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AS Economics > Definitions > Flashcards

Definitions Flashcards

1
Q

Government Failure

A

When intervention is ineffective, wasteful or damaging.

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2
Q

Public Interest Theory

A

That governess intervene in kindly fashions in the economy in order to eliminate waste and to achieve an efficient and socially desirable resource allocation.

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3
Q

Public Choice Theory

A

As long as market failure arises there is also the possibility of government failure occurring whenever the state attempts to improve on the working of the market.

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4
Q

Accelerator Theory

A

Where changes in the level of investment are induced by a change in output.

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5
Q

Free good

A

No costs of production and no scarcity.

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6
Q

Giffen good

A

Demand increases as price rises.

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7
Q

Economic good

A

Has value to people and can be sold in a market.

Can satisfy wants and has exchange value.

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8
Q

Composite demand

A

Demand for a good that has more than one use.

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9
Q

Derived demand

A

The demand of a good or service that occurs as a result of the demand of another intermediate or final good or service.

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10
Q

Joint demand

A

Complementary goods - negative XED. Demanded to fulfil the same want.

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11
Q

Competing demand

A

Substitute goods - positive XED.

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12
Q

XED

A

Measures how the demand for one good responds to changes in the price of another good.

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13
Q

Market equilibrium

A

When planned demand equals planned supply in the market.

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14
Q

Aggregate demand

A

Total planned expenditure in the economy. Known by the C+I+G+X-M.

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15
Q

Allocative efficiency

A

This is achieved in an economy when it is not possible to make anyone better of without making someone worse off, or you cannot produce more of one good without making less of another.

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16
Q

Balance of payments

A

Exports minus imports - a deficit means more is imported than exported.

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17
Q

Balance of trade

A

Visible exports minus visible imports.

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18
Q

Boom/bust policy

A

The government using macroeconomic tools to stimulate and then contract the economy.

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19
Q

Broad money

A

Money that is held in banks and building societies but that is not immediately accessible.

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20
Q

Buffer stock

A

An intervention system that aims to limit the fluctuations of the price of a commodity.

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21
Q

Capital spending

A

Government spending to improve the productive capacity of the nation, including infrastructure, schools and hospitals.

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22
Q

Central bank

A

The financial institution in a country or group of countries typically responsible for issuing notes and coins and setting short-term interest rates.

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23
Q

Commodity

A

A good that is traded, but usually refers to raw materials or semi-manufactured goods.

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24
Q

Competition

A

A market situation in which there are a large number of buyers and sellers.

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25
Q

Complementary goods.

A

Goods with a negative cross elasticity of demand.

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26
Q

Complete market failure

A

Where the free market fails to provide a good. There is a missing market. E.g. public goods.

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27
Q

Composite demand

A

A good that is demanded for more than one purpose so that an increase in demand for one purpose reduces the available supply for the other, usualy leading to higher prices, e.g. milk used in butter and cheese.

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28
Q

Cost push inflation

A

Where increased costs of production result in firms increasing their prices leading to an increase in the general price level.

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29
Q

Credit crunch

A

Where borrowing becomes more expensive or unavailable.

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30
Q

Current spending

A

Government spending on the day-to-day running of the public sector, including raw materials and wages of public sector workers.

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31
Q

Cyclical unemployment

A

Demand deficient unemployment that occurs as a result of the economic cycle. Insufficient aggregate demand in the economy to employ the available labour.

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32
Q

Deflation

A

The persistent fall in the general price level.

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33
Q

Demand

A

The amount that consumers are willing and able to buy at each given price level.

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34
Q

Demand pull inflation

A

Where aggregate demand exceeds aggregate supply leading to an increase in the level of prices.

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35
Q

Demand-side fiscal policy

A

Changes in the level or structure of government spending and taxation aimed at influencing one or more of the components of aggregate demand.

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36
Q

Demerit good

A

A good that would be over-consumed in the free market, as it brings less overall benefit to consumers than they realise. Negative external benefits.

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37
Q

Deregulation

A

The process of removing government controls from markets.

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38
Q

Derived demand

A

When the demand for one good or service comes from the demand for another good or service. E.g. the demand for steel is derived from the demand for cars.

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39
Q

Discouraged workers

A

Workers who leave the job market because, despite numerous attempts, they are unable to find a job.

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40
Q

Diseconomies of scale

A

Where an increase in the scale of production leads to increases in average total costs for firms.

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41
Q

Disequilibrium

A

A situation within the market where supply does not equal demand.

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42
Q

Disposable income

A

Income available to households after the deduction of necessary payments such as taxes.

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43
Q

Division of labour

A

Breaking the production process down into a sequence of tasks, with workers assigned to particular tasks in order to increase production.

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44
Q

Economic goods

A

Goods that are scarce and therefore have an opportunity cost

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45
Q

Economic indicators

A

Economic statistics that provide information about the expansions and contractions of business cycles.

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46
Q

Economic welfare

A

The benefit or satisfaction an individual or society gets from the allocation of resources.

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47
Q

Economies of scale

A

Where an increase in the scale of production leads to reductions in average total cost for firms.

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48
Q

Employment

A

Where labour is actively engaged in a productive activity in exchange for wages.

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49
Q

Equilibrium

A

The price at which demand is equal to supply and there is no tendency to change.

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50
Q

Excess demand

A

When demand is greater than supply at a given price.

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51
Q

Excess supply

A

When supply at a particular price is greater than demand, this should signal to producers to lower prices.

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52
Q

Exchange rate

A

The price at which one currency exchanges for another.

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53
Q

Externalities

A

Costs or benefits that spill over to third parties external to a market transaction.

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54
Q

Information failure

A

Where economic agents do not properly perceive the benefits or disadvantages of a transaction

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55
Q

Fixed costs

A

Costs of productions that do not vary as output changes.

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56
Q

Flow

A

Measured over a specified period of time.

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57
Q

Free goods

A

Goods that have no opportunity cost.

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58
Q

Free-rider problem

A

Where some consumers benefit from other consumers purchasing a good, particularly in the case of public goods.

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59
Q

Geographical immobility

A

Where workers find it difficult to move to where employment opportunities, due to family ties and difference in housing costs.

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60
Q

Globalisation

A

The ability to produce goods anywhere in the world and sell them in any country.

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61
Q

Government failure

A

When government intervention to correct market failure does not improve the allocation of resources or leads to a worsening of the situation. The costs of government intervention may therefore exceed the benefits.

62
Q

Incidence of tax

A

The proportion of a tax that is passed onto the consumer. If most of a tax rise is added to the consumer then the incidence of tax is said to be “high”. When demand is price inelastic then the incidence of tax tends to be high.

63
Q

Income elasticity of demand

A

The proportional change in demand after a change in income.

64
Q

Indirect tax

A

A tax on spending

65
Q

Inferior good

A

a good or service where demand falls when income rises - negative IED.

66
Q

Inflation

A

A persistent increase in the general price level

67
Q

Interest rate

A

The cost of borrowing or the reward for saving expressed as an annual percentage of the principal

68
Q

Investment

A

Total amount spent by firms on capital goods in the economy

69
Q

Investment good

A

A product that will increase in value over time

70
Q

Invisibles

A

Intangible goods such as the provision of insurance or banking services.

71
Q

Joint supply

A

When the production of one good also results in the production of another

72
Q

Law of unintended consequences

A

When the actions of consumers, producers and governments have effects that are unanticipated.

73
Q

Long-run aggregate supply

A

Th economy’s productive capacity

74
Q

Marginal private benefit

A

The additional satisfaction or utility that a person receives from consuming an additional unit of a good or service.

75
Q

Marginal private cost

A

The cost of producing or consuming an additional unit of a good.

76
Q

Marginal external benefit

A

The benefit to third parties of the production or consumption of an additional unit of a good.

77
Q

Marginal external cost

A

The cost on third parties of the production or consumption of an additional unit of a good.

78
Q

Marginal social benefit

A

The total benefit to society as a whole for the production of one further unit of a good.

79
Q

Marginal social cost.

A

The total cost to society as a whole for producing one further unit of a good.

80
Q

Market-clearing price

A

The price at which all goods that are supped will be demanded. D=S.

81
Q

Market demand

A

Total demand in a market for a good, the sum of all individuals’ demand, at each given price.

82
Q

Market failure

A

Where the market fails to produce what consumers require at the lowest possible cost.

83
Q

Market supply

A

The sum of all individual firm’s supply curves at each given price

84
Q

maximum price

A

a price ceiling above which the price of a good or service is not allowed to increase

85
Q

Merit good

A

A good that would be under-consumed in a free market, as individuals do not fully perceive the benefits obtained from consumption.

86
Q

Minimum price

A

A price floor below which the price of a good or service is not allowed to decrease.

87
Q

Monetary policy

A

Controlling the macroeconomy via changes in monetary variables such as the money supply or interest rates.

88
Q

Money supply

A

the total amount of money in an economy

89
Q

Monopoly

A

a market structure dominated by a single seller of a good

90
Q

Multiplier effect

A

Where an increase or decrease in one economic variable leads to a larger than proportionate change in output.

91
Q

Negative expectations

A

When businesses expect future sales and profits to be less due to factors like falling aggregate demand.

92
Q

Negative externalities

A

Costs imposed on a third party not involved with the consumption or production of the good.

93
Q

Negative output gap

A

When the economy is producing less that its trend rate of output.

94
Q

Net government spending

A

The difference between government spending and taxation.

95
Q

Nominal GDP

A

GDP figures that are not adjusted for inflation.

96
Q

Normal goods

A

Goods are services that will see an increase in demand as incomes rise. Positive IED.

97
Q

Occupational immobility

A

As patterns of demand and employment change, many workers may find it difficult to easily secure new jobs, since they may lack the necessary skills.

98
Q

Opportunity cost

A

The benefit derived from the next best alternative foregone.

99
Q

Partial market failure

A

When the free market provides a good but with a misallocation of resources.

100
Q

Planned supply

A

The amount producers plan to produce at each given price

101
Q

Policy instrument

A

Techniques used to achieve policy objectives.

102
Q

Policy objective

A

The governments major macroeconomic objectives.

103
Q

Positive expectations

A

When businesses expect the future sales and profits to improve due to factors like increased aggregate demand.

104
Q

Positive externality

A

When the consumption or production of a good results in a benefit to a third party.

105
Q

Positive output gap

A

When the economy’s GDP exceeds trend GDP, increasing inflationary pressure.

106
Q

Price elasticity

A

The responsiveness of demand to a change in price.

%change in Q / %change in P

107
Q

Private good

A

A good that is both excludable and rival in consumption.

108
Q

Privatisation

A

The sale of government owned assets to the private sector.

109
Q

Production

A

The conversions of factor inputs into outputs of goods and services.

110
Q

Production possibility boundary

A

The maximum possible output that can be achieved given a fixed set of resources and technology in a particular time period.

111
Q

Productive efficiency

A

When a firm operates at minimum average total cost, producing the maximum possible output from inputs into the production process.

112
Q

Productivity

A

A measure of efficiency, measuring the ratio of inputs to outputs. The most common measure is labour productivity, which is the output per worker.

113
Q

Profit

A

when total income or revenue for a firm is greater than total costs
the reward for entrepreneurship.

114
Q

Public good

A

A good that is non-excludable and non-rival in consumption.

115
Q

Quasi-public good

A

A good that has some of the qualities of a public good but does not fully posses the two required characteristics of non-rivalry and non-excludabilty.

116
Q

Real GDP/NI/output

A

GDP figures adjusted for inflation

117
Q

Real interest rate

A

the money rate of interest minus the rate of inflation

118
Q

Recession

A

two consecutive sectors of negative economic growth

119
Q

renewable resources

A

resources that are able to be replenished over time, whereas non-renewables are likely to run out.

120
Q

Repo rate

A

The interest rate that is set by the MPC of the BoE in order to influence inflation. Short for “Sale and repurchase rate”.

121
Q

Savings

A

Disposable income minus the amount of consumer expenditure. Withdrawal from the circular flow.

122
Q

Specialisation

A

The production of a limited range of goods by an individual factor of production, firm or country, in cooperation with others so that together a complete range of goods is produced

123
Q

Structural unemployment

A

Unemployment caused by a change in the pattern of the demand side or supply side of the economy.

124
Q

Subsidies

A

Payments by governments to producers to encourage production of a good or service or to lower the price of a good.

125
Q

Substitutes

A

Goods that can be used as alternatives to another good. They have a positive XED.

126
Q

Supply

A

the quantity of a good or service that frms plan to sell at given prices in a given period of time.

127
Q

Supply-side fiscal policy

A

Changes in the level or structure of government spending and taxation designed to improve the supply side of the economy. This is through influencing incentives to save, to supply labour, to be entrepreneurial and to promote investment.

128
Q

Supply-side policies

A

A range of measures designed to increase aggregate supply and hence the potential output of the economy.

129
Q

Supply-side shock

A

Something that will increase or reduce the costs to all firms in the economy.

130
Q

Sustainable

A

An activity carried out today that does not stop future generations maximising their welfare.

131
Q

Total factor productivity

A

The overall productivity of inputs used by a firm in producing a particular level of output.

132
Q

Trade-off

A

Where one macroeconomic objective had to be curtailed in favour of another objective.

133
Q

Transfer payments

A

Government payments to individuals for which no service is given in return, e.g. state benefits.

134
Q

Transmission mechanism of monetary policy

A

How changes in the base interest rate influence the components of aggregate demand.

135
Q

Unemployment

A

Those without a job but who are seeking work at current wage rates

136
Q

Unemployment trap

A

Where individuals receive more in benefit payments than they would be paid if they were in a job

137
Q

Variable costs

A

Costs of production that vary with output

138
Q

Visibles

A

Exports or imports that are tangible.

139
Q

Voluntary unemployment

A

Workers who are not prepared to take a job at current wage levels.

140
Q

Wealth

A

A stock of owned assets

141
Q

Weighting

A

Where a commodity is given a weighting proportional to its importance in the general pattern of consumer spending.

142
Q

Withdrawals

A

Any money not passed on in the circular flow and has the effect of reducing national output.

143
Q

Government spending

A

total amount spent on goods and services by the public sector for government functions.

144
Q

Exports

A

Total value of goods and services sold by one country to the rest of the world

145
Q

Imports

A

Total value of goods and services consumed in one country that were produced abroad.

146
Q

Net exports

A

Total value of exports minus the total value of imports

147
Q

Boom

A

Growth above the trend rate of growth - positive output gap.

148
Q

Output - 3 definitions!

A
  • total amount of goods and services produced by firms in an economy
  • wages+profits+rent
  • total amount of goods and services over a certain period of time
149
Q

Scarce resources

A

The finite number of factors of production required to placate the unlimited wants and needs for goods and services.

150
Q

law of diminishing returns

A

States that in all productive processes, adding more of one factor of production, while holding all others constant will at some point yield lower per-unit returns

151
Q

Three functions of prices

A

Signalling
Incentive
Allocating or rationing

152
Q

Types of economies of scale

A

Technical
Managerial
Marketing
Financial

AS Economics (2 decks)

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