Definitions Flashcards
Abnormal Profit
When average revenue is greater than the average cost.
Absolute Advantage
The ability of a country to produce a good with fewer resources than another country.
Absolute Poverty
People living below the minimum income necessary to satisfy basic physical needs (set at $1.90 PPP).
Abuse of Market Power
When a firm acts with the intention to eliminate competitors or to prevent entry of new firm in a market.
Actual Growth
When real GDP increases through time and is a result of higher quantity or quality of resources (illustrated by a movement in the PPC model).
Administrative Barriers
Trade barriers in the form of regulations that aim to limit imports into a country.
Adverse Selection
A type of market failure involving asymmetric information.
Aggregate Demand
Planned spending on domestic goods and services at different average price levels, per period of time.
Aggregate Supply
The planned level of output domestic firms are willing and able to offer at different average price levels.
Allocative Efficiency
Achieved when P = MC or MSB = MSC therefore scarce resources are allocated in the best possible way.
Allocative Inefficiency
When MSB > MSC or MSB < MSC so that there is a misallocation of scarce resources.
Anchoring
Situations in which people rely on a piece of unrelated information when making a decision.
Anti-dumping
Tariffs that aim at raising the artificially low price of a dumped imported good to the level of the higher domestic price.
Anti-monopoly Regulation
Laws and regulations intended to restrict anti-competitive behavior of firms that are abusing market power.
Appreciation
When the price of a currency increases in a floating exchange rate system.
Appropriate Technology
Technology that relies on the relatively abundant factor an economy is endowed with.
Asymmetric Information
A type of market failure where one party in an economic transaction has access to more or better information than the other party.
Automatic stabilizers
Institutionally built-in features that tend to decrease the short-term fluctuations of the business cycle without needing government intervention.
Average Costs
Total costs per unit of output produced.
Average Revenue
Revenue earned per unit sold thus equal to the price of the good.
Average Tax Rate
The ratio of the tax paid by an individual over their income expressed as a percentage.
Balance of Payments
A record of the value of all transactions of a country with the rest of the world over a period of time.
Balance of Trade in Goods
The value of exports of goods of a country minus the value of imports of goods over a given period of time.
Balance of Trade in Services
The value of exports of services of a country minus the value of imports of services over a given period of time.
Barriers to Entry
Anything that deters entry of new firms into a market such as licenses or patents.
Behavioral Economics
A subdiscipline of economics which focuses on cognitive psychology to better understand the behavior of economic decision-makers.
Biases
Systematic deviations from rational choice decision-making.
Bilateral Trade Agreements
An agreement between two countries to phase-out or eliminate trade related barriers.
Bounded Rationality
The idea that consumers and producers are rational only within limits.
Bounded Self-Control
The idea that individuals may not be able to act in their interests (e.g. procrastination).
Bounded Selfishness
The idea that individuals do not always maximise self-interest but also have concern for the well-being of others.
Budget Deficit
When government expenditures exceed government revenues usually over a period of a year.
Business Confidence
A measure of the degree of optimism that businesses have about the economic future.
Business Cycle
The short-term fluctuations of real GDP around its long-term trend.
Business Tax
Tax levied on the income of a business or corporation.
Capital
Physical capital refers to means of production whilst human capital refers to the skills embodied in the labor force of a country.
Capital Account
A subaccount of the balance of payments that includes credit and debit entries for non- produced and non-financial assets, capital transfers between residents and non-residents.
Capital Flight
When money and other assets flow out of a country to seek a “safe haven” in another country.
Capital Gains Tax
A tax on the profits realized from the sale of financial assets.
Capital Transfers
Part of the balance of payments, they are financial or non-financial assets for items including debt forgiveness, investment, non-life insurance claims.
Carbon Taxes
Pigouvian taxes levied on the carbon content of fuel.
Central Bank
Institution in charge of conducting monetary and exchange rate policy, and providing banking services to the government and commercial banks.
Ceteris Paribus
Latin expression meaning “other things being equal”.
Choice Architecture
The design of environments based on the idea that the range and layout of choices affects the decisions made by consumers.
Circular Economy
An economic system that aims to redefine growth, focusing on society-wide benefits.
Circular Flow of Income
A simplified model that shows the flows of income and expenditures in an economy.
Collective Self-Governence
The monitoring and regulating the use of a common pool resource between its users (e.g. fishery).
Collusive Oligopoly
A market where firms agree to fix price and/or to engage in other anti-competitive behaviour.
Common Market
When a group of countries agree not only to free trade of goods and services but also to free movement of capital and labour.
Common Pool Resources
Natural resources that are non-excludable and rivalrous.
Comparative Advantage
When a country can produce a good at a lower opportunity cost compared to another country.
Competitive Market
A market with many firms acting independently where no firm has the ability to control the price.
Competitive Market Equilibrium
Occurs when in a free competitive market, quantity demanded is equal to quantity supplied.
Competitive Supply
When goods that a firm is producing use the same resources in their production process.
Complements
Goods that are jointly consumed.
Composite Indicator
An indicator that is comprised as an average of more than one economic variable (e.g. HDI).
Concentration Ratios
The proportion of industry sales accounted for by the largest firms indicating the degree of market power.
Consumer Confidence
A measure of the degree of optimism that households have about their income and economic prospects.
Consumer Price Index (CPI)
The average of the prices of the goods and services consumed.
Consumer Surplus
The difference between how much a consumer is willing to pay and how much they actually pay.
Consumption
Spending by households on goods and services over a period of time.
Contractionary Fiscal Policy
Refers to a decrease in government expenditures and/or an increase in taxes that aim at decreasing aggregate demand and thus reducing inflationary pressures.
Contractionary Monetary Policy
A policy employed by the central bank involving an increase in interest rates and aimed at decreasing aggregate demand and thus inflationary pressures.
Corporate Indebtedness
The sum of what a corporation owes to holders of its debt.
Corporate Social Responsibility
A corporate goal adopted by many firms that aims to create and maintain an ethical and environmentally responsible image.
Cost-Push Inflation
Inflation that is a result of increased production costs and illustrated by a leftward shift of the SRAS curve.
Credit Items
Refers to transactions within the balance of payments of a country that lead to an inflow of currency.
Credit Rating
A grade assigned by certain agencies on the borrowing risks a prospective issuer of debt presents to lenders.
Crowding Out
When the increased borrowing needs of the government to finance the increased expenditures could lead to increased interest rates. Thus, reducing components of AD.
Current Account
A subaccount of the balance of payments that records the value of net exports, income and current transfers of a country over a period of time.
Current Account Deficit
Exists when debits or outflows are greater than credits or inflows.
Current Account Deficit
Exists when credits or inflows are greater than debits or inflows.
Current Transfers
An entry in the current account that records payments between residents and non-residents of a country without something of economic value being received in return.
Customs Union
An agreement between countries to phase out or eliminate tariffs and other trade barriers and establish a common external barrier toward non-members.
Cyclical Unemployment
Unemployment that is a result of a decrease in aggregate demand (occurs in a recession).
Debit Items
The transactions within the balance of payments of a country that lead to an outflow of currency.
Debt Relief (Cancellation)
A reduction of the debt burden of developing countries.
Debt Servicing
The repayment of principal and interest on the debt of a person, firm or country.
Default Choice
When a choice is made by default: selected when one does not do anything.
Deflation
A sustained decrease in the average price level of a country.
Deflationary Gap
Arises when the equilibrium level of real output is less than potential output as a result of a decrease in AD.
Demand
The relationship between price and quantity of a good or service that consumers are willing and able to buy over a time period, ceteris paribus.
Demand Management
Policies that aim at manipulating aggregate demand through changes in interest rates or changes in government expenditures and taxation.
Demand-pull Inflation
Inflation that is caused by increases in aggregate demand.
Demand-side Policies
Refers to economic policies that aim at affecting aggregate demand.
Demerit Goods
Goods or services that harm consumers and society, and tend to be over-consumed.
Depreciation
A decrease in the value of a currency in terms of another currency in a floating or managed exchange rate system.
Deregulation
A decrease in the value of a currency in a fixed exchange rate system.
Development Aid
Aid aimed at assisting developing countries in their development efforts.
Direct Taxes
Taxes on income, profits or wealth paid directly to the government.
Discount Rate
The interest rate that a central bank charges commercial banks for short-term loans.
Disinflation
When the average price level continues to rise at a slow rate so that the rate of inflation is positive but lower.
Dumping
When a firm sells abroad at a price below average cost or below the domestic price.
Economically Least Developed Countries (EDLCs)
Low-income countries facing severe structural constraints to sustainable development with low levels of human assets and highly vulnerable to economic and environmental shocks.
Economic Development
A multidimensional concept involving a sustained increase in living standards.
Economic Growth
Refers to increases in real GDP over time.
Economic Integration
Economic interdependence between countries involving agreements between to phase-out or eliminate trade and other barriers between them.
Economies of Scale
Falling average costs that a firm experiences when it increases its scale of operations.
Efficiency
Making the best use of scarce resources, where MSC = MSB or where social surplus is maximum.
Elasticity of Demand for Exports
A measure of the responsiveness of the volume of exports to a change in their price.
Elasticity of Demand for Imports
A measure of the responsiveness of the volume of imports to a change in their price.
Engel Curve
A curve showing the relationship between consumers’ income and quantity demanded of a good. It indicates whether a good is normal or inferior.
Entrepreneurship
The ability to organize the factors of production and willingness to take risks.
Equilibrium
A state of balance that is self-perpetuating in the absence of any outside disturbance.
Equity
The concept or idea of fairness.
Excess Demand
When quantity demanded at some price is greater than quantity supplied.
Excess Supply
when quantity supplied at some price is greater than quantity demanded.
Exchange Rate
The value of one currency expressed in term of another currency.
Excludable
Goods which producers can charge at a price which excludes whoever is not willing or able to pay for it from enjoying it.
Expansionary Fiscal Policy
An increase in government expenditures and/or a decrease in taxes that aim at increasing aggregate demand.
Expansionary Monetary Policy
Monetary policy aiming at increasing aggregate demand through a decrease in interest rates.
Expenditure Approach
One approach of measuring GDP that adds all the expenditures made on final domestic goods and services
over a period of time.
Expenditure Reducing
Contractionary demand side policies aiming at decreasing national income to narrow the current account deficit.
Expenditure Switching
Policies aimed at switching expenditures away from imports towards domestically produced goods and services.
Exports
Goods and services produced in one country and purchased by consumers in another country.
Export Promotion
Growth policies aiming at expansion of export revenues.
Export Revenue
The revenues collected by exporting firms.
Export Subsidy
Payments made by the government to exporting firms.
External Balance
A situation where the value of a country’s exports is balanced by the value of its imports over a period of time.
Externalities
External costs or benefits to third parties when a good or service is produced or consumed.
Factors of Production
Resources used in the production of goods and services including land, labour, capital and entrepreneurship.
Financial Account
Records inflows and outflows of portfolio and FDI funds over a period of time.
Firm
An entity (such as a business) that uses factors of production in order to produce and sell goods and services and earn profits.
Fiscal Policy
A demand-side policy using changes in government expenditure or direct taxation to influence aggregate demand.
Fixed Exchange Rate
An exchange rate system where the exchange rate is pegged to the value of another currency and maintained there with central bank intervention.
Floating Exchange Rate
An exchange rate system where the exchange rate is determined by the market demand and supply of the currency in the foreign exchange market without any intervention.
Foreign Aid
Refers to flows of grants or loans from developed to developing countries that are non-commercial and terms are concessional.
Foreign Direct Investment (FDI)
When a firm establishes a productive facility in a foreign country or acquires controlling interest (at least 10% of the ordinary shares) in an existing foreign firm.
Foreign Sector
In an open economy the term refers to exports and imports.
Framing
Shows how the way choices are presented that may affect the choice made.
Free Goods
Goods that are not considered scarce and hence do not have opportunity cost.
Free Market Economy
An economy where production is privately owned and where market forces determine the answers to the economic questions.
Free Rider Problem
When individuals consume a good or service without paying for it because they cannot be excluded from enjoying it.
Free Trade
International trade that is not subject any kind of trade barriers.
Free Trade Area
An agreement between two or more countries to phase-out or eliminate trade barriers between them.
Frictional Unemployment
Unemployment of individuals who are in- between jobs.
Full Employment
Exists when the economy is producing at its potential level
of real output and thus there is only natural unemployment.
Game Theory
A branch of mathematics that studies the strategic interaction of economic decision-makers.
Gender Equality Index (GII)
An indicator that measures gender inequalities in the dimensions of human development, reproductive health, empowerment and economic status.
Gini Coefficient
A measure of the degree of income inequality of a country ranging from zero (perfect equality) to 1 (perfect inequality).
Government Debt
The total amount the government owes to creditors.
Government Spending
All spending by the government including current and capital expenditures and transfer payments.
Gross Domestic Product (GDP)
The value of all final goods and services produced within an economy over a period of time (year or quarter).
Gross National Income (GNI)
The income earned by all national factors of production independently of where they are located over a period of time.
Happiness Index
An index used to measure economic well-being of a population using quality of life dimensions.
Happy Planet Index
An index that shows how efficiently residents of different countries are using environmental resources.
Homogeneous Products
Goods that are considered identical across firms in the eyes of consumers.
Household Indebtedness
The money that households owe.
Households
Groups of individuals in the economy who share the same living accomodation, pool their income and jointly decide the set of goods to consume.
Human Capital
The education, training, skills, experience and health embodied in the labor force of a country.
Human Development Index (HDI)
An index that reflects the three basic goals of development including health, education and standards of living.
Humanitarian Aid
Aid given to alleviate short-term suffering resulting from a natural catastrophe or war.
Imperfect Competition
A market structure where firms have a degree of market power as they face a negatively sloped demand curve.
Imperfect Information
When the information about a market or a transaction is incomplete.
Import Expenditure
The value of imports of goods and services.
Imports
The value of goods and services purchased domestically that are produced abroad.
Import Substitution
A growth strategy where domestic production is substituted for imports in an attempt to industrialize.
Incentive-related Policies
Policies that aim at improving economic incentives of individuals and firms.
Income
A flow of earnings from using factors of production to produce goods and services.
Income Approach
One of the methods used to measure GDP; adds up all incomes generated in the production process for a given time period.
Income Effect
Based on the law of demand, explains that if the price of a good increases then the real income of consumers decreases and they will tend to buy less of the good.
Income Elasticity of Demand (YED)
The responsiveness of demand for a good or service to a change in income.
Indirect Taxes
Taxes on expenditure to buy goods and services.
Industrial Policies
A type of interventionist supply-side policies whereby the government chooses to support specific industries.
Inequality adjusted Human Development Index (HDI)
An indicator consisting of an average of a country’s achievements in health, education and income adjusted for the degree of inequality characterizing each.
Infant Industry
A new industry that should be protected from foreign competition until it is large enough to achieve economies of scale.
Inferior Goods
Lower quality goods for which higher quality substitutes exists.
Inflation
A sustained increase in the average level of prices.
Inflationary Gap
The case where equilibrium real output exceeds potential output as a result of an increase in AD.
Inflation Rate
The percentage change between two periods of the average price level, usually measured through the CPI.
Informal Economy
The part of an economy where activity is not officially recorded, regulated or taxed.
Infrastructure
Physical capital typically financed by governments that is essential for economic activity to take place.
Injections
Spending on domestic output that does not originate from households.
Interest Rate
The cost of borrowing money or the reward for saving money over a period of time as a percentage.
International Monetary Fund (IMF)
An international financial institution whose objectives include to improve global monetary cooperation and secure financial stability.
International Trade
Trade that involves the exports and imports of goods or services between countries.
Interventionist Supply-side Policies
A set of policies that aim to increase an economy’s productive capacity that relies on government intervention.
Investment
Spending by firms on capital goods.
J-curve
Following devaluation or a sharp depreciation,
a trade deficit will typically widen before it
starts improving thus tracing the letter “J” if plotted against time.
Joint Supply
Goods jointly produced hence producing one automatically leads to the production of the other.
Keynesian Aggregate Supply Curve
An aggregate supply curve that shows the level of real output produced in an economy in relation to the price level.
Keynesian Multiplier
The idea that an increase in any injection will lead to a greater increase in real GDP.
Keynesian Revolution
An economic school of thought based upon the works of Keynes, advocating an interventionist role for the government in managing economic activity.
Labor
One of the four factors of production that refers to the physical and mental contribution of workers to the production process.
Labor Market Flexibility
The labour market is considered flexible if it can adjust to changes in labour demand and supply conditions.
Labor Union
An organization of workers whose goals include improving working conditions and achieving higher compensation.
Laissez Faire
The view that if market forces are left without government intervention the outcome will be efficient.
Land
One of the four factors of production that refers to the natural resources within an economy.
Land Rights
Legal rights over land holdings.
Law of Demand
As the price of a good falls, the quantity demanded will increase over a certain period of time, ceteris paribus.
Law of Diminishing Marginal Returns
The idea that as a variable factor (labor) is added to a fixed factor (capital) it will increase until reaching a point beyond which it is inefficient and total product falls.
Law of Diminishing Marginal Utility
The idea that as an individual consumes additional units of a good, the additional satisfaction enjoyed decreases.
Law of Supply
As the price of a good rises, the quantity supplied will rise over a certain period of time, ceteris paribus.
Leakages
Income not spent on domestic goods and services.
Long-run Aggregate Supply (SRAS)
Aggregate supply that is dependent upon the resources and technology in the economy and independent of price level.
Long-run Phillips Curve
A curve showing the monetarist view that there is no trade-off between inflation and unemployment in the long run and that there exists a natural rate of unemployment at the level of potential output.
Long-run in Microeconomics
The period of time when all factors of production are variable.
Long-run in Macroeconomics
The period of time when the prices of all factors of production change to match changes in the price level.
Long-term Growth
Growth over long periods of time.
Long-term Growth Trend
Refers to average growth over long periods of time shown in the business cycle diagram as the line that runs through short-term fluctuations.
Lorenz Curve
A curve showing what percentage of the population owns what percentage of the
total income or wealth in the economy.
Loss
Occurs when total costs of a firm are greater than total revenues.
Luxury Goods
Goods that are not considered essential by consumers therefore they have a price and income elastic demand.
Macroeconomics
The study of aggregate economic activity that investigates how the economy as a whole works.
Managed Exchange Rate
An exchange rate that floats in the foreign exchange markets but is subject to intervention in order to prevent undesirable movements.
Mandated Choices
Choices made by consumers who are required to state whether or not they wish to take part in an action.
Manufactured Products
Products or goods that have been produced by workers with capital goods.
Marginal Benefit
The extra or additional benefit enjoyed by consumers that arises from consuming one more unit of output.
Marginal Cost
The extra or additional costs of producing one more unit of output.
Marginal Propensity to Consume (MPC)
The proportion of additional income that is spent by households on goods and services.
Marginal Propensity to Import (MPM)
The proportion of additional income that is spent by households on imported goods and services.
Marginal Propensity to Save (MPS)
The proportion of additional income that is saved by households.
Marginal Propensity to Tax (MPT)
The proportion of additional income that is paid in taxes.
Marginal Revenue
The additional revenue that arises for a firm when it sells one more unit of output.
Marginal Social Benefit (MSB)
The additional benefit to society of consuming an additional unit of output.
Marginal Social Cost (MSC)
The additional cost to society of producing an additional unit of output.
Marginal Tax Rate
The proportion of additional income that is paid in taxes as a percentage.
Marginal Utility
The extra or additional utility derived from consuming one more unit of a good or service.
Market
Any arrangement where buyers and sellers interact to carry out an economic transaction.
Market-based Supply-side Policies
A set of policies based on the competitive market, used to promote long-term economic growth.
Market Concentration
The extent to which the total sales in a market are accounted for by the largest firms.
Market Demand
The sum of the individual demand curves for a product of all the consumers in a market.
Market Equilibrium
Occurs at the price where the quantity of a product demanded is equal to the quantity supplied.
Market Failure
The failure of markets to achieve allocative efficiency.
Market/price Mechanism
The system in which the forces of demand and supply determine the prices of products.
Market-oriented Approaches
Approaches based on the actions of private decision-makers operating in markets with a minimum amount of government intervention.
Market Power
The ability of a firm/s to raise and maintain price above the level of perfect competition (P > MC).
Market Share
The percentage of total sales in a market accounted for by one firm.
Market Supply
The sum of the individual supply curves for a product of all the producers in a market.
Marshall-Lerner Condition
A condition stating that a depreciation or devaluation of a currency will lead to an improvement in the current account balance if the sum of export PED plus the import PED is greater than one.
Maximum Price
A price set below the market equilibrium price of a good or service (price ceiling).
Merit Goods
Goods or services considered to be beneficial for people that are under-provided by the market.
Microeconomics
The study of the behaviour of individual economic decision-makers, the determination of market prices and quantities of goods, services, and factors of production.
Microfinance
The provision of small loans to poor entrepreneurs who lack access to traditional banking services.
Minimum Income Standards
A measure of poverty based on the beliefs of people regarding what is essential in order to achieve an acceptable standard of living.
Minimum Lending Rate
The interest rate that is charged by a central bank when it lends to commercial banks.
Minimum Price
A price set above the market equilibrium price of a good or service (price floor).
Minimum Reserve Requirement
A requirement by the central bank that sets the minimum amount of reserves that commercial banks must maintain to back their loans.
Minimum Wage
A type of price floor where the wage rate is set above the market equilibrium.
Mixed Economy
An economy that has elements of a planned and free market economy.
Monetarist/new Classical Counter Revolution
An economic school of thought arguing that the price mechanism along with well-functioning competitive markets are sufficient to lead the economy to full employment.
Monetary Policy
A demand-side policy using changes in the money supply or interest rates to achieve economic objectives.
Monetary Union
Where two or more countries share the same currency and have a common central bank.
Money Creation
The process of creating new money by commercial banks through loans.
Money Supply
The total amount of money available at a particular time.
Monopolistic Competition
A market structure where there are many sellers, producing differentiated products, with no barriers to entry.
Monopoly
A market structure where there is only one firm in the industry and there are high barriers to entry.
Moral Hazard
A type of market failure where a party takes risks but does not face their full costs by changing behaviour after a transaction has taken place.
Multidimensional Poverty Index (MPI)
An international measure of poverty.
Multilateral Development Assistance
Assistance provided by multilateral organizations when they lend to developing countries to help them reach development objectives.
Multilateral Trade Agreement
An agreement between many countries to lower tariffs or other protectionist measures, carried out through the WTO.
National Income
The income earned by the factors of production of an economy.
National Income Accounting
The services that measure the economy’s national income and output as well as other economic activity.
National Income Statistics
The statistical data used to measure a nation’s income and output.
Natural Monopoly
A monopoly that can produce enough output to cover the entire industry while still achieving economies of scale.
Natural Rate of Unemployment
The rate of unemployment that occurs when the economy is producing at its potential output.
Necessity
The degree to which a good is necessary or essential.
Negative Externality of Consumption
Negative effects suffered by a third party whose interests are not considered when a good or service is consumed.
Negative Externality of Production
Negative effects suffered by a third party whose interests are not considered when a good or service is produced.
Net Exports
Export revenues minus import expenditure.
Nominal Gross Domestic Product
The total money value of all final goods and services produced in an economy in a given time period at current values.
Nominal Gross National Income
The total income earned by all the residents of a country (regardless of where they are located) in a given time period at current prices.
Nominal Interest Rates
Interest rates that have not been adjusted for inflation.
Non-collusive Oligopoly
When firms in an oligopoly do not resort to agreements hence there is competition.
Non-excludable
A good which is impossible to prevent a person from using it.
Non-governmental Organization (NGO)
Organizations that are not part of the government that promote economic development/ humanitarian ideals/ sustainable development.
Non-price Competition
Competition between firms that is based on factors other than price.
Non-produced Non-financial Assets
A measure of the net international sales and purchases of non-produced assets (e.g. land) and intangible assets (e.g. copyright).
Non-rivalrous
Goods which consumption by one individual does not reduce the ability of others to consume them.
Normal Good
A good where the demand for it increases as income increases.
Normal Profit
The minimum return that must be received by a firm in order to stay in business.
Normative Economics
Areas of the subject that are open to personal opinion and belief.
Nudge Theory
Prompts or hints used to influence the choices made by consumers.
OECD Better Life Index
An index to compare well-being across countries based on dimensions including living conditions and quality of life.
Official Borrowing
International borrowing by a government.
Official Development Assistance (ODA)
Aid that is provided to a country by another government or multilateral agency.
Oligopoly
A market structure where there are a few large firms that dominate the market, with high barriers to entry.
Open Market Operations
A tool of monetary policy involving the exchange of government bonds by the central bank in order to increase or decrease the money supply.
Opportunity Cost
The next best alternative foregone when an economic decision is made.
Output Approach
One of the methods to measure GDP; adds up the value of final goods and services produced in a given time period.
Overvalued Currency
A currency whose value or exchange rate is greater than its equilibrium exchange rate.
Payoff Matrix
A table showing all possible outcomes of decisions taken by decision-makers in game theory.
Perfect Competition
A market structure where there is a very large number of small firms, producing identical products, with no barriers to entry or exit, and perfect information.
Perfect Information
Where all stakeholders in an economic transaction have access to the same information.
Perfectly Elastic Demand
Occurs with a horizontal demand curve showing that any amount can be bought at a particular price.
Perfectly Elastic Supply
Occurs with a horizontal supply curve showing that any amount can be supplied at a particular price.
Perfectly Inelastic Demand
Where a change in the price of a good or service leads to no change in the quantity demanded.
Perfectly Inelastic Supply
Where a change in the price of a good or service leads to no change in the quantity supplied.
Personal Income Taxes
Taxes paid by individuals or households on their incomes.
Philips Curve
A curve showing the relationship between the rate of unemployment and the rate of inflation.
Pigouvian Taxes
An indirect tax that is imposed to eliminate the external costs of production or consumption.
Planned Economy
An economy where the means of production are owned by the state.
Portfolio Investment
The purchase of financial assets such as shares and bonds in order to gain interest or dividends.
Positive Economics
Deals with areas of the subject that are capable of being falsified (testable).
Positive Externalities of Consumption
The beneficial effects that are enjoyed by third parties whose interests are not accounted for when a good or service is consumed.
Positive Externalities of Production
The beneficial effects that are enjoyed by third parties whose interests are not accounted for when a good or service is produced.
Potential Output
Output produced by an economy when it is at full employment equilibrium or long-run equilibrium (new classical).
Poverty
Arises when the lack of possessions or money prevent an individual from achieving a satisfactory standard of living.
Poverty Line
A level of income determined that is enough to ensure a family can satisfy minimum needs.
Poverty Trap/cycle
Any circular chain of events starting and ending in poverty.
Preferential Trade Agreement
Where a country agrees to give preferential access for certain products to its trading partners.
Price Ceiling
A price imposed by an authority and set below the equilibrium price.
Price Competition
Competition between firms that is based on price.
Price Controls
Prices imposed by an authority, set above or below the equilibrium market price.
Price Deflator
A price index that removes the impact of changes in the price level.
Price Elastic Demand (PED)
A measure of the responsiveness of the quantity demanded of a good or service to a change in its price.
Price Elasticity of Supply (PES)
A measure of the responsiveness of the quantity supplied of a good or service to a change in its price.
Price Expectations
The forecasts or views that consumers or firms hold about future price movements.
Price Floor
A price imposed by an authority and set above the market price.
Price Maker
A firm that is able to influence the price at which it sells its product.
Price Mechanism
The system where the forces of demand and supply determine the prices of products
Price Taker
A firm that is unable to influence the price at which it sells its product.
Price War
Occurs when firms successively cut their prices in an effort to match the price cuts of other firms.
Primary Commodities
Raw materials that are produced in the primary sector.
Primary Sector
Anything derived from the factor of production land.
Privatization
The sale of public assets to the private sector.
Producer Surplus
The benefit enjoyed by producers by receiving a price that is higher than the price they were willing to receive.
Product Differentiation
The process by which firms try to make their products different from the products of
other firms in an effort to increase their sales.
Production Possibilities Curve (PPC)
A curve showing the maximum combinations of goods or services that can be produced by an economy in a given time period given all resources are employed.
Productive Capacity
The greatest capability of an economy to produce.
Progressive Taxation
Taxation where the fraction of tax paid increases as income increases.
Property Rights
The authority to own property and determine how that property is used.
Proportional Tax
A system of taxation where tax is levied at a constant rate as income rises.
Public Goods
Goods or services that have the characteristics of non-rivalry and non-excludability.
Purchasing Power Parity (PPP)
A method used to make the buying power of different currencies equal to the buying power of US $1.
Quantitative Easing
An expansionary monetary policy where a central bank buys government bonds or other financial assets.
Quantity Demanded
The quantity of a good or service demanded at a particular price over a given time period, ceteris paribus.
Quantity Supplied
The quantity of a good or service supplied at a particular price over a given time period, ceteris paribus.
Quota
An import barrier that set limits on the quantity or value of imports that may be imported into a country.
Rational Consumer Choice
Occurs when consumers make choices based on assumptions.
Rational Producer Behavior
Occurs when firms try to maximize profit.
Rationing
A method used to divide or apportion goods and services or resources among the various interested parties.
Real GDP
The total value of all final goods and services produced in an economy in a given time period adjusted for inflation.
Real GDP per Capita
Real GDP divided by the population of the country.
Real GNI per Capita
Real GNI divided by the population of the country.
Real Interest Rates
Interest rates that have been adjusted for inflation.
Recession
Occurs when real GDP falls for at least two consecutive quarters.
Refutation
A method used where any proposition must be subjected to an empirical test in order to see if it can be disproven or refuted.
Regional Trade Agreement
An agreement between a group of countries usually within a geographical region to lower or eliminate trade barriers.
Regressive Taxation
Taxation where the fraction of tax paid decreases as income increases.
Relative Poverty
A comparative measure of poverty according to which income levels do not allow people to reach a standard of living typical for the society in which they live.
Remittances
The transfer of money by foreign workers to individuals in their home country.
Reserve Assets
Foreign currencies and precious metals held by central banks as a result of international trade.
Resource Allocation
Apportioning resources to particular uses for production.
Restricted Choices
This is when the choice of a consumer is restricted.
Revaluation
An increase in the value of a currency in a fixed exchange rate system.
Revenues
Payments received by firms when they sell their output.
Rivalrous
Goods which the consumption by one person reduces the amount available for others.
Rules of Thumb
Mental shortcuts for decision-making used to make a decision to a complex choice.
Satisficing
The objective to achieve a satisfactory outcome with more objectives rather than focusing on one at the expense of others.
Say’s Law
The supply of goods creates its own demand.
Scarcity
The limited availability of economic resources relative to society’s unlimited needs and wants of goods and services.
Screening
The use of a process by the participant with less information to gain more information regarding a transaction.
Seasonal Unemployment
Unemployment that arises when people are out of work because their usual job is out of season.
Shortage
Arises when the quantity demanded of a good or services is more than the quantity supplied at some particular price.
Short-run Aggregate Supply (SRAS)
The total quantity of real GDP offered at different possible price levels in the short run.
Short-run in Macroeconomics
The period of time when the prices of factors of production are considered fixed.
Short-run in Microeconomics
The period of time when at least one factor of production is fixed.
Short-run Phillips Curve
Shows the relationship between the rate of unemployment and the rate of inflation suggesting a tradeoff between inflation and unemployment.
Short-term Fluctuations of Economic Activity
Periods of growth of real GDP followed by periods of contraction part of the business cycle.
Signalling
The participant with more information sending a signal revealing relevant information about a transaction to the participant with less information.
Social Surplus
The combination of consumer and producer surplus.
Social Enterprise
A company whose main objective is to have a social impact rather than to make a profit.
Socially Optimum Output
This occurs where there is allocative efficiency or MSB = MSC.
Social Sciences
Academic studies of human societies and how people interact with each other.
Specialization
When a firm or country focuses on the production of one or a few goods or services.
Speculation
Process where something is bought or sold with a view to making a short term profit.
Stakeholder
An individual or group of individuals who have an interest in an economic activity.
Structural Unemployment
A kind of long-term unemployment that
arises from changes (technology, demand patterns, geographical location, labor market rigidities, etc.) in an economy.
Subsidies
An amount of money paid by the government to a firm, per unit of output, to encourage production and lower the price to consumers.
Export Subsidy
An amount of money paid by the government to a firm, per unit of output, to encourage production and provide the firm an advantage over foreign competition.
Substitutes
Goods that can be used in place of each other, as they satisfy a similar need.
Substitution Effect
When the price of a product falls compared to other product prices, consumers purchase more of that product as it is now cheaper.
Supply
Quantities of a good that firms are willing and able to supply at different possible prices, over a given time period, ceteris paribus.
Supply-side Policies
Government policies designed to shift the long- run aggregate supply curve to the right in order to achieve economic growth.
Sustainability
Refers to the preserving the environment so that it can continue to satisfy needs and wants into the future.
Sustainable Debt
A level of government debt such that the borrowing government can make its payments of interest and debt repayment whilst also being able to meet objectives.
Sustainable Development
The degree to which the current generation is able to meet its needs whilst still conserving resources for future generations.
Tariff
A tax placed on imports to protect domestic industries from foreign competition and raise revenue for the government.
Total Costs
All the costs of a firm incurred for the use of resources to produce something.
Total Revenue
The amount of revenue received by a firm from the sale of a quantity of output.
Tradable Permits
Permits to pollute issued by a governing body that sets a maximum amount of pollution allowable (can be traded).
Trade Creation
When higher cost imports are replaced by lower cost imports due to the formation of a trading bloc or agreement.
Trade Diversion
In international trade it occurs when lower cost imports are replaced by higher cost imports due to the formation of a trading bloc or agreement.
Trade Liberalization
The process of reducing barriers to international trade.
Trade Protection
Government intervention which limits imports and/or encourage exports by setting up trade barriers that protect from foreign competition.
Trading Bloc
Countries that have agreed to reduce protectionist measures between them.
Tragedy of Commons
A situation with common pool resources, where individual users acting in self-interest go against the common good of all users by depleting that resource.
Transfer Payments
Payments made by the government to vulnerable groups in a society.
Undervalued Currency
A currency whose value or exchange rate is lower than its equilibrium exchange rate.
Unemployment
When a person (above age and available to work) is actively looking for work but is without a job.
Unemployment Benefits
Payments made by the government to those who are unemployed.
Unemployment Rate
The number of unemployed workers expressed as a percentage of the total workforce.
Unfair Competition (in international Trade)
Practices of countries trying to gain an unfair advantage through methods as undervalued exchange rates.
Unitary Elastic Demand
When a change in the price of a good or service leads to an equal change in quantity demanded.
Unitary Elastic Supply
When a change in the price of a good or service leads to an equal change in quantity supplied.
Universal Basic Income
A regular cash payment given to all persons in an economy independent of any other source of income they may have.
Sustainable Development Goals (SDGs)
17 goals set by the UN tackling poverty, inequalities and climate change.
Utility
A measure of the satisfaction derived from consuming a good or service.
Wage
Payment received by labour, which is a certain amount per unit of time.
Wealth
The total value of assets owned by an entity minus what is owed to financial institutions.
Weighted Price Index
A measure of average prices over a period of time that gives a weight to each item according to its relative importance in the consumers’ budgets, used to measure changes in the price level.
Welfare Loss
A loss of a part of social surplus that occurs when there is market failure.
World Bank
An international organization that provides loans and advice to less developed countries to promote development and reducing poverty.
World Trade Organization (WTO)
An international body that sets the rules for global trading and resolves disputes between its member countries.
