Definitions Flashcards
Opportunity Cost
Represents the alternative use of resources.
Production possibility frontier
A graphical representation of all possible combinations of the production of two goods and services that an economy can produce at any given time.
Consumer goods and services
Items produced for the immediate satisfaction of individual and community needs and wants.
Capital Goods
Items that have not been produced for immediate consumption but will be used for the production of other goods
Factors of Production
Any resources that can be used in the production of goods and services. The four main types include; capital, labour, natural resources and enterprises
The business cycle
Refers to the fluctuations in the level of economic growth due to either domestic or international factors.
Recession
Is the stage of the business cycle where there is a decreasing economic activity (2 consecutive quarters of negative growth)
Leakages
Items that remove money from the economy from the circular flow of income - taxation (T), saving (S), imports (M)
Injections
Items into the circular flow model of income that increases aggregate income and the general level of economic activity - government expenditure (G), exports (X), investment (I)
Equilibrium within the circular flow of income
Occurs in the circular flow of income when the sum of all leakages is equal to the sum of all the injections in an economy.
Product market
Interaction of demand and supply for outputs of production
Mixed economy
Is an economic system where the decisions concerning production and distribution are made by a combination of market forces and government decisions
Consumer Sovereignty
consumers, through market demand collectively determine what is produced and the quantity of production.
Competition
Is the pressure on businesses firms in a market economy to lower prices or improve the quality of output to increase their sales of goods and services of consumers
APC
Average Propensity to Consume - is the portion of total income that is spent on consumption.
APS
Average Propensity to Save - is the proportion of total income that is not spent but is saved for future consumption
Consumption function
A graphical representation of the relationship between income and consumption for an individual or an economy.
MPC
Marginal Propensity to consume - a portion of each extra dollar of earned income that is spent on consumption
MPS
Marginal Propensity to save - is the portion of each extra dollar earned of income that is not spent but saved for future consumption.
Utility
The satisfaction or pleasure that individuals derive from the consumption of goods and services
Substitute
Is a good that consumers may choose to buy in place of another good - butter and margarine
Complement
A good that is used in conjunction with another good - petrol and cars
Social Welfare Payments
Payments are made to increase the incomes of individuals and families in need of assistance from the government.
Industry
Is the collection of firms involved in making a similar range of items that usually compete with each other - motor companies
Niche Market
A segment of a mass market for a good or service that can be defined by the specific tastes or characteristics of the target consumers.
Profit Motive
Refers to the process by which a business seeks to maximize profit by using the lower-cost combination of resources and charging the highest price possible
Productivity
Refers to the quantity of goods and services an economy can produce with a given amount of inputs - labour, capital
Production
The total amount of goods and services produced
Internal economies of scale
Cost-saving advantages that result from a firm expanding its scale of operations. (Below technical optimum)
Internal diseconomies of scale
Cost-saving disadvantages faced by a firm for expanding its scale of operations beyond a certain point (above technical optimum)
Technical Optimum
Is the most efficient level of production for a firm. The average cost is at its lowest possible point.
External Economies of scale
The advantages that accrue to a firm because of growth in the industry in which the firm is operating (not a result of the firm changing something)
External Diseconomies of scale
The disadvantages faced by a firm because of the growth of the industry, in which the firm is operating (not a result of the firm changing something)
Ethical Decision Making
This is when business decisions about production methods, employment and other matter are made taking into consideration the impacts on broader society and the environment, and not simply to maximise profits for the firm
Demand
The quantity of a good or service a purchaser is ready, willing and able to purchase at given prices at a given time
Contraction of Demand
A reduction in quantity demanded in response to an increase in price
Expansion of Demand
An increase in quantity demanded as a result of a decrease in price
Law of Demand States
As price increases, quantity demanded decreases
Shifts of the Demand Curve
Changes in certain non-price factors result in an increase in demand (shifts to the right) or a decrease in demand (shifts to the left)
Income Distribution
refers to the way in which an economy income is spread among the members of different social and socio-economic groups.
Ceteris Paribus
An assumption used in economics to isolate the relationship between 2 economic variables. (Other thing being equal) or assuming nothing else changes.
Factor Markets
Refers to markets where the factors of production are bought and sold
Relative price
Reflects the relative opportunity cost of selecting one alternative, relative to another alternative in consumption or production.
Market Share
the % of sales the business has in the markert
LRAC
Long-run average cost is a graph representing the internal economies of scale
What do you do in a discussion question?
Provide 2 sides (benefit/cost)
What do you do in a explain question?
Provide cause and effect
How and why
Show relationship
Law of supply
As the price of a certain product rises, the quantity supplied by producers will rise
Market supply
Some of the individual firm’s supplies of individual products at various price levels
Supply
The quantity of a good or service that all firms in a particular industry are willing and able to offer for sale at different price levels at a given point in time.
Contraction of supply
Is when a decrease in price of a good or service causes a decrease in quantity supplied. it is shown by downward movement along the supply curve.
Expansion of supply
Is when an increase in the price of a good or service causes an increase in quantity supplied. It is shown by an upward movement along the supply curve.
Price Mechanism
Is the process by which the forces of supply and demand interact to determine the market price at which goods and services are sold and the quantity produced.
Market equilibrium
Certain price level the quantity supplied and the quantity demanded of a particular commodity are equal
Equilibrium
Is achieved in an individual market when any consumer who is willing to pay the market price for a good or service is satisfied and any producer who offers their goods or services at the market price is able to sell their products. It occurs in the quantity demanded is equal to the quantity supplied that is when the market clears.
Price elasticity of demand
Measures the responsiveness of the quantity demanded to change in price. It is calculated as a percentage change in quantity demanded divided by the percentage change in price.
% change in QD (divided) by % change in price
Total outlay
Is a way to calculate the price elasticities of demand by looking at the effects of changes in price on the revenue earned by the producer.
Market failure
Occurs when the price mechanism takes into account private benefits and costs of production to consumers and producers, but it fails to take into account indirect costs / social costs
Price ceiling
The maximum price that can be charged for a particular commodity
Price floor
The minimum price that can be charged for a particular commodity - it is a price intervention
Merit goods
are goods that are not produced in sufficient quantity by the private sector because private individuals do not play sufficient value on those goods that is they both positive externalities that I’m not fully enjoyed by the individual consumer. Merit goods include education and healthcare
Public goods
Are good that private firms are unwilling to supply, as they are not able to restrict usage and benefits to those willing to pay for the good. Because of this government should provide these goods.
Externality
Externalities are external costs and benefits that private agents in a market do not consider in their decision-making process.
Aggregate demand
Refers to the total demand for goods and services within the economy. Components of aggregate demand are; consumption (C), investment (I), government spending (G) and net exports (X-M)
Productivity of Labour
The output per unit of labour per unit of time
Capital
Is the manufactured products used to produce goods and services, commonly described as “the produced means of production”.
Enterprise Bargaining
Refers to negotiations between employers and employees (or their representatives) about pay and work conditions at the level of the individual firm
Superannuation
Is a form of saving that individuals cannot access until they reach retirement age.
Non-wage outcomes
Are benefits that many employees receive in addition to their ordinary and overtime payments, such as sick leave, superannuation, a company car, study leave or arrangements for hybrid working
Nominal wage
is the pay received by employees in dollar terms for their contribution to the production process, not adjusted for inflation.
Labour Productivity
refers to the quantity of output produced in a production process per unit of labour per unit of time.
Unemployment
This refers to a situation where individuals want to work but are unable to find a job, and as a result, labor resources in an economy are not utilized.
Structural change
refers to the process by which the pattern of production in an economy is altered over time, and certain products, processes of production, and even industries disappear, while others emerge.
Real wage
is a measure of the actual purchasing power of money wage (that is, nominal wages adjusted for the effects of inflation)
Human capital
The total sum of the knowledge, skills, training, and experience of workers that contributes to the process of production. It reflects the “quality” of a labour force and it is the main influence on productivity growth.
Occupational mobility
The ability of labour to move between different occupations in reposne to wage differntials and employmemt oppoertunites.
Geogrpahical mobility
The ability of labour to move between different locations in reposne to improved wage differntials and employmemt oppoertunites.
Working-age population
Is the number of people in an economy who are at least 15 years old
Labour force (workforce)
Consits of all the employed and unemployed perons in the country at any given time
Labour force particaption rate
The percentage of the civlian population aged 15 years and older who are in the workforce (either working or actavley seeking)
Net migration
Excess of permanent new arrivals to our country over permanent departures over a period of a one year
Natural increase
Excess in births over deaths in the population taken over a period of one year
Finiancal markerts
To channel funds from people and organisations that haver savers to those who want to borrow
Finanical intermediaires
Firms recieve the accumlated funds of indivuals or firms and make loans to other firms or indivuals who can make use of them
Surplus
Goverment spends more than taxation
Divadant end
Money given to investors that are compnay profits
Housing loan
Housing loans are offered by banks, these are long-term loans used to purchase property, therefore requiring periodic repayments with interest.
Business Loan
Business loans are a form of debt that allows business to invest in their business operations. Rates on small-medium businesses are usually higher than housing loans and large business. This is because smaller-medium businesses are considered more of a risk.
Short-term money loan
Short-term money market is distribution of debt secretaires to people and businesses experiencing temporary shortages or surpluses of funds. Theses debt securities all have a mandatory date of less than a year.
Bonds
Bonds are long term securities which lenders receive coupon payments from the issuing institution. At the end of the bond period lenders receive a final repayment.
Financial futures and options
An option gives the buyer the right, but not the obligation, to buy (or sell) an asset at a specific price at any time during the life of the contract.
A futures contract obligates the buyer to purchase a specific asset, and the seller to sell and deliver that asset, at a specific future date.
Foreign exchange or FOREX market
The market in which currencies are traded
OECD
Organisaitonal for Economic Co-operation and Development and is an intergoverment organisation that stimulates economic progress and world trade
