Definitions Flashcards
Demand
The amount of a good or service that consumers are willing and able to buy at different prices
Opportunity Cost
The best alternative foregone when an economic decision is made
Inferior Good
An inferior good is a good whose demand decreases when consumer income rises and vice versa. It has a negative YED value
Supply
The amount of a good or service that producers are willing and able to supply at different price
Competitive supply
Two goods competing for the same resources for production
Complementary goods
Goods that are consumed with each other. They have a negative XED value
Joint supply
Goods that are supplied together from the production of one product.
Indirect taxes
Taxes on spending of goods and services by consumers, collected by the supplier on behalf of the government.
Producer surplus
The price received by a producer in excess of the price that the producer would be willing and able to offer for sale.
Allocative efficiency
Where resources are allocated in such a way that neither too much nor too little is produced from society’s point of view.
Subsidies
Money given to firms by the government to (choose one)
- Reduce production costs
- Reduce prices
- Increasing supply
- Increase consumption,
- Increase investment and employment
- Protect domestic industries from imports
Substitute
A good that offers similar benefits to the consumer as another good. It has a positive XED value
Normal goods
Goods that will increase in demand as income rises and vice versa. They have a YED greater than 0.
Market
The interaction between buyers and sellers in order to exchange goods or services
Consumer surplus
The difference between what consumers are willing and able to pay and the market price.
Primary commodities
A raw or unprocessed material that is harvested or extracted
Cross price elasticity of demand
The responsiveness of the demand of one good to a change in the price of another good
Price elasticity of demand
The responsiveness of quantity demanded to a change in price
Income Elasticity of Demand
A measure of the responsiveness of demand to a change in income.
Price elasticity of supply
The responsiveness of quantity supplied to a change in price
Luxury good
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
ad valorem taxes
An indirect tax which is a percentage of the selling price
Underground (Informal) Markets
Markets where there is economic activity that is unrecorded (illegal/not taxed) by the government.
Price Floor
A minimum price set by the government which is above the market equilibrium price.
Price Ceiling
A maximum price set by the government which is below the market equilibrium price.
Specific taxes
An indirect tax which is a fixed amount of tax per unit sold.
Demerit goods
Goods or services considered to be harmful to people which are over-provided by the market and therefore over-consumed
Positive externalities of consumption
Positive effects on third parties that arise when a good or service is consumed.
Merit Goods
Goods and services considered to be beneficial society that would be underprovided by the market and under-consumed
Positive externalities of production
Positive effects on third parties that arise when a good or service is produced..
Negative externalities of production
Harmful effects on third parties that arise when a good or service is produced.
Public good
Non-rivalrous and non-excludable goods that are available for all to consume, regardless of who pays and who does not.
Negative externalities of consumption
Harmful effects on third parties that arise when a good or service is consumed.
Common access resources
Goods that are rivalrous but non-excludable
Investment
The spending by firms (or the government) on capital
Green GDP
A modified measure of GDP that takes into account the costs of environmental damage
Recession
It is two consecutive quarters of negative economic growth
Consumption
The spending from households (consumers) on goods and services.
GNI (Gross National Income)
Gross Domestic Product plus net income from abroad
Net Exports
The value of exports minus the value of imports
Saving
Income that is not spent, but stored in financial institutions
GDP (Gross Domestic Product)
The dollar value of all final goods and services produced within a country’s borders
Government Spending
All government expenditure on goods and services.
Aggregate demand
The total demand for all goods and services produced in an economy, compromising of C+ I+G+(X-M)
Aggregate supply
The total quantity of goods and services produced in an economy (real GDP) over a particular time period at different price levels
Potential output
Total gross domestic product (GDP) that could be produced when the economy is at full employment
Frictional Unemployment
Short-term unemployment that can occur when a person enters or re-enters the workforce
Natural Rate of Unemployment
Unemployment that still occurs when an economy operates at its potential. Includes frictional, seasonal and structural unemployment.
Aggregate demand
The total demand for all goods and services produced in an economy, compromising of C+ I+G+(X-M)
Recessionary Gap
When the economy is at an equilibrium below potential output
Underemployment
When a worker is either in a job below their skill level or are employed part-time but willing and able to work full-time
Producer Price Index
The measure of a weighted average price index of inputs and intermediate goods that are bought by producers
Business Confidence
A measure of the expectations of businesses about the future economic conditions that affects the level of investment
Interest rates
The cost of borrowing money
Deflation
A sustained decrease in the price level.
Unemployment
People of working age who are actively seeking work but are without work
Direct taxes
Taxes paid to the government on the income of households and firms
Consumer price index
The measure of a weighted average price index of a basket of consumer goods and services that a typical household consumes.
Inflation
A sustained increase in the price level.
Structural unemployment
Unemployment caused by a decline in demand for a particular type of labour
Consumer confidence
A measure of the optimism of consumers about their future income and future economic conditions
Disinflation
Where the price level increases at a decreasing rate
Economic growth
Increase in real GDP
OR
Increase in potential real GDP.
Inflationary Gap
When the economy is at an equilibrium above potential output.
Physical capital
The capital goods which exist within an economy.
Seasonal Unemployment
A level of unemployment that is expected to occur at specific times of the year.
Cyclical Unemployment
Unemployment due to a lack of aggregate demand for goods and services
Long-run Aggregate Supply
The level of real output that an economy can produce when there is full employment. Represents potential output of an economy
Transfer payments
Payments made by the government to individuals and businesses for which no good or service is exchanged.
Progressive Taxes
A tax that imposes a lower tax rate on low-income earners and a higher tax rate on high-income earners
Regressive Taxes
Taxes where as income increases, the tax rate decreases. Lower income groups feel a bigger impact as they pay a larger proportion of their income on the tax.
Monetary Policy
Actions carried out by the central bank to change the money supply and therefore change interest rates
Automatic stabilisers
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
Relative Poverty
The inability of an individual or family to maintain a socially acceptable standard of living.
Budget surplus
It is when government expenditure is less than government revenue
Natural capital
The natural resources that exist within an economy
Absolute Poverty
A condition where people live below a certain level of income necessary to meet basic needs.
Crowding out
Increased government spending exceeds government revenue and so needs to borrow money, forcing interest rates up, thereby reducing investment and consumption
Human Capital
The skills, abilities and knowledge acquired by the labour force
Market-based supply-side policies
Policies whereby the government reduces its role in the economy to allow market forces to increase productivity and therefore increase potential output and achieve long-term economic growth.
Fiscal policy
Government policy that amends government spending and/or taxes to achieve economic objectives
Infrastructure
The large scale physical and organisational structures, usually provided by the government, that are essential for economic activities
Interventionist Supply-side Policy
Policies whereby the government intervenes to increase the quality and quantity of resources in the economy to increase potential output and achieve long-term economic growth
Labour Market Reforms
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
Budget deficit
When government expenditure is greater than government revenue.
Two responsibilities of a central bank
- Control of interest rates
- Control of money supply
- Banker to the banks
- Control of exchange rate policy
- Regulator of commercial banks
- Maintenance of price stability
