Economics - Key Terms Flashcards
Inflation
a general increase in prices and the fall in the purchasing value of money
Interest Rate
the rate of saving and borrowing
Gross National Income GNI
measures the final value of incomes in the UKs owned factors of production whether they are located in the UK or overseas
Gross Domestic Products GDP
total value of national output of goods and services produced in a given time period
Activity Rate
the amount of people employed and unemployed as a percentage of the total population
Multiplier Effect
the proportion or amount of increase/ decrease in final income because of an increase or decrease in spending
Ad Valorem Tax
a tax on a good or asset depending on its value
Aggregate Demand AD
the total demand for goods and services within a particular market
Aggregate Supply AS
the total supply of goods and services avaliable to a perticular market from producers
Balance of Payments BOP
a record of all the monetary transactions made between the residents of the UK and other countries over a period of time. BOP indicates that a countries imports are more than its exports
Carbon Offsetting
where firms invest in green technology to offset their carbon footprint
Carbon Tax
a tax on carbon emissions produced by a company - an incentive to switch to cleaner energy
Circular Flow
how money moves through a society. producers-workers as wages then back to producers through consumption/payment of products
Classical Unemployment
unemployment resulting form an increase in wages above the free market equilibrium wage rate
Consumer Surplus
the extra benefit a consumer gains when the price they actually pay in the market is less than they would usually be prepared to pay (graph)
Consumer Price Index CPI
tracks the changes in the price in a number of goods and services consumed by a typical household - basket of goods
Current Account
records the payments of goods and services also investment income and transfers between an economy and the rest of the world
Credits
payment coming into an economy
Debits
payments leaving an economy
Cyclical Unemployment
unemployment that results from a general decline in economic activity - a recession (demand deficient unemployment)
Deflation
a fall in the average level of prices over time
Demand
the willingness and ability of consumers to purchase a given quantity of a good or service at a given point over a period of time
Demerit Goods
a good or service whose consumption is considered unhealthy, degrading or perceived to have negative effects on the consumers themselves - cigarettes
Direct Taxes
taxes imposed on factor incomes i.e. income and corporation tax, VAT. Paid by the individual directly to the government.
Division of Labour
the separation of a work process into a number of tasks which performed by different individuals to be more efficient
Economic Growth
refers to a rise in real national income. An increase in aggregate production in an economy - increased productivity of labour (output)
Economic Welfare
consumer + producer surplus (graph)
Equilibrium
a state of balance in an economy
Exchange Rate
the value of a country’s currency vs another country’s.
Expansionary Policy
undertaken when monetary or fiscal policy is used to inject extra demand in the circular flow of income to achieve economic growth. boosts demand through monetary and fiscal
Exports
the value of goods and services produced by a countries firms in a given period of time and are sold abroad
Imports
goods produced outside of one country which are purchased by another country
External Benefit
the benefit gained by an individual or firm as a result of an economic transaction, but they are not directly involved in the transaction
External Cost
also called third party costs
-the cost incurred by an individual, firm as a result of an economic transaction which they are not directly involved in
Factors in Production
the resources people use to produce goods and services
- land
- labour
- capital
- entrepreneurship
Fiscal Boost
as incomes fall in a recession the impact of falling gets softened as income earners pay lower taxes to retain more post-tax income
Fiscal Drag
when rising incomes push prices higher meaning that tax payers get pushed into a higher tax bracket
Fiscal Policy
government spending and taxation policies intended to maintain economic stability. Indicated through the levels of unemployment, interest rates, prices and economic growth
Government Failure
economic inefficiency and scarce resources
the government have to intervene in the market to correct market failure
Human Development Index HDI
- a measure of economic development and welfare in a country
- uses life expectancy, education and income levels
- produced as a score between 0-1
Inactivity Rate
the proportion of the population of working age who are not active in the labour market
-unemployed and not seeing employment
Incidence of Tax
the division of a tax burden between producers and consumers
who has to bear the tax - demand is more elastic than supply - producers will bear the cost of the tax
Income Effect
how the change in the price of a good can change the quantity that consumers will demand of that good and related goods, based on how the price change affects their real income
Indirect Tax
collected by one entity in the supply chain and paid t the government. This cost is passed onto the consumers as part of the purchase price of a good or service
Inferior Good
a good whose demand drops when peoples incomes rise
-consumers start buying costly substitutes instead
Injections
variables in an economy that add to the circular flow of incomes
include investments, gov. spending and exports
Investment
an asset or item acquired with the goal of generating income or appreciation.
Liquidity
the ease of which an asset or security can be converted into ready cash without affecting tis market price
i.e. Cash
Liquidity Trap
when monetary policy becomes ineffective due to very low interest rates combined with consumers who prefer to save rather than investing in higher-yielding bonds/ investments
Long Run Aggregate Supply
LRAS
when the output that an economy can produce when using all its factors in production, and operating at full employment
Long Tail
a business strategy that allows companies to sell low volumes of hard-to-find items to many customers rather than only selling large volumes of a reduced number of popular items
Market
an exchange of goods and services that takes place as a result of buyers and sellers being in contact with one another either directly or through agents
Marginal Cost
the change in the total cost when the quantity produced changes by one unit
-the cost of producing one more unit of a good
Marginal Propensity to Consume MPC
the proportion of an aggregate rise in pay that a consumer spends on the consumption of good and services as opposed to saving it
MPC = change in consumption/change in come
Market Failure
the insufficient distribution of goods and services in the free market.
Free Market
an economic system based on supply and demand with little or no gov. control
Maximum Price
a limit or cap on a price set by a gov. or organisation
-the highest price which can be set by the producer
Merit Good
when consumed provides external benefits
i.e. education and healthcare
Minimum Price
the lowest price that can legally be set
i.e. alcohol, minimum wage
Monetary Policy
the actions taken by a nations central bank to control money supply and achieve sustainable economic growth
Monetary Policy Committee MPC
a group of 9 individuals who set short term interest rates based on how the economy is working
Monopoly
a firm or company who have full market control and power
- they can be a result of free markets
- happen when they are the sole seller of a product
i. e. Microsoft
Moral Hazard
the risk that a party has not entered into a contract in good faith or has provided misleading information about its assets etc.
Movements
a change along a curve
Shifts
in demand or supply curve occurs when a goods quantity demanded or supplied changes even though price remains the same
Non-Accelterating Inflation Rate of Unemployment NAIRU
specific level of unemployment that is evident in an economy that does not cause inflation to increase
National Income
total value of a country’s final output of all new goods and services produced in one year
National Minimum Wage
lowest level of pay that is legally allowable
-amount employers can legally pay employees
Net Welfare Gain
the impact of a gov. policy or decision by firms on total economic welfare taking into account the gains and losses
Net Welfare Loss
loss of economic efficiency in terms of utility for consumers/producers such that the optimal efficiency is not achieved
Nominal Wages
wages expressed in a monetary form, do not take into account changes in price
Normal Good
a good that experiences an increase in its demand due to a rise in consumers’ income
i.e. food, clothing, household appliances
Normative Statement
cannot be tested or verified and is based on a value judgement
i.e.stating the price of housing is too expensive
Oligopoly
a market characterised by a small no. of firms who realise they are interdependent in their pricing and output policies.
small enough to give each firm some market power
Opportunity Cost
the potential benefits an individual/business misses out on when choosing one alternative over another
