Economics Definitions Flashcards
absolute poverty
a situation when people are living at a level of income which is insufficient to meet basic needs
developing countries
Countries which are charactarised by such features as low per capita incomes, high levels of poverty, low standards of living, poor health facilities…….. (at least two clear charactaristics)
economic development
a broad concept involving the following characteristics: improvements in STOL, reduction of poverty, improvements in health and education, greater equality of income and opportunity, environmental protection……. (probably at least three of these for 2 marks)
foreign direct investment
investment by firms based in one country (multinational corporations) in productive activities in another country
Human Development Index
a composite indicator of development which comprises measures of real GNI per capita, life expectancy, either mean or expected years of schooling
import Substitution
a policy of deliberately reducing imports and replacing them with domestic production. It is usually part of a growth or development strategy for an economy.
infrastructure
essential facilities and services (e.g. roads, telecommunications), usually provided by the government, which allow economic activity to take place more easily
inward-oriented policies
Policies designed to encourage domestic production of goods rather than imports. Protectionist measures are usually employed.
micro-credit
a small scale loan, usually given to people who have no other source of borrowing and no collateral. It is usually to set up small scale businesses and the interest is lower than would be available elsewhere (e.g. from money lenders)
official development assistance (ODA)
aid from a government or multilateral agency for the purposes of development and/or welfare
Sustainable development
is the development needed to meet the needs of the present generation without compromising the ability of future generations to meet their own needs.
The World Bank
An international organization that provides financial aid and advice to developing countries.
tied aid
financial assistance to an LDC, given on the condition that it is used to buy goods and services from the donor country
Anti-Dumping Laws
is government legislation to prevent the selling of an imported good at a price below its cost of production.
bilateral trade agreements
a agreement between two countries to lower trade barriers (e.g. reduce/eliminate tariffs) and thus increase trade
comparative advantage
when a country can produce a product at a lower OC than another country
current account deficit.
when revenue from exports of G&S(and investments and transfers) is less than expenditure on imports (and investments and transfers)
customs union
a form of trade bloc wherein members trade freely amongst themselves and have a common external tariff against the rest of the world
Depreciation
is a fall in the value of one currency against another currency in a floating exchange rate system.
deteriorating terms of trade
when the average price of exports falls relative to the average price of imports
dumping
selling a good in a foreign market at a price below the production costs
exchange rate
the value or price of one currency expressed in terms of another currency (or standard)
exchange rate appreciation
the increase in the value of one currency in terms of another in a floating exchange rate system
financial account
the balance arising from: flows of foreign direct investment, flows of portfolio investment, changes in foreign reserves
foreign currency reserves
stores of foreign currencies held by the central bank or government of a country
free trade
importing and exporting with no government intervention
free trade area
an agreement by a group of countries to have no protection on trade among members but to allow each member to set its own external trade barriers
infant industries
new (sunrise) industries which have not yet reaped the benefits of Economies of Scale and so need protection against imported goods for a while
managed exchange rates
an apparently floating exchange rate but with government intervention usually if the fluctuations are thought unacceptable
Quotas
are import barriers that set limits on the quantity or value of imports into a country.
tariffs
taxes on imported goods or services
World Trade Organization
an international body which tries to reduce trade barriers between countries
budget deficit
when planned government spending is greater than government revenues
business/trade cycle
the regular pattern of increases and decreases in economic activity around the long term trend. (Correctly labelled diagram would gain the two marks)
Consumption
is spending by individuals or households on consumer goods and services. It is the largest component of AD.
crowding out
a situation where, by borrowing money to fund its own spending, the government forces up interest rates and thus reduces (crowds out) private sector investment.
direct taxes
taxes paid by households and/or firms on income or wealth (capital) e.g. income tax, corporation tax
Economic growth
An increased real output for an economy over time and measured as an increase in real GDP. Alternatively, it may be explained as an increase in the potential output of the economy through an increase in the quantity/quality of resources.
Fiscal Policy
is the use of government spending and taxation to achieve government economic objectives.
GDP
is the value of all final goods and services produced within a country’s geographical boundaries in a given time limit.
GNI
the total value of income earned by the nations’s factors of production regardless of where the FOP are located (= GDP + net property income from abroad)
Gini Coefficient
a measure of inequality in the distribution of income. It is usually used in conjunction with the Lorenz Curve.
indirect taxation
a tax (compulsory payment to the government) levied on goods and services
Inflation
is a sustained increase in the general or average level of prices. It is a fall in the value or purchasing power of money.
inflationary gap
a situation where AD is higher than the full employment level of output in an economy thus causing inflationary pressures.
interest rates
is the price of borrowed money or the price of capital
investment
expenditure by firms on accumulating capital (a component of AD, an injection into the economy)
Monetary Policy
is a demand-side government policy to control the money supply or alter interest rates.
multiplier effect
the process by which an injection into the economy results in a greater increase in national income (and/or formula)
nominal
the money value of an economic variable, before it has been adjusted for inflation
progressive tax
where the percentage of tax paid increases as income increases
real output
the value of final goods and services after adjustment for inflation
real wages
the value of the payment for labour after adjustment for inflation. The purchasing power of wages.
real wages
the value of the payment for labour after adjustment for inflation. The purchasing power of wages.
Recession
is at least two consecutive quarters of negative economic growth. It is illustrated by the falling section of the trade cycle and it is characterised by high unemployment.
structural unemployment
long term unemployment caused by the fall in demand for a particular type of labour following a change in the structure of the economy.
Supply-side policies
are policies designed to increase the total supply of goods and services in an economy. A successful supply side policy implementation would be illustrated by a rightward shift of the AS curve.
Unemployment Rate
is the number of workers without a job, who are willing and able to work, expressed as a percentage of the workforce.
abnormal profits
any profit above that necessary to keep the firm in business
allocative efficiency
the socially optimal allocation of resources, identified by P=MC
average costs
cost of production per unit (calculated by dividing the total costs by the quantity produced)
centrally planned economy
an economic system in which resources are allocated by the government and Demand and Supply have no role to play
complementary goods
goods that are jointly consumed (+example) , goods that have a negative cross elasticity of demand
Demand
is the willingness and ability to purchase a quantity of a good or service at a given price level over a given time period.
entrepreneurship
the skill of the person (or group) in performing these tasks: starting up the business, organising the FOP, taking the risks of the business
equilibrium price
the market clearing price at which the quantity demanded is equal to the quantity supplied
income elasticity of demand
a measure of the responsiveness of quantity demanded to a change in income
informal markets
markets in which economic activity is not officially recorded (e.g. illegal black markets, barter situations….)
marginal cost
the addition to total costs caused by the production of one extra unit of output MC = change in TC / change in output
market economy
an economy where resources are allocated by the forces of demand and supply
merit goods
goods which are considered to be good for society but which are underconsumed and so underprovided by a free market.
multinational corporations
a company which has productive units in more than one country
negative externalities
are the adverse impacts on a third party caused by the production or consumption of a good or service. The third party is anyone other than the buyer and seller.
Normal profit
Is the return to the entrepreneur. It is the minimum profit needed to keep the business running. It is identified by AR = AC.
Opportunity Cost
Is a measure of the real cost of one thing in terms of the next best alternative foregone when an economic decision is made.
opportunity costs
the cost of one thing in terms of the next best alternative foregone (+example)
opportunity costs
the cost of one thing in terms of the next best alternative foregone (+example)
price discrimination
charging a different price to customers for the same product, for reasons not associated with cost differences
price elasticity of demand
a measure of the responsiveness of demand to a change in price of the good (and/or formula)
privatisation
when the government sells state owned enterprises to the private sector
product differentiation
deliberate action by the producer to distinguish a product from its competition, usually through branding or packaging.
productively efficient
producing at the lowest cost per unit of output
property rights
legal rights for individuals to own property/assets
resource allocation
the distribution of the factors of production in the activities of an economy
subsidies
government financial assistance to producers to reduce the costs of production (thus allowing them to reduce prices/compete more effectively)
Tradeable Permits
are permits to pollute, issued by a governing body, which sets a maximum amount of pollution allowable. Firms may trade these permits for money.
Wages
are payments made to the factor of production labour.
