Economics Flashcards
Defintions for Economics
1
Q
Positive economic statement
A
Precise and fact-based. They can be proved with data
2
Q
Normative economic statements
A
Similar to an opinion and based on the values and judgements of the individual making the statement
3
Q
Opportunity cost
A
Is the best alternative forgone when a choice is made due to limited resources
4
Q
Economics
A
Is a social science, that studies how limited resources are allocated to satisfy unlimited wants and needs
5
Q
Social science
A
are science which studies human behaviour
6
Q
Specialisation of labour
A
Is the separation of a work process, into smaller tasks that are carried ot by separate workers or a group of workers. It leads to an increase in output and greater efficiency (created by Adam Smith)
7
Q
Sustainable development
A
Is development that meets our current needs, without compromising the ability of future generations to meet their need
8
Q
Economic sustainability
A
Ensuring that economic growth is not achieved at the expense of future generations
9
Q
Environmental sustainability
A
Weather or not natural resources can be maintaining into the future
10
Q
Social sustainability
A
Is creating equal opportunities for all citizens on the planets e.g. accessing healthcare, education, income, food and water
11
Q
Individual demand
A
Is the quantity demanded of a good or service by an individual consumers at different prices
12
Q
Market demand
A
Is the total quantity of a good or service that would be demanded by all consumers in a market at different prices
13
Q
Derived demand
A
It is the demand for a good, not for it’s own sake but for its use in the production other goods
14
Q
Composite demand
A
It is when there is more than one use for a good. An increase in demand for one product can result in a fall in supply of another product
15
Q
Joint demand
A
Complementary goods that are bought and sold together (consumed together)
16
Q
Effective demand
A
Is demand that is supported by the necessary purchasing power. It refers to the willingness and ability of the consumer to purchase goods and services at different prices
17
Q
Demand schedule
A
Is a table that gives the quantities of a good or service that would be demanded by consumers at different prices
18
Q
The law of demand
A
States that as the price of a good or service falls, then the quantity demanded will rise. When the price of a good/service rises, then the quantity demanded will fall.
It’s the inverse relationship between price of a good/service and the quantity demanded
19
Q
Movement of the demand curve
A
Is a change in quantity demanded at any price affected by a change in price
20
Q
Shift of the demand curve
A
Is a change in quantity demanded at any price affected by any factor other than price
21
Q
Normal good
A
Is a good, demand for which rises when income rises, and falls when income falls. Most goods are normal goods
22
Q
Inferior good
A
Is a good, demand for which falls when income rises, and rises when income falls.
23
Q
Substitutes
A
Goods that are alternatives for one another (they satisfy the same need)
24
Q
Complements
A
Goods that are bought and sold together (joint demand). The purchase of one involves the purchase of other.
25
Factors of that cause a shift of the demand curve
price
income
substitute
complements
trends/advertising
Expectation
availability of credit
26
Individual supply
Is the quantity of a good or service supplied by individual suppliers at different prices
27
Market supply
Is the total quantity of a good or service supplied by all suppliers in the market at different prices
28
Supply schedule
Is a table that gives the quantities of goods/services that would be supplied by suppliers at different prices
29
Subsidy
Is a payment to a supplier that covers some of the supplier’s production cost
30
factors of that cause a shift of the supply curve
price
unplanned factors
substitute and complements
Advances in technology
Sumber of sellers
Government subsidies
Cost of production
31
Consumer surplus
Is the difference between what a consumer actually pays for a good/service and what they would be willing to pay, rather than do without the good/service
32
Equilibrium price
Is a point from which there is no tendency to change. Is the price that ensures that everything that is supplied is demanded. It ensures that's there’s no excess supply (unsold stock) or excess demand (unsatisfied customer)
33
Consumption or consumer spending
Generally refers to individuals buying consumer good/services
34
Utility
Refers to the benefit that an individual gets from consuming a good/service. Utility is measured in utils
35
Total utility
The total benefit that an individual get from consuming a number of units of a good/service
36
Marginal utility
The extra benefit that an individual gets from consuming an extra unit of a good/service △total utility ➗ △quantity
37
Consumer sentiment
Is a mathematical measure of the health of the economy as indicated by consumer opinion
38
Rational consumer
Is a logical or reasonable consumer. They are able to make purchasing decisions using intelligent thinking rather than emotion
39
Impulse purchase
Is purchase that is made on the spur of the moment that the consumer had not planned in advance
40
Economic good
Is any good that has utility to the consumer, is relatively scarce, so commands a price and is transferable
41
The Law of Diminishing Marginal Utility
states that as a consumers consumes more units of a good, the extra satisfaction (marginal utility) derived from each additional unit consumed will eventually decline
42
The Law of Equi-Marginal Returns
states that a consumer who want to maximise utility will allocate their limited income so that the ration of marginal utility to price (marginal utility per euro spent) is the same (equal) for all goods they consume
MUa = MUb
--------- ---------
Pa = Pb
43
Price Elasticity of Demand (PED)
measure the percentage change in the quantity demand of a good/service as a result of percentage change in price
△Q P1 + P2
------ x -----------
△P Q1 + Q2
44
Relatively Elastic
percentage change in price is outweighed by the percentage change in quantity demanded ≥1
45
Relatively inelastic
percentage change in price outweights the percentage change in quantity demanded ≤1
46
Unitary Elastic
the percentage change in price is equal to the percentage in quantity demanded =1
47
Income Elasticity of Demand (YED)
measure the percentage change in the quantity demanded of a good/service in response to a percentage change in income
48
Explict Cost
monetary cost of production (expenses) that can be accounted for e.g wages
49
Implicit Cost
non-monetary cost that are not necessarily accounted for in the same way as explicit cost
50
Private Cost
are the cost borne by the individual who engages in an activity
51
Social Cost
are the total cost to society of an activity i.e private cost + external cost
52
short run
period of time in which at least one factor of production is fixed
53
long run
period of time in which all factors of production can be varied
54
fixed cost
are cost that *do not* vary with output/changes in production
55
variable cost
are cost that vary with output/changes in production
56
total cost
fixed cost + variable cost
57
marginal cost
is the extra cost of producing an extra unit of output
△total cost
---------------
△quantity
58
average fixed cost
the fixed cost per unit (fixed cost are spead over higher quantity)
fixed cost
--------------
quantity
59
average variable cost
the variable cost per unit
variable cost
------------------
quantity
60
average total cost (ATC) or (AC)
the total cost per unit. deep u shape = short run/ shallow u shape = long run AC=AFC+AVC
total cost
-------------
quantity
61
The Law of Diminishing Marginal Returns (LDMR)
tells us that as increasing units of a variable factor of production are combined with a fixed amount of another factor of production, the extra output generated by the extra unit of the variable facotr of production eventually begins to diminish
62
Economies of scale
refers to the cost saving or lower cost per unit a firm enjoys when the output increase
63
Internal economies of scale
refers to the forces within a firm that results in a fall in the cost per unit as output rises, i.e as the firm expands
64
External economies of scale
refers to the forces within an industry that result in a fall in the cost per unit for all firms in the industry as the industry expands
65
Diseconomies of scale
refers to the cost disadvantages or figher cost per unit as the level of output produced increase
66
Internal diseconomies of scale
refres to forces within a firm that result in a rise in the cost per unit as a firm expands
67
External diseconomies of scale
refers to forces within an industry that result in a rise in the cost per unit as the industry expands
68
Moral Hazard
refers to the lack of an incentive as individual/firm has to guard against risk when they are protected from the consequence of their actions
69
total revenue (TR)
price x quantity
70
Marginal revenue (MR)
the extra revenuw that is generated from suppling an extra unit of the good
△total revenue
---------------------
△quantity
71
Average reveune (AR)
this is the reveune per unit
total revenue
-------------------
quantity
72
Normal Profit
is the minimum profit a firm must make in order to continue in business in the long run. Is when AR = AC. To continue in business in the long run, the firm mist at least earn a normal profit
73
Supernormal (abnormal) profit
are profits that are earned that are in excess of normal profits . Is when AR is greater than AC
74
The profit-maximising rule
A profits-maximising firm will produce the quantity where MR = MC (and marginal cost is rising - cuts MR from below). The firm will not produce a quantity beyond the point where MR = MC.
75
Dermerit good
is a good that can have negetive effects on the consumer, and if it is over-consumed or over-produced it can improse negetive external cost (externalities) on third paries
76
Externality
refers to the external cost (external benefit) that accrue to other individuals or to society as a result of production or consumption
77
Carbon tax
is a charge applied to carbon-emitting fuel such as coal, oil and natural gas
78
Price Ceiling
is a price below the equilibrium price. It is the price above which suppliers can't legally charge
79
Price floor
is a price that is above the equilibrum price. It's the price that suppliers are guaranteed
80
National Income
is the income accruing to the permanent redifents of a country from current (continuous) economic activity during a period of time, usually a year
81
recession
is a fall in gross domestic product (GDP) in two successive quarters
82
Expenditure method
measure the total amount of money spent on final goods and service in a country
y=c+i+g+(x-m)
83
output method
the output figures of all forms in the economy are added to give the value of the output of the nation
84
income method
this method adds the income paid to those supplying factors of production
85
Investments
is defined as capital formation or the producton of capital goods e.g. building of a factory
86
norminal GDP
values GDP at current prices
87
real GDP
values GDP at constant prices
88
hidden/shadow economy
is unrecored economic activity that is not accounted in national income statistics
89
intellectual property
refers to patents, trademarks, copyrights and trede secrets
90
patent
gives the inventor the sole right to produce their invention that they created
91
trademark
refer to brand names
92
copyright
applies to creative works e.g books, music and film
93
trade secrets
refers to a process within a company that is not known outside the company e.g. recipe
94
gross national income
measures total income that is earned by a country's residents and businesses regardless of where the income is earned
95
marginal propensity to consume (MPC)
is the fraction of extra income that is spent
MPC=1-MPS
△C
------
△Y
96
marginal propensity to save
is the fraction of extra income that is saved
MPS=1-MPC
△S
-----
△Y
97
Marginal propensity to import
is the fraction of extra income that is spent on imports
△M
------
△Y
98
Marginal propensity to pay tax
is the fraction of extra income that is paid in tax
△T
-----
△Y
99
saving
=income-consumption
100
the multiplier
shows the precise relationship bewteen an initial injection into the circular flow of income, and the eventual total increase in national income resulting from the injection
↑national income = injection x multiplier
101
types of multipliers
1/MPS =closed economy with no government sector
1/MPS+MPM =open economy with no government sector
1/MPS+MPM+MPT =open economy with government sector
102
close economy
is an economy that does not engage in internation trade e.g north korea
103
open economy
is an economy that relies heavily on international trade e.g Ireland
104
direct taxes
are taxes on income and wealth
105
indirect taxes
are taxes in goods/services and are paid indirectly to the governement by the final cinsumers. Indirect taxes are taxes on spending
106
VAT
is an indirect tax on goods/services that is paid by final consumer
107
Regressive tax
does not take account of the taxpayer's ability to pay. It takes a higher percentage of the income of a low-income earner and a lower percentage of the income of a high-income earner e.g VAT
108
Excise duty
are levied on tabacco, alcohol and fuel
109
Progressive tax
is a tax that takes account of the ability of the taxpayer to pay. It takes a higher percentage from a high-income earner than from a low-income earner
110
Carbon tax
is a charge applied to carbon-emitting fuels such as coal, oil and natural gas
111
DIRT
is a tax on interest
112
Stamp duty
is a tax on certain transactions and investments
113
Capital gains tax
is a tax that is paid on the earning from the sale of an asset
114
Capital acquisitions tax
is a tax on gifts and inheritance
115
Corporation tax
is a tax on a company's profits
116
Tax avoidance
involves legallly arrangig your tax affairs to reduce your tax liability or avoid paying tax altogether
117
Tax evasion
involves illegally arranging your tax affairs to reduce your tax liability or evade paying any tax, e.g. non-declaration to the revenue commissioners of income earned
118
The impact of a tax
refers to the initial burden of the tax, e.g. the person/firm on whom the tax was initally levied
119
The incidence of a tax
refers to the person/firm who actually pays/bears the tax
120
Factor of Production
are those elements used in the production of goods and services.
There are 4 factors of production: Land, Labour, Capital and Enterprise
121
Land
is anything provided by nature that is used in the production of goods and services.
e.g timber, water
payment: rent
122
Finshed Goods
the final good or service consumed by the comsumer. They are sod on the goods and services markets. They are consumed for the utility they generate in their own right
123
Supply Price of a factor of production
is the minimun paymanet necassary to bring the factor of production into to use and to maintain it in that use
124
Economic Rent
is the the return on any Factor of Production in excess of its supply price
(value of land is €0 so all rent is technically economic rent)
125
Derived Demand
demand for a factor of production not fot it's own sake, but for its use in the production of goods and sevices that people want
126
Characteristics of Land
1. All payment is econmic rent
2. supply of land is fixed - perfectly inelastic
3. Land is a non specific FoP
127
Enterprise
is the factor of production that brings the 3 other factors of production together to be used in the production of goods and services.
The entrepreneur takes the RISK.
payment: profit/loss
128
Characteristics of Enterprise
1. They take the risk
2. They can make a profit or loss - make a negative return (only factor to do that)
3. Payment is residual - everything/else is paid before the entrepreneurs is paid
129
Normal Profit
the profit earned when a quantity is produced where AR=AC. It's the minimum amount of profit that must be earned for a firm to contnue in business in the long run.
Seen as a cost of the business
130
Capital
is anything manmade that is used in the production of goods and services
payment: interest
131
capital deepening
The increasing the amount of capital by a higher percentage than the incease in the amount of labour, so that the ratio of capital to labour increases
132
capital widening
the increasing the amount of capital and labour so that ratio of capital to labour remains unchanged
133
The Marginal Effiency of Capital (MEC)
is the extra profits that is generated by employing one extra unit of capital, i.e the extra revenue generated by the unit of capital minus its cost
134
Labour
is the human element that is used in the production of goods and services
payment: wages
135
The nominal wage
is the rate of pay or salary of an employee (the wage before it is adjusted for inflation)
136
The real wage
is the money wage adjusted for inflation. It relates to the purchasing power of the nominal wage (is the purchasing power of wages)
137
Labour productivity
measures the output that is produced by a worker per period of time
138
The Marginal Physical Product of Labour (MPPL)
is the extra output generated as a result of employing an extra unit of labour
MPPL = △TOTAL OUTPUT
--------------------------
△ LABOUR
139
The Marginal Revenue Product of Labour (MRPL)
is the extra revenue generated as a result of employing an extra unit of labour. It can be calculated in different ways.
MPPL = △TOTAL OUTPUT
--------------------------
△ LABOUR
or
MRPL = MPPL x MR
MRPL = MPPL x Price
Also the demand for labour at any given wage rate
140
The labour force participation rate
is the percentage of the population of working age who are in the labour force (i.e. who are working or seeking work)
labour force
-------------------
population of working age
141
occupational mobility of labour
the willing ness of an individual to move from one occupation to another
142
geographical mobility of labour
the willingness of an individual to move from one location to another to take up employment
143
Full employment
is a situation where everyone who wants a job can find one at existing wage rates. A 4% unemployment rate generally indicates that an economy has reached full employment
144
wage drift
describes a situation where wage levels rise above negotiated levels
145
minimum wage
is the lowest wage per hour that a worker must be paid
146
gender pay gap
is the difference between the average gross earning of female and male employees, based on the gross hourly earningd of all employees.
147
unequal pay
in relation to men and women refers to different pay rates paid to men and women for the same job. This is illegal
148
Monopoly
one firm supplies the goods/services
149
Oligopoly
the market is dominated by a small number of large interdependent firms
150
Imperfect competition
the market can have many sellers, who act independently selling differentiated products
151
Perfect competition
this market can potentially have many thousands of suppliers selling identical products
152
Barrier to entry/exit are factors that prevent new firms from entering/leaving a market
where a firm may need to be granted a permit in order to trade. In perfect competition markets it's assumed that no such barriers exist
153
Competitive advertising
is advertising that promotes the qualities/features of one firm's goods over those of it competitors
154
Generic advertising
is advertising that promotes the qualities/features of all the output of an industry without identifying individual suppliers
155
Patent
gives the inventor/developer the sole right to supply the invention for a period of time
156
Market failure
occurs when there is inefficiency in the allocation of goods and services in a free market
157
Price discrimination
involves charging different customers different prices for the same goods/services, where the reason for the price differences is not due to differences in the const of production
158
Deregulation
occurs when regulation/laws that prevent new firms from entering a market are removed
159
Brand loyalty
is the tendency of some customers to continue buying a certain brand of a good rather than competing brands
160
Firms are Interdependent
when they take the likely reaction of competitors into account, especially when making decisions about price
161
Price rigidity
is the tendency in oligopolistic markets for price nor to change, even if costs of production change. This is because a price rise would result in a fall in sales, and a price fall would potentially provoke a price war with rivals
162
Price constancy
involves leaving the price unchanged even if the cost of production change. The reason for doing so is that it could actually cost more to change the price of the good than it would to take a dent in profits
163
Limit pricing
occurs where existing firms discourage new firms from entering the market by charging a lower price than then price they could charge. This makes it potentially profitable for the new firm to enter the market and deters the new firm from entering. It is illegal
164
Market sharing
is where rival firms divide up sales territories, they agree on the locations where the individual firms will trade. Once this is agreed, they do not trade in one another's area. It can also involve agreeing on which customers (or demographics) they will or will not sell to
165
Economic growth
occurs when there is an increase in income per person, with no change to the structure of society
166
Economic development
occurs when there is an increase in income per person accompanied by changes in the structure of society
167
Economic sustainability
refers to ensuring that growth of an economy is not achieved at the expense of future generations
168
social sustainability
refers to creating equal opportunities for all citizens on the planet
169
environmental sustainability
refers to whether or not natural resources can be maintained into the future
170
human development
concerns giving people the freedom to decide who they want to be an how they want to live
171
Official Development Assistance (ODA)
is defined as government aid to developing countries that is designed to promote the economic development and welfare of those countries
172
Globalisation
refers to; the flow of goods, services, people, culture, and knowledge across borders, the interdependence of economies upon one another, the interconnections between the countries of the world
173
Investment
is defined as the production of capital goods or capital formation. Example of investment include the expansion of a business premises, the purchase of new machinery, the building of a factory
174
open economy
is an economy that engages in international trade i.e importing and exporting goods and services
175
quota
is a physical or monetary limit on the amount of a goods that can be imported
176
National competitiveness of a country
refers to the overall ability of enterprise in that country to compete successfully in international markets i.e. to be successful at selling goods/services abroad in international markets in relation to its competitors
177
exchange rate
is the price of one currency in terms of another
178
transfer payments
are payments to individuals for which no factor of production has been provided e.g. social welfare payments
179
government current revenue
is money that is collected by the government on a continuous basis
180
government current revenue
is money that is spent by the government on a continuous basis
181
policy
is a plan or a course of action that is used to achieve an aim
182
fiscal policy
refers to actions taken by the government that influences the timing, magnitude and structure of government current revenue and current expenditure
183
capacity constraints
refers to factors that restrict a business from producing more output e.g raw material shortage and labour shortage
184
national debt
is the total amount government debt that is outstanding
185
the debt/GDP ration
gives an indication of the size of a country's debt in relation to the size of the country's economy
186
full employment
refers to a situation where everyone who wants a jobcan find one at existing wage levels
187
workforce
all those who are employed
188
unemployed
an individual is classified as being unemployed if they are; 1.) available for work and 2.) actively seeking work
189
labour force
the labour force is made up of those who are in the workforce and those who are in unemployed
190
unemployment rate
the proportion of the labour force currently unemployed
the number of those who are unemployed
-------------------------------------------------------------
labour force
191
underemployment
in relation to labour occurs when a worker's skills/time are not being utilised to their full potential. Example include a highly qualified/skilled family member helping out in a family business, such as on a farm, or an individual with a high level of qualifications working in an unrelated job that requires no qualifications
192
inflation
refers to an increase in the general level of prices. It reduces the purchasing power of money
193
The percentage change in the real wage
is the percentage change in the nominal wage minus the inflation rate
194
nominal interest rate
is the interest rate before taking inflation into account
195
real interest rate
is the interest rate adjusted for inflation
the nominal interest rate - the inflation rate
196
demand-pull inflation
occurs when the total/aggregate demand for goods and services is greater than the total/aggregate supply of goods and services. There is excess demand, which pulls up the price level
197
cost-push inflation
occurs when a rise in the cost of production is passed on to consumers in the form of higher prices
198
deflation
occurs when there is a fall in the general level of price
199
monetary policy
is the use of interest rates, money supply and credit availability to achieve economic objectives
200
quantitative easing (QE)
occurs when a central bank buys financial assets from commercial banks with new money that the central bank has created
