buyer
Multi national corporations
Firms which function in at least one other country, aside from their country of origin
Multiplier effect
The process by which an injection into the circular flow of income create a change in the size of national income that’s greater than the injections size
National debt
The total debt that the country has run up over time
National minimum wage
A legal minimum hourly rate of pay, set for different age groups. There is a national minimum wage in the UK
National output
The total goods and services produced in a country in the year
Nationalised industry
An industry owned by the government
Natural Monopoly
An industry where economies of scale are so great that the lowest long run average cost can only be achieved if the market is made up of a single provider
Natural Rate of Unemployment (NRU)
The rate of unemployment when the labour market is in equilibrium (I.E when labour demands is equal to labour supply).
Non-Pure public good
See quasi-public good
Normal Profit
A firm is making normal profit when its total revenue=total cost
Oligopoly
A market is dominated by a few large firms that offer differentiated products, with high barriers to entry. The firms are interdependent
Opportunity Cost
The benefit thats given up in order to do something else- its the cost of the choice that’s made.
Organic Growth
See Internal Growth
Output Gap
The gap between the trend rate of economic growth and actual economic growth. Output gaps can be +ve or -ve
Participation rate
There proportion of working age people in the economy that are either in work or actively seeking work.
Perfect Information
When buyers and sellers have full knowledge of prices, costs, benefits and availability of products
Phillips Curve (LR)
Curve that shows the relation ship between inflation and unemployment in the LR - always vertical line, positioned at NRU
Phillips Curve (SR)
Curve that shows relationship between inflation and unemployment in the SR - as the level of one falls, the levels of the other rises
Predatory Pricing
An aggressive pricing tactic which involves incumbent firms in a market are lowering their prices to a level that a new entrant to the market can’t match, in order to force them out of the market
Price Cap
A limit on price rises that makes a market fairer to consumers. it provides an incentive for firms to increase efficiency. Two common price caps are: RPI -X and RPI -X+K
Price Discrimination
Occurs when a seller charges different prices to different customers for exactly the same product.
PED
a measure to show how quantity demanded of a good/service responds to a change in its price
PES
a measure to show how quantity supplied of a good/service responds to a change in its price
Price Maker
A firm that has some power to control the price it sells at.
Price Mechanism
This is when changes in the demand or supply of a good/service lead to changes in its price and the quantity brought/sold
Price Taker
A firm that has no power to control the price it sells at - it has to accept the market price.
Price War
A situation where one firm in a market lowers their prices, and other firms follow suit, triggering a series of price cuts as firms try to undercut one another
Privatisation
When a firm or a whole industry changes from being run by the public sector to the private sector.
Producer Surplus
When a producer receives more for a good than they were prepared to accept, this difference is the producer surplus.
Productive Efficiency
This occurs when products are produced at a level of output where the AC is lowest MC=AC
Productivity
The average output produced per unit of a factor of production - for example, labour productivity id the average output per worker
Profit
total revenue - total costs
Progressive taxation
a tax system where an individual’s tax rises (as a % of their income) as their income rises
Proportional Taxation
a tax system where everyone pays the same proportion of tax regardless of their income
Protectionism
When a government uses policies to control the level of international trade and protect its own economy, industries and firms.
Public Good
A good which can’t be stopped from consuming, even if they haven’t paid for it, and the consumption of which doesn’t prevent others from benefitting from it.
Public Sector
The part of the economy that is owned or run by the government
PPP (purchasing power parity)
An adjustment of an exchange rate to reflect the real purchasing power of the two countries
QE (quantitative easing)
this involves the central bank (BoE) ‘creating new money’ and using it to buy assets owned by financial institutions and other firms. It increases the money supply, which will enable individuals and firms to spend more, or lend it to other people to spend.
QT (quantitative tightening)
“the Fed will let the old bonds mature, and not buy new ones. That way the money just disappears and the balance sheet shrinks. The new name for this is “quantitative tightening,” or QT.”
Quantity theory of money
Theory is based on the idea that changes in the money supply will cause changes to the price level use the formula: MV = PT which is known as fishers equation of exchange
Quasi – public good
Are good which appears to have the characteristics of a public good that doesn’t exhibit them fully
Quota
A limit on the amount of a good that is allowed to be used, produced or imported
Real income
A measure of the amount of goods/services that consumers can afford to purchase with the income, adjusted with inflation
