Definitions Flashcards
LABOUR
Mental or physical effort of humans rewarded by wages
CAPITAL
Anything that is man made & helps production rewarded by interest
LAND
All natural resources used in production
ENTERPRISE
A person who combines other 3 factors of production, makes business decisions, bears the risk & is rewarded by profit
ECONOMIC PROBLEM
Wants are unlimited, but resources are limited
OPPORTUNITY COST
Next best alternative given up when making a choice
PRODUCTION POSSIBILITY CURVE
Shows max output of 2 goods that can be produced when resources are fully and efficiently used
PRIVATE COST
Cost paid my producers or consumers of a product
EXTERNAL COST
Damage to a 3rd party that is not taken into account
SOCIAL COST
Private+External cost
Cost paid by whole society
PRIVATE BENEFITS
Benefits or gains to producers and consumers
EXTERNAL BENEFIT
Benefit to a 3rd party not taken into account by producer
DEMAND
Willingness and ability to buy a product
SUPPLY
Willingness and ability to sell a product
EQUILIBRIUM PRICE
Price where quantity demanded equal quantity supplied
No excess demand or supply
DISEQUILIBRIUM PRICE
Price where quantity demanded is NOT equal to quantity supplied
Results In surplus(excess supply)
OR shortage(excess demand)
PRICE ELASTICITY OF DEMAND
Responsiveness of quantity demanded to changes in price
INELASTIC DEMAND
A price change causes a smaller % change in quantity demanded
ELASTIC DEMAND
A price change that causes a larger % change in quantity demanded
PRICE ELASTICITY OF SUPPLY
Responsiveness of quantity supplied to changes in price
INELASTIC SUPPLY
When price changes by a certain %, quantity supplied will change by a smaller %
ELASTIC SUPPLY
When price changes by a certain %, quantity supplied will change by a larger %
REGULATIONS
Rules and laws imposed by government
SUBSIDY
Payment made by the government to firms to help reduce their costs of production and increase output level and decrease prices
TRADE UNION
An organization of workers that negotiates for better pay and safer working conditions for its members
SOLE TRADER
A business owned and controlled by one person
He/she has unlimited liability and gets all the profit
UNLIMITED LIABILITY
Owners must repay all business debts using their savings or selling their property
PUBLIC LIMITED COMPANY
A type of business that sells shares to the general public in the stock market
Raising high finance to expand
LIMITED LIABILITY
Owners are not responsible for business debts, if the business fails they lose funds invested into the business
COOPERATIVES
Is a type of business owned and controlled by its members for their mutual benefit, it has limited liability & each member has one vote
MULTINATIONAL COMPANY
Is a firm that operates in more than one country & its head office is in the country of origin
PRODUCTIVITY
Is output per input per unit of time
It’s a measure of efficiency for factors of production
LABOUR PRODUCTIVITY
Is output per worker per unit of time
Higher productivity reduces cost of production
FIXED COSTS
Cost is that don’t change with output
VARIABLE COST
Costs that change directly to output level
AVERAGE COST
Cost per unit= TC/output
REVENUE
Is income generated from sales=P x q
PROFIT MAXMIZATION
Means to achieve highest possible profit by increasing total revenue and decreasing total cost
BREAK-EVEN POINT
Output level where total revenue equals total cost
Zero profit
HORIZONTAL INTEGRATION
Occurs when 2 or more firms at the same stage of production combine together either by merger or takeover
VERTICAL INTEGRATION
Occurs when 2 or more firms at different stages of production merge together
Can be vertical backward > when a firm merges with previous stage(source of supply)
Can be vertical forward > when a firm merged with next stage (shop)
DIVERSIFICATION
“Conglomerate integration”
Occurs when 2 or more firms in unrelated industries merge to spread the risk of loss
ECONOMIES OF SCALE
Reduction of average cost of firm as output increases
DISECONOMIES OF SCALE
An increase In Average cost of a firm as output increases beyond a certain level
EXTERNAL ECONOMIES OF SCALE
When a firm locates where other firms in the same industry are located so decreasing its cost of production
COMPETITION
Is a market structure where a large number of producers, that sell homogeneous products
PRICE TAKERS
Occurs in perfect competition, where firms take the price determined by demand & supply
No one firm has the power to affect market price
MONOPOLY
Occurs when 1 firm dominates the market, it can restrict output to increase the price( price maker )
PRICE MAKER
Occurs in monopoly where it can restrict the market supply, to change higher price for its product
FULL EMPLOYMENT
One of the government macroeconomic aims
Means to reduce unemployment to the lowest possible level
Keeping it to seasonal or frictional unemployment
REDISTRIBUTION OF INCOME
Means to reduce the gap between higher and lower income groups, using progressive tax & using tax revenue to subsidie basic necessities for the poor
FISCAL POLICY
A policy that uses tax & government expenditure to influence economic activity and achieve macroeconomic aims
MONETARY POLICY
A policy that uses interest rate, exchange rate or money supply to achieve macroeconomic aims
SUPPLY SIDE POLICY
Is a long term policy aimed at increasing the productive capacity of a country by improving quality and quantity of factors of production
TAX
Is a government levy on income or expenditure
DIRECT TAX
Is a tax Imposed on income, wealth or profit of individuals or firms. The burden of tax can’t be shifted to someone else
Eg: Income tax , Corporation tax
INDIRECT TAX
Tax imposed on expenditure on goods or services.
Burden of tax can be shifted to customer in the form of higher prices
Eg: VAT, tariff
PROGRESSIVE TAX
As income increases tax rate (% )increases
PROPORTIONAL TAX
Tax rate is same for all income levels
REGRESSIVE TAX
Low income groups pay higher rate of tax
eg: sales tax
BARTER
The act of exchanging goods for other goods or services
MEDIUM OF EXCHANGE
Money is widely accepted as a means of payment for goods or services
MEASURE OF VALUE
Money is a unit of account used to measure the market value of goods or services
STORE OF VALUE
Money can be saved and used at a later date
STANDARD FOR DEFERRED PAYMENT
Buy the product now and pay at a later date
(I.e) money is a standard for future payment of loans
CENTRAL BANK
Monetary authority that manages a country’s money supply and banking system
STOCK MARKET
Is an institutional market for trading shares of public limited countries
INFLATION
Sustained rise in general price levels in an economy over time
DEFLATION
Sustained decrease in general price levels in an economy over time
UNEMPLOYMENT
People who are able to and willing to work, but can’t find a job
GDP
(Gross domestic product)
Money value of goods and services produced within a country for a given period of time( usually a year)
REAL GDP
Measures actual amount of goods and services produced within a country after excluding effect of inflation
ECONOMIC GROWTH
- An increase in a countries real GDP over a given period of time
- Measured by rate of change in real GDP
- Increase in productive capacity of an economy and shown by an outward shift in production productivity curve
RECESSION
A fall in a countries GDP over 2 consecutive quarters
GDP PER CAPITA( or per head)
Total output divided by population can be used as a measure for standard of living
ABSOLUTE POVERTY
Exists when people lack income to buy basic necessities (food, clothes, shelter, etc.)
Calculated by the % of the population living below poverty line($1.9)a day
RELATIVE POVERTY
Comparative measure, means individuals have lower standard of living in comparison with average member of society
BIRTH RATE
Number of births per thousand population per year
DEATH RATE
Number of deaths per thousand population per year
FERTILITY RATE
Measures average number of children born per woman
LIFE EXPECTANCY
Measures number of years an average person is expected to live
DEPENDENCY RATIO
Measures the dependent population as a portion of work force
UNDER POPULATED
The size of the population is less than the available resources. GDP per head can increase if population increases
OVER POPULATION
The size of the population is more than the available resources. Any increase in the size of population leads to a fall in GDP per head
SPECIALIZATION
Occurs when an individual, firm, region or country concentrate on a particular good point or service
FREE TRADE
Trade without any form of trade barriers as tariff or quota
TRADE PROTECTION
Refers to the use of trade barriers as tariffs or quotas to restrict imparts
TARIFFS
A Tax imposed on imparts
QUOTAS
An upper limit on the amount of imparts allowed inside a country
EXCHANGE CONTROL
Means making foreign currency unavailable to domestic consumers and firms, so they are unable to buy goods or services
EMBARGO
Banning trade within a certain country
BALANCE OF PAYMENT
Is a financial record of a country’s transactions with the rest of the world in a year
CURRENT ACCOUNT
Part of the balance of payments the include:
- Visible balance( trade in goods)
- Invisible balance(export and import of services)
- Net income flow(includes inflow, outflow of profit, dividend and interest)
- Current transfers(includes taxes and foreign aid)
CURRENT ACCOUNT DEFICIT
Occurs when all debt items exceed all credit items in visible & invisible balance, net income flow and current transfers
CURRENT ACCOUNT SURPLUS
Occurs when all credit items exceed all debit items in visible & invisible balance, net income flow, current transfers
EXCHANGE RATE
Is the value of a country’s currency in terms of other countries
FLOATING EXCHANGE RATE
Means the exchange rate is allowed to fluctuate according to forces of demand and supply without government interference
FIXED EXCHANGE RATE
The exchange rate is not allowed to change according to forces of demand and supply but it is set by the government at a certain value
APPRECIATION
A rise in a country’s currency in terms of other countries in a floating exchange rate
DEPRECIATION
A fall in a country’s currency in terms of other countries in a floating exchange rate
DEVALUATION
Is when the price of currency is officially decreased in a fixed exchange rate this is done by the government buying foreign currency and selling domestic currency
REVALUATION
Is an official increase in the price in a currency in a fixed exchange rate This is done by the government by buying domestic currency and selling foreign currency to its citizens using foreign reserves in the central bank
INVESTMENT
sp on capital
