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OSC Economics > Definitions > Flashcards

Definitions Flashcards

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1
Q

Demand

A

the amount of a good or service that consumers are willing and able to buy at different price levels

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2
Q

Opportunity Cost

A

The next best alternative foregone when an economic decision is made

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3
Q

Aggregate supply

A

The total quantity of goods and services produced in an economy (real GDP) over a particular time period at different price levels

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4
Q

Primary commodities

A

A raw or unprocessed material that is harvested or extracted.

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5
Q

Inferior Good

A

An inferior good is a good whose demand decreases when consumer income rises and vice versa. Their YED value is negative.

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6
Q

Consumer Surplus

A

The extra satisfaction gained by consumers from paying a price that is lower than what they are prepared to pay.

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7
Q

Cross price elasticity of demand

A

The responsiveness of the demand of one good to a change in the price of another good

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8
Q

Common access resources

A

Goods that are rivalrous but non-excludable can be classified as common access resources

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9
Q

Potential output

A

Total gross domestic product (GDP) that could be produced by an economy if all its resources were fully employed.

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10
Q

Frictional Unemployment

A

Workers are temporarily unemployed while either between jobs or entering the labour force.

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11
Q

Supply

A

The willingness and ability of producers to produce a quantity of a good or service at a certain price over a period of time.

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12
Q

Ad Valorem Taxes

A

A percentage of the total expenditure is taxed

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13
Q

Investment

A

The spending by firms (or the government) on capital

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14
Q

Competitive supply

A

Two goods competing for the same resources for production, i.e. agricultural goods compete for farm space.

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15
Q

Complementary good

A

Goods that are consumed with each other or goods that have a negative cross-price elasticity of demand

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16
Q

Joint supply

A

Goods that are supplied together

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17
Q

Underground (Informal) Markets

A

Markets where there is economic activity that is unrecorded (illegal/not taxed) by the government.

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18
Q

Green GDP

A

A modified measure of GDP with environmental costs subtracted from GDP

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19
Q

Natural Rate of Unemployment

A

The component in total unemployment not influenced by the demand side factor, and is therefore non-cyclical in nature. NRU includes frictional, seasonal and structural unemployment.

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20
Q

Indirect taxes

A

Taxes on the expenditure on goods and services that are added to the selling price of a good or service, e.g sales tax.

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21
Q

Producer surplus

A

The actual amount that a producer receives from selling their good minus the lowest price the producer would accept

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22
Q

Price elasticity of demand

A

Measure of the responsiveness of quantity demanded to a change in price along a given demand curve

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23
Q

Demerit goods

A

A good considered to be harmful to people which is over-provided by the market and therefore over-consumed, resulting in negative externalities from consumption

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24
Q

Aggregate demand

A

The total demand for all goods and services produced in an economy, compromising of C+ I+G+(X-M)

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25
Q

Allocative efficiency

A

the marginal cost of producing is equal to the marginal benefit to consumers

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26
Q

Income Elasticity of Demand

A

A measure of the responsiveness of demand due to a change in income

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27
Q

Sustainability

A

The ability to meet the needs of the present without compromising the needs and wants of future generations

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28
Q

Recessionary Gap

A

When actual GDP is below potential GDP

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29
Q

Subsidies

A

When money is given to firms, by the government to reduce production costs and prices, as well as increasing supply, consumption, investment and employment. Subsidies also protect domestic industries from imported products.

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30
Q

Positive externalities of consumption

A

When the consumption of a good results in social benefits being greater than private benefits. They are under produced and under consumed.

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31
Q

Price Floor

A

A price set by the government above the equilibrium price below which the price cannot fall below.

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32
Q

Price Ceiling

A

The setting of the price lower than the market equilibrium by the government and no seller can sell the goods at a higher price.

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33
Q

Underemployment

A

The underuse of a worker is employed in a job that does not use the worker’s skill, is part time, or leaves the worker idle

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34
Q

Substitute

A

A good that offers similar benefits to the consumer as another good. Carries a positive XED

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35
Q

Price elasticity of supply

A

A measure if the responsiveness of quantity supplied to a change in price

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36
Q

Recession

A

The low point on the business cycle. It is two consecutive quarters of negative economic growth of GDP.

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37
Q

Consumption

A

The spending from households (consumers) on goods and services.

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38
Q

Producer Price Index

A

The measure of a weighted average price index of inputs and intermediate goods that are bought by producers

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39
Q

Business Confidence

A

Expectations of businesses about the future economic conditions (optimistic or pessimistic) and affects the level of investment

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40
Q

Merit Goods

A

Goods and services that benefit other people/create positive externalities, but are often underallocated by the free-market.

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41
Q

Allocative efficiency

A

The marginal cost of producing is equal to the marginal benefit to consumers

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42
Q

Interest rates

A

Rates at which borrowers are charged or lenders paid for their loan.

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43
Q

Deflation

A

A sustained fall in the average price level of an economy

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44
Q

Luxury good

A

A luxury good is a good for which demand increases more than proportionally as income rises. They are not necessary for living, but are deemed as highly desired within a culture or society

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45
Q

Unemployment

A

Unemployment is people of working age who are actively seeking work but not yet employed.

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46
Q

GNI (Gross National Income)

A

GNI is the sum of a country’s gross domestic product (GDP) plus net income (positive or negative) from abroad.

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47
Q

Producer surplus

A

The actual amount that a producer receives from selling their good minus the lowest price for a producer to offer a given amount of good.

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48
Q

Positive externalities of production

A

is a benefit that is enjoyed by a third-party as a result of productions.

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49
Q

Direct taxes

A

a tax, such as income tax, which is levied by government on the income or profits of the person who pays it, rather than on goods or services.

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50
Q

Consumer price index

A

The measure of a weighted average price index of a market

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51
Q

Negative externalities of production

A

The production that creates adverse effects on third parties.

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52
Q

Net Exports

A

Net Exports measures the net income earned from trade with other countries.

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53
Q

Inflation

A

A sustained increase in the price level of an economy

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54
Q

Public good

A

Non-rivalrous and non-excludable goods that are available for all to consume, regardless of who pays and who does not.

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55
Q

Specific taxes

A

A fixed amount of tax is paid per unit sold.

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56
Q

Saving

A

A leakage from the circular flow of income in which present consumption is foregone or money that is not spent by households and is stored in financial institutions.

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57
Q

Structural unemployment

A

Unemployment caused by a decline in the demand for a particular type of labour.

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58
Q

Negative externalities of consumption

A

Negative externalities of consumption refer to external costs created by consumers and it is when MSC > MSB. When there is a negative consumption externality, thefree market overallocates resources to the productionof the good, and too much of it is produced relative towhat is socially optimum.

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59
Q

Consumer confidence

A

Consumerconfidence is a measure of how optimisticconsumers are about their future income and thefuture of the economy.

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60
Q

Disinflation

A

Disinflation is when the average price level increases at a decreasing rate.

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61
Q

Transfer payments

A

Transfer payments are payments made by thegovernment to individuals specifically for the purposeof redistributing income away from certain groups andtowards other groups; they transfer income from thosewho work and pay taxes towards those who cannotwork and need assistance.

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62
Q

Economic growth

A

Increases in total real output produced by an economy over time.

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63
Q

GDP

A

Gross Domestic Product (GDP) is the dollar value of all final goods and services produced within a country’s borders in one year.

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64
Q

Progressive Tax

A

A progressive tax is a tax that imposes a lower tax rate on low-income earners compared to those with a higher income, making it based on the taxpayer’s ability to pay. That means it takes a larger percentage from high-income earners than it does from low-income individuals.

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65
Q

Inflationary Gap

A

When the Short Run Aggregate Supply exceeds Long Run Aggregate Supply

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66
Q

Normal goods

A

Goods and services that have a YED greater than 0.

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67
Q

Underemployment

A

The underuse of a worker is employed in a job that does not use the worker’s skill. This includes workers that are overqualified, or working part-time despite wanting to work full time.

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68
Q

Underemployment

A

The underuse of a worker is employed in a job that does not use the worker’s skill, is part time, or leaves the worker idle

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69
Q

Recession

A

The low point on the business cycle. It is two consecutive quarters of negative economic growth of GDP.

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70
Q

Regressive Tax

A

Taxes where marginal tax rates are below average tax rates and have greater impact on lower income groups

71
Q

Consumer price index

A

The measure of a weighted average price index of a market basket of consumer good and services that a typical household consumes.

72
Q

Monetary Policy

A

Actions carried out by the central bank to change interest rates and/or money supply in order to influence Aggregate Demand.

73
Q

Market

A

The interaction between buyers and sellers in order to exchange goods or services

74
Q

Automatic stabilisers

A

Government tax and expenditure policies that automatically vary with the level of economic activity and national income, and that act to reduce short-term fluctuation in income

75
Q

Physical capital

A

Formation of new and improved capital goods, usually used when discussed in the context of national income accounting.

76
Q

Government Spending

A

All government consumption and investment.

77
Q

Seasonal Unemployment

A

A level of unemployment that is expected to occur at specific parts of the year.

78
Q

Government Spending

A

All government expenditure on goods and services

79
Q

Relative Poverty

A

The inability of an individual or family to maintain a socially acceptable standard of living.

80
Q

Exchange Rates

A

Exchange rates are the price of a currency in terms of another currency

81
Q

Free Trade

A

International trade that takes place without any protectionism (trade barriers)

82
Q

List two functions of the WTO

A
  • Encourages countries to lower protectionist barriers and thus increase trade flows between countries - Ensures that countries follow trade agreements and resolves any trade disputes
83
Q

Budget surplus

A

It is when government income (tax revenue) is greater than government expenditure.

84
Q

natural capital

A

The world’s stocks of natural assets such as geology, soil, air, water, and all living things

85
Q

trade liberalisation

A

The removal or reduction of restrictions or barriers on the free exchange of goods between nations.

86
Q

fixed exchange rate

A

Where the government or central bank ties the value of the official exchange rate to another country’s currency or the price of gold.

87
Q

List 3 components of the current account

A

Balance of trade in goods Balance of trade in services Income Current Transfers

88
Q

Improvement in terms of trade (HL)

A

HL - When average export prices increase relative to average import prices

89
Q

Cyclical Unemployment

A

Cyclical unemployment is involuntary unemployment due to a lack of aggregate demand for goods and services

90
Q

Absolute Poverty

A

A condition characterised by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education and information

91
Q

Revaluation

A

An increase in the value of one currency in terms of another currency in a fixed exchange rate system

92
Q

Infant Industries

A

A new industry that does not benefit from economies of scale and needs protection to compete with imports

93
Q

Foreign Currency Reserves

A

Used to influence monetary policy, usually held by a central bank or government of a country

94
Q

Preferential Trade Agreement

A

A trading bloc that gives preferential access to certain products from the participating countries. This is done by reducing tariffs but not by abolishing them completely. A PTA can be established through a trade pact.

95
Q

trade war

A

A situation in which countries attempt to damage each other’s trade by the imposition of of quotas and or tariffs.

96
Q

crowding out

A

Increased government intervention exceeds government revenue and so needs to borrow money, forcing interest rates up, thereby reducing investment and consumption

97
Q

Terms of trade (HL)

A

(HL) the value of a country’s average export prices relative to their average import prices.

98
Q

List two administrative barriers

A

Any two of: Safety standards Health standards Environmental standards Customs procedures Bureaucratic procedures Product standards Packaging requirements

99
Q

Common Market

A

Economic integration; countries that have formed a customs union proceed further to eliminate any barriers to trade between them. They have common external policy and agree to freely move factors of production within the common market.

100
Q

Current Account

A

An economy’s balance of goods, services, income, and current transfers.

101
Q

Human Capital

A

The stock of knowledge, and the workers’ skill set in relation to the amount of economic value provided.

102
Q

Market-based supply-side policies

A

Government policies that aim to increase Long Run Aggregate Supply and productivity. Market-based focuses on deregulation of the market

103
Q

Monetary union (What are the elements that make up one?)

A

It has: Common market A common currency Common central bank Common interest rates

104
Q

Fiscal policy

A

Government policy that shifts AD (taxes and government spending) in order to affect inflation/unemployment and/or equity

105
Q

Current account deficit

A

The outflow of money from trade in goods and services, income flows and transfers are larger than the inflows of money.

106
Q

Infrastructure

A

The large scale physical and organisational structures that add to the capital stock of an economy and are essential for economic activities

107
Q

Tariff

A

A tax on imports

108
Q

Terms of trade (HL)

A

(HL) the value of a country’s average export prices relative to their average import prices.

109
Q

Financial Account

A

A net change in the foreign ownership of domestic financial assets

110
Q

Deterioration in Terms of trade (HL)

A

when average export prices decrease relative to average import prices

111
Q

Interventionist Supply-side Policy

A

Any policy based on government intervention in the market intended to affect the supply-side of the economy, usually to shift the LRAS curve to the right, increase potential output and achieve long term economic growth.

112
Q

Managed Float

A

Periodic intervention by a central bank in order to influence the exchange rate.

113
Q

Trade Creation (HL)

A

Trade Creation occurs when trade is diverted from a less efficient domestic producer towards a more efficient producer. Countries can then enjoy cheaper imports.

114
Q

Bilateral Trade Agreements

A

A trade agreement between two countries which aims to lower trade barriers or to increase trade

115
Q

Explicit costs

A

Costs that are counted by looking through the firm’s accounting reports

116
Q

Open/Formal collusion

A

A situation where a small number of firms act together to avoid competition by resorting to agreements to fix prices

117
Q

Devaluation

A

Decrease in the value of a currency in terms of another currency in a fixed market system as a result of government or central bank intervention.

118
Q

Normal profit

A

-Revenue that covers all cost, including opportunity cost -Total revenue=implicit and explicit costs -Economic profit=0 -Amount of profit needed to keep a firm in business (long run)

119
Q

Total revenue

A

The total money received by a firm from the sale of a particular quantity of output.

120
Q

Law of diminishing marginal returns

A

States that an increasing number of variable inputs are added to at least one fixed input, marginal product first increases and then eventually decreases

121
Q

Satisficing

A

A firm tries to make enough profit in order to satisfy different stakeholder/to pursue other objectives/because decision makers do not have the necessary information in order to maximize profits.

122
Q

Variable Costs

A

A cost that varies with the level of output.

123
Q

Labour Market Reforms

A

Reform intended to make labour markets more competitive and flexible, to make wages respond to the forces of supply and demand, to lower labour costs and increase employment by lowering the natural rate of unemployment

124
Q

Trade Creation

A

HL - When trade is diverted from a less efficient domestic producer towards a more efficient producer as a result of economic integration.

125
Q

Monopoly

A

It is a market structure where a single firm dominates the market.

126
Q

Monopolistic competition

A

a market structure with a large number of firms producing similar but differentiated products. Barriers to entry and exit the market are low. Firms are price makers as each firm possesses some market power.

127
Q

Average cost

A

Average cost (AC), also known as average total cost (ATC), is the average cost per unit of output. To find it, divide the total cost (TC) by the quantity the firm is producing (Q).

128
Q

Perfect competition

A

A market where there are numerous buyers and sellers and several other conditions such as: - A homogenous product - Free entry and exit - Perfect Knowledge - Perfect Mobility - Absence of Price Control

129
Q

Depreciation

A

A decrease in the value of a currency in a floating exchange rate system

130
Q

Customs union

A

A customs union is a form of economic integration where member countries agree to liberalise trade and adopt a common tariff for non-members.

131
Q

Marginal Cost

A

The cost of producing one extra unit of output

132
Q

Price discrimination

A

Price discrimination occurs when different customer groups are charged different prices for exactly the same good

133
Q

Merit Goods

A

Goods and services considered to be beneficial society that would be underprovided by the market and under-consumed

134
Q

Economies of Scale

A

Economies of scale exist when the average costs for a firm decrease as the firm increases in size.

135
Q

Trade Diversion

A

HL - When trade protections cause imports to shift from low-cost countries to higher cost countries as a result of economic integration.

136
Q

Oligopoly

A

A market structure where a small number of firms dominate the industry, interdependence of firms, high barriers to entry, homogeneous or differentiated products, collusive or non-collusive behavior, price rigidity, non-price competition.

137
Q

ECONOMIC COST

A

Implicit cost and explicit cost of a firm when producing a certain quantity of goods and services

138
Q

productive efficiency

A

Exists when production takes place at minimum AC or when AC=MC

139
Q

Collusive oligopoly

A

A situation where a small number of firms work together to avoid competition by resorting to agreements fix prices

140
Q

Abnormal profit

A

When a firm earns a level of revenue that is greater than the total costs of production, including opportunity costs (or where a firm earns a level of revenue that is greater than that required to ensure that a firm will continue to supply its existing good or service).

141
Q

Preferential Trade Agreement

A

A preferential trade area (also preferential trade agreement, PTA) is a trading bloc that gives preferential access to certain products from the participating countries. This is done by reducing tariffs but not by abolishing them completely.

142
Q

Cartel

A

A group of producers in an industry that join together to regulate supply (or fix prices)

143
Q

Diversification

A

It is a strategy to increase the variety of goods and services produced in order to avoid over-specialisation

144
Q

Current Account Surplus

A

When the export revenue of good, services, income, and transfer payments is greater than the import expenditure of goods, services, income, and transfer payments in a given year.

145
Q

Poverty trap or poverty cycle

A

Low incomes lead to low saving which leads to low investment which leads to low growth which leads to low income Low incomes → Low saving → Low investment → Low growth → Low income

146
Q

Market-oriented policies

A

A policy in which economic decisions are made by the private sector (firms and consumers) where government intervention is limited

147
Q

Consumer price index

A

The measure of a weighted average price index of a market basket of consumer good and services that a typical household consumes

148
Q

Budget deficit

A

It is when government expenditure is greater than government income (tax revenue).

149
Q

Quotas

A

Physical Limits on quantity of imports (set by the government)

150
Q

Dumping

A

The practice of selling goods in international markets at a price that is below the cost of producing it (usually by providing export subsidies);

151
Q

Micro credit

A

Micro-credit refers to credit (loans) in small amounts to people who do not ordinarily have access to credit.

152
Q

Sustainable development

A

It is the development that meets the need for the present without compromising the ability of future generations to meet their own needs

153
Q

Official Development Assistance (ODA)

A

Aid or financial assistance given from a Government given for the purposes of development and/or welfare

154
Q

Two characteristics of an economically less developed country

A

Any 2 of the following: -Low levels of GDP per capita -High levels of poverty -Relatively large agricultural sector -Large informal sectors -High birth rates -Poor infrastructure -Underdeveloped capital markets -Heavily indebted -Unable to access international markets -Over-specialized on a narrow range of production -Small tax base -Dependency on primary sector exports

155
Q

Concessional long-term loans

A

A loan stretched over 25 to 40 years with lower than market interest rates. The loan may include a grace period or be repayable in local currency.

156
Q

multilateral aid

A

Money given by countries to international (multilateral) institutions which are distributed to countries.

157
Q

Two responsibilities of a central bank

A

Setting interest rates and money supply

158
Q

Appreciation

A

A rise in the value of a currency compared to another set currency

159
Q

Free trade area

A

A group of countries who all come under the same Free Trade Agreement to allow for less trade barriers

160
Q

Implicit costs

A

The value of opportunity costs

161
Q

Tacit/Informal collusion

A

A situation where a small number of firms act independently to set the price resulting in a higher revenue from both firms

162
Q

Multinational Corporations (MNCs)

A

A company that has productive units in more than one country

163
Q

Multilateral aid

A

Money given by countries to international (multilateral) institutions which are distributed to countries.

164
Q

Tied aid

A

one country donates money or resources to another on the condition that the funds are used to buy imports from the donor country or linked to a specific project.

165
Q

Concessional long-term loans

A

A loan stretched over 25 to 40 years with lower than market interest rates. The loan may be include a grace period or be repayable in local currency.

166
Q

Main function of the IMF

A

Ensure the stability of the international monetary system Promote international monetary system.

167
Q

Official Development Assistance

A

Aid or financial assistance given from a Government given for the purposes of development and/or welfare

168
Q

Foreign Direct Investment

A

Long-term investment in another country by a multinational corporation

169
Q

Corruption

A

Abuse and dishonest use of power

170
Q

Diversification

A

It is a strategy to increase the variety of goods and services produced in order to avoid over-specialisation

171
Q

Micro-credit

A

Micro-credit refers to credit (loans) in small amounts to people who do not ordinarily have access to credit.

172
Q

Components of the HDI

A

Mean years of Schooling Expected years of schooling Life expectancy GNI per capita

173
Q

Sustainable development

A

It is the development that meets the need for the present without compromising the ability of future generations to meet their own needs

174
Q

Economic development

A

A broad concept involving at least two of: Improvement in standards of living Reduction in Poverty Improved health and education Reduction in unemployment Greater equality in income distribution Environmental protection Increased economic freedom and choice

OSC Economics (2 decks)

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