Definitions Flashcards
Interventionist supply side policies
Policies based on the idea that the government has an important role to encourage growth
Supply side policies
Policies that are designed to increase the long-run aggregate supply in the economy by increasing the quantity or quality of factors of production
Fiscal policy
The government’s policy for revenue and expentidure
Monetary policy
Policies around the supply of money and interest rate levels in an economy
Interest
Price of money/opportunity cost of spending or holding money
Nominal interest rate
Rate of interest avaliable excluding any adjustment for inflation
Real interest rate
Rate of interest adjusted for inflation
Aggregate supply
Total amount of goods and services that all industries in an economy will produce at every given price level
Short run aggregate supply
Time period where prices of factors of production do not change - the wage rate is fixed
Aggregate demand
Total spending on goods and services in an economy at a given price level
GDP
Total value of goods and services produced within a country over a given time period
GNI
Total value of goods and services produced by a nations citizens over a given time period (regardless of location)
Recession
Two consecutive quarters of negative economic growth
Monopoly
Where there is only 1 firm in the market, there are high barriers to entry and they make abnormal profit in the long run
Oligopoly
Where a few large firms dominate the industry, produce identical products, distinct barriers to entry, interdependence and stable prices
Collusion
When firms charge the same price on purpose to act as a monopoly
Market power
The ability of a firm to raise the market price of a good/service above its marginal cost by restricting output
Perfect competition
Where there is a large number of small firms, with no control over the price, identical products, no barriers
Productive efficiency
When a firm produces where AC is at its minimum
Allocative efficiency
When a firm produces where supply=demand
Monopolistic competition
A large number of small firms, no major barriers, similar but differentiated products, small control over price/output
Revenue
Income earnt by the firm from it’s business
Short run
Time period where one factor of production is fixed and the others are variable
Long run
All factors of production are variable
Economies of scale
The decrease in average costs of production as it increases the output due to gains in efficiency
Market failure
When consumer and producer surplus is not maximised
Externalities
Unintended side effects that occur on a third party
Marginal private benefit
Private benefit gained by consumer due to consumption
Marginal social benefit
MPB +/- any external benefit or cost on others as a result of an individual consuming the product
Marginal private costs
Private cost to a firm that occurs as a result of production
Marginal social cost
MPC +/- any external benefit or cost as a result of production
Public goods
Goods that would not be provided at all by the free market but are of benefit to society
Adverse selection
When one party has more information than the other
Indirect tax
Tax imposed on expenditure and paid on your behalf by producer
Dead weight loss
Loss of consumer and producer surplus that arises in the market due to government intervention causing supply and demand to no longer be in equilibrium
Subsidy
The amount of money paid by the government to a producer per unit output
Maximum price
Price limit imposed by the govt when they believe price is too high
Minimum price
Price minimum imposed by the govt when they believe price is too low
Price mechaism
The force of supply and demand
Consumer surplus
The extra satisfaction gained by a consumer when the price they pay is below what they were prepared to pay
Producer surplus
The excess in earnings (revenue) that the producers receive above what they were willing to sell it for
Price elasticity of supply
The responsiveness of a firms willingness and ability to change the quantity supplied due to a change in price
Supply
The quantity of goods/services a producer is willing and able to supply at each price
Law of Supply
As price decreases, Qs decreases
Elasticity
How much something changes when there is a change in another determinant
Normal good
A good that is positively related to income - as income increases, Qd increases
Inferior goods
A good that is negatively related to income - as income rises, Qd decreases
Market
A place where buyers and sellers come together to carry out an economic transaction
Demand
Quantity of goods and services that a consumer is willing and able to consume at different prices
Scarcity
Conflict between finite resources and infinite wants
Economics
Study of choices people make in overcoming problems that occur due to limited resources and unlimited needs/wants
Opportunity cost
Next best thing forgone when an economic decision is made
Capital
Anything made by humans that can be used to produce a good or service
Positive economics
Factual and objective claims
Normative economics
Subjective and opinion based judgements
Unemployment
People of working age who are without work, available for work and actively seeking employment
Labour force
Economically active population
Cyclical unemployment
Unemployment due to changes in the business cycle
Structural unemployment
Unemployment due to changes in the structure of the economy or a change in the institutional framework of the economy
Frictional unemployment
Unemployment that occurs when people are between jobs or having just left education
Seasonal unemployment
Unemployment due to changing seasons
Natural rate of unemployment
Unemployment that exists above the equilibrium (structural+frictional+seasonal)
Crowding out
When an increase in government spending causes an equal (fully) or less than equal (partial) decrease in private sector spending
Inflation
Persistant, sustained increase in the average price level in an economy (>3%)
PPI
Producer price index of goods/services used by producers
XPI
Export price index - index of exported goods and servcies
MPI
Import price index - index of imported goods and services
Cost push inflation
Caused by the increase in costs of production, SRAS shifts left
Deflation
A persistent fall in the average level of prices
Demand pull inflation
An increase in AD causes PL to increase
Disinflation
When inflation is still increasing but at a diminishing rate
Economic growth
An increase in real GDP over time
Lorenz Curve
Shows the extent of inequality of income in a country
Absolute poverty
A situation when the income is not enough to meet basic needs
Relative poverty
A comparative measure based on standards of living in a country
MPI
Multi dimensional poverty index (composite indicator)
Equality in economics
Economic outcomes are the same (equal) for different people or social groups
Equity in economics
People should be treated fairly and be given the resources and opportunities to reach their potential
Indirect taxes
Taxes on consumption of goods and services
Regressive tax
As incomes increase, % of income paid in tax decreases
Marginal tax rate
The extra tax paid as a result of one extra dollar of income earnt
Average tax rate
The percentage of income that is paid in tax
Absolute advantage
When a country is able to produce more of a good than another country given the same resources (they are more efficient)
Comparative advantage
When a country can produce goods at a lower opportunity cost than another country
Free trade
No barriers to trade
Protectionism
Policies that prevent free trade
Dumping
When a country exports goods to another at a price less than the average cost to produce it
Tariffs
A tax charged on imported goods. Paid by the importer to the govt.
Quotas
A restriction on the number of imports that are allowed in the country
Trade subsidies
A subsidy paid by the govt to domestic producers to make them produce more goods, thus less imports are required
Economic integration
The extent to which nations have abolished trade restrictions
Preferential trade agreement
When two or more countries remove or reduce trade barriers on specific goods and services produced in the participants countries.
Free trade area
When a group of countries remove trade barriers between themselves on all goods and services but have the ability to retain their own protectionism policies.
Customs union
An agreement between countries where there is a common trade barrier set for non-member countries and free trade between member countries
Common market (ie european economic area)
Free movement of all factors of production, unified non-tariff barriers, taxes
Economic and monetary union
A common market plus all states and countries adopt a common currency.
Complete economic integration
When a country unifies all economic policy tools ie fiscal and monetary with one new country being formed.
