Econ Definitions

Question 1

Capital Good

Answer 1

A good which is used in the production of other goods or
services.

Question 2

Command Economy

Answer 2

An economy where government officials or planners allocate economic resources to firms and other productive enterprises.

Question 3

Mixed Economy

Answer 3

An economy which contains a large market sector and a large non-market sector in which the planning mechanism operates.

Question 4

Market Economy

Answer 4

An economy in which goods and services are purchased through the price mechanism in a system of markets.

Question 5

Consumer Surplus

Answer 5

A measure of the economic welfare enjoyed by consumers: surplus utility over and above the price paid for a good.

Question 6

Producer Surplus

Answer 6

• A measure of the economic welfare enjoyed by firms or producers.
• The difference in the price a firm succeeds in charging and the minimum price it is willing to accept.

Question 7

Scarcity

Answer 7

• Scarcity results from the fact that people have unlimited wants but resources to meet these wants are limited
• In essence people want to consume more goods and services than the economy is able to produce given its limited resources.

Question 8

Derived Demand

Answer 8

Demand of a good or factor of production which is demanded not for its own sake, but as a consequence of demand for something else.

Question 9

Composite Demand

Answer 9

• Demand for a good which has more than one use.
• An increase in demand for one of the uses of the good reduces the supply of the good for its alternative use.

Related to concept of competing supply

Question 10

Joint Supply

Answer 10

When one good is produced, another good is also produced from the same raw materials, perhaps as a by-product.

Question 11

Market Equilibrium

Answer 11

• A market is in equilibirum when planned demand equals planned supply.
• When the demand curve crosses the supply curve

Question 12

Factors of Production

Answer 12

• Inputs into the production proccess
• Capital, Enterprise, Land, Labour

Question 13

Demand

Answer 13

The quantity of a good or service that consumers are willing and able to purchase at given prices, in a given time period.

Question 14

Supply

Answer 14

The quantity of a good or service which producers are willing and able to sell at given prices, in a given time period.

Question 15

Productive Efficiency

Answer 15

• Occurs when it is impossible to produce more of one good without producing less of another good.
• For a firm this occurs when the average total costs of production are minimalised.

Question 16

Allocative Efficiency

Answer 16

• Occurs when it is impossible to improve the economic welfare by reallocating resources between markets
• In the whole economy, price must equal marginal cost in every market.

Question 17

Signalling function of prices

Answer 17

Prices provide information to buyers and sellers.

Question 18

Positive statement

Answer 18

A statement of fact which can be scientifically tested (through empirical evidence) to see if it is correct or incorrect.

Question 19

Normative statement

Answer 19

A statement that includes a value judgement and cannot be refuted just by looking at the evidence.

Question 20

Opportunity cost

Answer 20

The cost of giving up the next best alternative.

Question 21

Actual Output

Answer 21

• Level of real output produced in the economy in a particular year.

Question 22

GDP

Answer 22

• The sum of all goods and services produced in the economy in one year.

Question 23

Real GDP

Answer 23

• A measure of all goods and services prodcued in the economy, adjusted for inflation.

Question 24

Nominal GDP

Answer 24

• Measures the current market prices without adjusting for the effects of inflation.

Question 25

Economic cycle

Answer 25

- The upswing and downswing of aggregate economic activity taking place over 4 to 12 years.

Question 26

Negative Output Gap

Answer 26

- The level of *actual* real output in the economy is lower than the *trend* output level

Question 27

Positive Output Gap

Answer 27

- The *actual* real output in an economy is greater than the *trend* level of output.

Question 28

Recession

Answer 28

- In the UK, six or more months of negative economic growth or declining real national output.

Question 29

Savings

Answer 29

- Income which is not spent.

Question 30

Inflation

Answer 30

- The persistent or continuing rise in the average price level.

Question 31

Trend Growth Rate

Answer 31

- The rate at which output can grow at a sustained basis, without putting upward or downward pressure on inflation. - It reflects the annual average percentage increase in the productive capacity in the economy.

Question 32

Short-run economic growth

Answer 32

- The growth of real output as a result from using idle resources such as labour, thereby taking up the slack in the economy.

Question 33

Long-run economic growth

Answer 33

- An increase in the economy's potential level of real output and an outward movement of the economy's production possibilty frontier.

Question 34

Investment

Answer 34

- The total planned spending by firms on capital goods within the economy.

Question 35

Consumption

Answer 35

- The total planned spending by households on consumer goods and services produced within the economy.

Question 36

Index Numbers

Answer 36

- A number used in an index to enable accurate comparisons over time to be made.

Question 37

Injection

Answer 37

- Spending entering the circular flow of income as a result of government spending, investment and exports.

Question 38

Withdrawal

Answer 38

- A leakage of spending power out of the circular flow of income into savings, taxation and imports.

Question 39

Output Gaps

Answer 39

- Shows the level of actual real output in the economy either higher or lower than the trend output level.

Question 40

Keynesian Economists

Answer 40

- Followers of the economist John Maynard Keynes who believe that the government should manage the economy, particularly through the use of fiscal policy.