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P PM > Flashcards form Glossary > Flashcards

Flashcards form Glossary

1
Q

ability to pay principle

A

the idea that taxes should be levied on a person according to how well that person can shoulder the burden

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2
Q

abnormal profit

A

the profit over and above normal profit

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3
Q

absolute advantage

A

exists where a producer can produce a good using fewer factor inputs than another

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4
Q

absolute poverty

A

a level of poverty where an individual does not have access to the basics of life – food - clothing and shelter

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5
Q

accounting profit

A

total revenue minus total explicit cost

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6
Q

actual spending - saving or investment

A

the realized or ex post outcome resulting from actions of households and firms

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7
Q

ad valorem tax

A

a tax levied as a percentage of the price of a good

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8
Q

adaptive expectations

A

a model which states that individuals and organizations base their expectations of inflation in the future on past actual inflation rates
adverse selection

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9
Q

aggregate supply curve

A

a curve that shows the quantity of goods and services that firms choose to produce and sell at each price level
allocative efficiency

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10
Q

automatic stabilizers

A

changes in fiscal policy that stimulate AD when the economy goes into a recession - without policymakers having to take any deliberate action

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11
Q

autonomous spending or autonomous expenditure

A

spending which is not dependent on income/output

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12
Q

average fixed cost

A

fixed costs divided by the quantity of output

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13
Q

average revenue

A

total revenue divided by the quantity sold

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14
Q

average tax rate

A

total taxes paid divided by total income

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15
Q

average total cost

A

total cost divided by the quantity of output

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16
Q

average variable cost

A

variable costs divided by the quantity of output

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17
Q

balance of payments

A

the official account of international payments for the import and export of goods - services and capital

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18
Q

balanced budget

A

where the total sum of money received by a government in tax revenue and interest is equal to the amount it spends - including on any debt interest owing

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19
Q

balanced trade

A

a situation in which exports equal imports

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20
Q

bargaining process

A

an agreed outcome between two interested and competing economic agents
barriers to entry

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21
Q

benefits principle

A

the idea that people should pay taxes based on the benefits they receive from government services

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22
Q

birth rate

A

the number of people born per thousand of the population
bond

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23
Q

budget constraint

A

the limit on the consumption bundles that a consumer can afford
budget deficit

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24
Q

business cycle

A

fluctuations in economic activity such as employment and production

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25
Q

capital

A

the equipment and structures used to produce goods and services

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26
Q

capital flight

A

a large and sudden reduction in the demand for assets located in a country

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27
Q

capitalist economic system

A

a system which relies on the private ownership of factors of production to produce goods and services which are exchanged through a price mechanism and where production is operated primarily for profit

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28
Q

cartel

A

a group of firms acting in unison
catch-up effect

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29
Q

ceteris paribus (other things being equal)

A

a term used to describe analysis where one variable in the model is allowed to vary while others are held constant

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30
Q

choice set

A

the set of alternatives available to the consumer

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31
Q

classical dichotomy

A

the theoretical separation of nominal and real variables
club goods

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32
Q

common resources

A

goods that are rival but not excludable

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33
Q

comparative advantage

A

the comparison among producers of a good according to their opportunity cost. A producer is said to have a comparative advantage in the production of a good if the opportunity cost is lower than that of another producer

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34
Q

comparative statics

A

the comparison of one initial static equilibrium with another

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35
Q

compensating differential

A

a difference in wages that arises to offset the non-monetary characteristics of different jobs

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36
Q

competitive advantage

A

the advantages a firm has over rivals which are both distinctive and defensible

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37
Q

competitive market

A

a market in which there are many buyers and sellers so that each has a negligible impact on the market price

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38
Q

complements

A

two goods for which an increase in the price of one leads to a decrease in the demand for the other

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39
Q

compounding

A

the accumulation of a sum of money in - say - a bank account - where the interest earned remains in the account to earn additional interest in the future

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40
Q

concentration ratio

A

the proportion of total market share accounted for by a particular number of firms

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41
Q

constant returns to scale

A

the property whereby long-run average total cost stays the same as the quantity of output changes

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42
Q

constrained discretion

A

a monetary policy framework which acknowledges a clear goal (or target) but allows policymakers the freedom to respond to economic - financial and political shocks using all the data available and their collective judgement

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43
Q

Consumer Prices Index

A

a measure of the overall prices of the goods and services bought by a typical consumer

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44
Q

consumer surplus

A

a buyer’s willingness to pay minus the amount the buyer actually pays

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45
Q

consumption

A

spending by households on goods and services - with the exception of purchases of new housing

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46
Q

contestable market

A

a market in which entry and exit are free and costless

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47
Q

contraction

A

when real output is lower than the previous time period

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48
Q

copyright

A

the right of an individual or organization to own things they create in the same way as a physical object - to prevent others from copying or reproducing the creation

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49
Q

cost

A

the value of everything a seller must give up to produce a good

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50
Q

cost-benefit analysis

A

a study that compares the costs and benefits to society of providing a public good

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51
Q

cost of living

A

how much money people need to maintain standards of living in terms of the goods and services they can afford to buy

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52
Q

cost-push inflation

A

a short-run cause of accelerating inflation due to higher input costs of firms which are passed on as higher consumer prices

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53
Q

countercyclical

A

a variable that is below trend when GDP is above trend

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54
Q

counterfactual

A

analysis is based on a premise of what would have occurred if something had not happened

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55
Q

creative destruction

A

the process where new technologies replace old ones and new skills are needed which render existing skills obsolete

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56
Q

credit default swap

A

a means by which a bondholder can insure against the risk of default

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57
Q

credit risk

A

the risk a bank faces in defaults on loans

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58
Q

cronyism

A

a situation where the allocation of resources in the market is determined in part by political decision-making and favours rather than by economic forces
cross-price elasticity of demand

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59
Q

cross-subsidies

A

a situation where a firm is willing to accept lower profits or losses on some products to deter competition where these lower profits or losses are subsidized by higher profits made on other products in that same market

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60
Q

crowding out

A

a decrease in investment that results from government borrowing

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61
Q

currency

A

the paper banknotes and coins in the hands of the public

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62
Q

cyclical deficit

A

a situation when government spending and income is disrupted by the deviations in the ‘normal’ economic cycle

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63
Q

cyclical unemployment

A

the deviation of unemployment from its natural rate

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64
Q

dead labour

A

labour used in the past to produce capital goods and raw materials used in the production of a good

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65
Q

deadweight loss

A

the fall in total surplus that results from a market distortion - such as a tax

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66
Q

death rate

A

the number of deaths per thousand of the population

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67
Q

deflation

A

a fall in the price level over a period occurring when the inflation rate is less than 0 per cent
deflationary gap or output gap

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68
Q

demand schedule

A

a table that shows the relationship between the price of a good and the quantity demanded

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69
Q

de-merit goods

A

goods that are over-consumed if left to the market mechanism and which generate both private and social costs which are not taken into account by the decision maker

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70
Q

depreciation

A

a decrease in the value of a currency as measured by the amount of foreign currency it can buy

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71
Q

depression

A

a severe recession
derived demand

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72
Q

diminishing marginal product

A

the property whereby the marginal product of an input declines as the quantity of the input increases
diminishing marginal utility

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73
Q

direct taxes

A

a tax levied on income and wealth
discount rate

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74
Q

discrimination

A

the offering of different opportunities to similar individuals who differ only by race - ethnic group - gender - age or other personal characteristics
diseconomies of scale

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75
Q

disinflation

A

the reduction in the rate of inflation

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76
Q

diversification

A

the reduction of risk achieved by replacing a single risk with a large number of smaller unrelated risks

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77
Q

dominant strategy

A

a strategy that is best for a player in a game regardless of the strategies chosen by the other players

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78
Q

double coincidence of wants

A

a situation in exchange where two parties each have a good or service that the other wants and can thus enter into an exchange

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79
Q

economic activity

A

how much buying and selling goes on in the economy over a period of time

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80
Q

economic agents

A

an individual - firm or organization that has an impact in some way on an economy

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81
Q

economic growth

A

the increase in the amount of goods and services in an economy over a period of time

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82
Q

economic mobility

A

the movement of people among income classes

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83
Q

economic profit

A

total revenue minus total cost - including both explicit and implicit costs

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84
Q

economic rent

A

the amount a factor of production earns over and above its transfer earnings

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85
Q

economic system

A

the way in which resources are organized and allocated to provide for the needs of an economy’s citizens

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86
Q

economically inactive

A

people who are not in employment or unemployed due to reasons such as being in full-time education - being full-time carers and raising families

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87
Q

economics

A

the study of how society manages its scarce resources

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88
Q

economies of scale

A

the property whereby long-run average total cost falls as the quantity of output increases

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89
Q

economies of scope

A

a situation where a firm’s average cost of production is reduced as a result of the production of a variety of products which can share factor inputs

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90
Q

economy

A

all the production and exchange activities that take place

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91
Q

effective demand

A

the amount that people are not only willing to buy at different prices but what they can and do actually purchase

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92
Q

efficiency

A

the property of a resource allocation
efficiency wages

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93
Q

endogenous growth theory

A

a theory that the rate of economic growth in the long run - is determined by the rate of growth in total factor productivity and this total factor productivity is dependent on the rate at which technology progresses

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94
Q

endogenous variable

A

a variable whose value is determined within the model

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95
Q

endowment effect

A

where the value placed on something owned is greater than on an identical item not owned

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96
Q

Engel curve

A

a line showing the relationship between demand and levels of income

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97
Q

entry limit pricing

A

a situation where a firm will keep prices lower than they could be in order to deter new entrants

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98
Q

equilibrium or market price

A

the price where the quantity demanded is the same as the quantity supplied

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99
Q

equilibrium quantity

A

the quantity bought and sold at the equilibrium price

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100
Q

equity

A

the property of distributing economic prosperity fairly among the members of society

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101
Q

European Central Bank

A

the overall central bank of the 19 countries comprising the European Monetary Union

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102
Q

European Economic and Monetary Union

A

the European currency union that has adopted the euro as its common currency

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103
Q

European Union

A

a family of democratic European countries committed to working together for peace and prosperity

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104
Q

eurosystem

A

the system made up of the ECB plus the national central banks of each of the 19 countries comprising the European Monetary Union

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105
Q

excludable

A

the property of a good whereby a person can be prevented from using it when they do not pay for it

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106
Q

exogenous variable

A

a variable whose value is determined outside the model

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107
Q

expected utility theory

A

the idea that preferences can and will be ranked by buyers

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108
Q

explicit costs

A

input costs that require an outlay of money by the firm

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109
Q

exports goods produced domestically and sold abroad leading to an inflow of funds into a country

A
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110
Q

external economies of scale

A

the advantages of large-scale production that arise through the growth and concentration of the industry

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111
Q

externality

A

the cost or benefit of one person’s decision on the well-being of a bystander (a third party) which the decision maker does not take into account when making the decision

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112
Q

falsifiability

A

the possibility of a theory being rejected as a result of the new observations or new data

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113
Q

fiat money

A

money without intrinsic value that is used as money because of government decree

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114
Q

financial economy

A

that part of the economy associated with the buying and selling of assets on financial markets

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115
Q

financial intermediaries

A

financial institutions through which savers can indirectly provide funds to borrowers

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116
Q

financial markets

A

financial institutions through which savers can directly provide funds to borrowers

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117
Q

financial system

A

the group of institutions in the economy that help to match one person’s saving with another person’s investment

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118
Q

fiscal federalism

A

a fiscal system for a group of countries involving a common fiscal budget and a system of taxes and fiscal transfers across countries

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119
Q

Fisher effect

A

the one-for-one adjustment of the nominal interest rate to the inflation rate

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120
Q

fixed costs

A

costs that are not determined by the quantity of output produced

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121
Q

foreign direct investment

A

capital investment that is owned and operated by a foreign entity

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122
Q

foreign portfolio investment

A

investment that is financed with foreign money but operated by domestic residents

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123
Q

framing effect

A

the differing response to choices dependent on the way in which choices are presented

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124
Q

free rider

A

a person who receives the benefit of a good but avoids paying for it

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125
Q

frictional unemployment

A

unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills

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126
Q

full employment

A

a point where those people who want to work at the going market wage level are able to find a job

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127
Q

fundamental analysis

A

the study of a company’s accounting statements and future prospects to determine its value

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128
Q

future value

A

the amount of money in the future that an amount of money today will yield - given prevailing interest rates

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129
Q

game theory

A

the study of how people behave in strategic situations

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130
Q

GDP at constant prices

A

gross domestic product calculated using prices that existed at a particular base year which takes into account changes in inflation over time

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131
Q

GDP at current or market prices

A

gross domestic product calculated by multiplying the output of goods and services by the price of those goods and services in the reporting year

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132
Q

GDP deflator

A

a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100

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133
Q

general equilibrium

A

a theory where all markets in an economy are in equilibrium and the millions of individual decisions aggregate to balance supply and demand and result in an efficient allocation of resources

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134
Q

generalization

A

the act of formulating general concepts or explanations by inferring from specific instances of an event or behaviour

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135
Q

geographical immobility

A

where people are unable to take work because of the difficulties associated with moving to different regions

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136
Q

Giffen good

A

a good for which an increase in the price raises the quantity demanded

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137
Q

gig economy

A

a labour market in which workers have short-term - freelance or zero hours contracts with employers and where workers are more akin to being self-employed than employed

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138
Q

Gini coefficient

A

a measure of the degree of inequality of income in a country

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139
Q

gold standard

A

a system in which the currency is based on the value of gold and where the currency can be converted to gold on demand

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140
Q

government deficit

A

a situation where a government spends more than it generates in tax revenue over a period

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141
Q

government failure

A

a situation where political power and incentives distort decision-making so that decisions are made which conflict with economic efficiency

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142
Q

government spending

A

spending on goods and services by local - state and national governments

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143
Q

Great Moderation (The)

A

the period of economic stability characterized by relatively low inflation - high employment - low unemployment and stable and persistent growth

144
Q

gross domestic product (GDP)

A

the market value of all final goods and services produced within a country in a given period of time

145
Q

gross domestic product per capita

A

the market value of all goods and services produced within a country in a given period of time divided by the population of a country to give a per capita figure

146
Q

gross value added

A

the contribution of domestic producers - industries and sectors to an economy

147
Q

heterodox economics

A

a term which represents an array of different schools of thought in economics that are outside what may be considered the mainstream or orthodox economics

148
Q

heuristics

A

short cuts or rules of thumb that people use in decision-making

149
Q

horizontal equity

A

the idea that taxpayers with similar abilities to pay taxes should pay the same amount

150
Q

human capital

A

the accumulation of investments in people - such as education and on-the-job training

151
Q

hyperinflation

A

a period of extreme and accelerating increase in the price level

152
Q

hypothesis

A

an assumption - tentative prediction - explanation - or supposition for something

153
Q

hysteresis

A

the lagging effects of past economic events on future ones

154
Q

idiosyncratic risk

A

risk that affects only a single economic actor

155
Q

imperfect competition

A

exists where firms are able to differentiate their product in some way and so can have some influence over price
implicit costs

156
Q

income elasticity of demand

A

a measure of how much quantity demanded of a good responds to a change in consumers’ income - computed as the percentage change in quantity demanded divided by the percentage change in income

157
Q

indexed

A

the automatic correction of a money amount for the effects of inflation by law or contract

158
Q

indifference curve

A

a curve that shows consumption bundles that give the consumer the same level of satisfaction

159
Q

indirect tax

A

a tax levied on the sale of goods and services

160
Q

inference

A

a conclusion or explanation derived from evidence and reasoning
inferior good

161
Q

inflation

A

an increase in the overall level of prices in the economy

162
Q

inflation rate

A

the percentage change in the price index from the preceding period
inflation tax

163
Q

inflationary gap

A

the difference between full employment output and actual expenditure when actual expenditure is greater than full employment output
informationally efficient

164
Q

interest elasticity of demand and supply

A

the responsiveness of the demand and supply of loanable funds to changes in the interest rate

165
Q

internal economies of scale

A

the advantages of large-scale production that arise through the growth of the firm

166
Q

internalizing an externality

A

altering incentives so that people take account of the external effects of their actions

167
Q

intertemporal choice

A

where decisions made today can affect choices facing individuals in the future

168
Q

intertemporal substitution effect

A

the response of economic actors to changes in the interest rate by changing consumption and savings decisions

169
Q

interventionist supply-side policies

A

policies focused on improving the working of markets through investing in infrastructure - education and research and development

170
Q

investment

A

spending on capital equipment - inventories and structures - including household purchases of new housing

171
Q

investment or mutual fund

A

an institution that sells shares to the public and uses the proceeds to buy a portfolio of stocks and bonds

172
Q

involuntary unemployment

A

where people want work at going market wage rates but cannot find employment

173
Q

isocost line

A

a line showing the different combination of factor inputs which can be purchased with a given budget

174
Q

job search

A

the process by which workers find appropriate jobs given their tastes and skills

175
Q

labour

A

the human effort - both mental and physical - that goes into production

176
Q

labour force

A

labour force the total number of workers - including both the employed and the unemployed

177
Q

labour force participation rate (or economic activity rate)

A

the percentage of the adult population that is in the labour force

178
Q

Laffer curve

A

the relationship between tax rates and tax revenue

179
Q

lagging indicator

A

an indicator whose changes occur after changes in economic activity have occurred
land

180
Q

leading indicator

A

an indicator which can be used to foretell future changes in economic activity
leveraging

181
Q

libertarianism

A

the political philosophy according to which the government should punish crimes and enforce voluntary agreements but not redistribute income
life cycle

182
Q

living wage

A

an hourly rate set independently - based on an estimation of minimum household needs which provide an ‘acceptable’ standard of living in the UK
logrolling

183
Q

lump-sum tax

A

a tax that is the same amount for every person

184
Q

macroeconomics

A

the study of economy-wide phenomena - including inflation - unemployment and economic growth

185
Q

macroprudential policy

A

policies designed to limit the risk across the financial sector by focusing on improving ‘prudential’ standards of operation that enhance stability and reduce risk

186
Q

marginal abatement cost

A

the cost expressed in terms of the last unit of pollution not emitted (abated)
marginal changes

187
Q

marginal product of labour

A

the increase in the amount of output from an additional unit of labour

188
Q

marginal propensity to consume

A

the fraction of extra income that a household consumes rather than saves

189
Q

marginal propensity to save

A

the fraction of extra income that a household saves rather than consumes

190
Q

marginal rate of substitution

A

the rate at which a consumer is willing to trade one good for another

191
Q

marginal rate of technical substitution

A

the rate at which one factor input can be substituted for another at a given level of output

192
Q

marginal revenue

A

the change in total revenue from an additional unit sold

193
Q

marginal revenue product

A

the extra revenue a firm gets from hiring an additional unit of a factor of production

194
Q

marginal tax rate

A

the extra taxes paid on an additional unit of income

195
Q

marginal utility

A

the addition to total utility as a result of consuming one extra unit of a good

196
Q

mark to market

A

an accounting procedure which records the ‘fair value’ of an asset on financial institutions’ balance sheets

197
Q

market

A

a group of buyers and sellers of a particular good or service

198
Q

market economy

A

an economy that addresses the three key questions of the economic problem by allocating resources through the decentralized decisions of many firms and households as they interact in markets for goods and services

199
Q

market failure

A

a situation where scarce resources are not allocated to their most efficient use

200
Q

market for loanable funds

A

the market in which those who want to save supply funds - and those who want to borrow to invest demand funds

201
Q

market-orientated supply-side policies

A

policies designed to free up markets to improve resource allocation through more effective price signals

202
Q

market power

A

the ability of a single economic agent (or small group of agents) to have a substantial influence on market prices or output

203
Q

market segments

A

the breaking down of customers into groups with similar buying habits or characteristics

204
Q

market share

A

the proportion of total sales in a market accounted for by a particular firm

205
Q

maximin criterion

A

the claim that the government should aim to maximize the well-being of the worst-off person in society

206
Q

medium of exchange

A

an item that buyers give to sellers when they want to purchase goods and services
menu costs

207
Q

minimum wage

A

the lowest price an employer may legally pay to a worker

208
Q

model of aggregate demand and aggregate supply

A

the model that many economists use to explain short-run fluctuations in economic activity around its long-run trend

209
Q

monetary neutrality

A

the proposition that changes in the money supply do not affect real variables

210
Q

monetary policy

A

the set of actions taken by the central bank in order to affect the money supply

211
Q

money

A

the set of assets in an economy that people regularly use to buy goods and services from other people

212
Q

money market

A

the market in which the commercial banks lend money to one another on a short-term basis

213
Q

money stock

A

the quantity of money circulating in the economy

214
Q

money supply

A

the quantity of money available in the economy

215
Q

monopolistic competition

A

a market structure in which many firms sell products that are similar but not identical

216
Q

monopoly

A

a firm that is the sole seller of a product without close substitutes
monopsony

217
Q

moral hazard

A

the tendency of a person who is imperfectly monitored to engage in dishonest or otherwise undesirable behaviour
multiplier effect

218
Q

Nash equilibrium

A

a situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the other actors have chosen

219
Q

national debt

A

the accumulation of the total debt owed by a government

220
Q

national saving (saving)

A

the total income in the economy that remains after paying for consumption and government purchases

221
Q

natural monopoly

A

a monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms

222
Q

natural rate hypothesis

A

the claim that unemployment eventually returns to its normal - or natural - rate - regardless of the rate of inflation

223
Q

natural rate of output

A

the output level in an economy when all existing factors of production (land - labour - capital and technology resources) are fully utilized and where unemployment is at its natural rate

224
Q

natural rate of unemployment

A

the normal rate of unemployment around which the unemployment rate fluctuates

225
Q

natural resources

A

the inputs into the production of goods and services that are provided by nature - such as land - rivers and mineral deposits

226
Q

negative externality

A

the costs imposed on a third party of a decision

227
Q

negative income tax

A

a tax system that collects revenue from high-income households and gives transfers to low-income households

228
Q

neo-classical synthesis

A

the idea that markets can be slow to adjust in the short run due to sticky prices and sticky wages but revert to long-run classical principles which could be aided by appropriate use of fiscal and monetary policies

229
Q

net capital outflow

A

the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners

230
Q

net exports

A

spending on domestically produced goods and services by foreigners (exports) minus spending on foreign goods by domestic residents (imports)

231
Q

nominal exchange rate

A

the rate at which a person can trade the currency of one country for the currency of another

232
Q

nominal GDP

A

the production of goods and services valued at current prices

233
Q

nominal interest rate

A

the interest rate as usually reported without a correction for the effects of inflation

234
Q

nominal variables

A

variables measured in monetary units

235
Q

non-accelerating inflation rate of unemployment

A

the rate of unemployment in the long run - consistent with a stable rate of inflation
non-stationary data

236
Q

normal profit

A

the minimum amount required to keep factors of production in their current use
normative statements

237
Q

objective well-being

A

measures of the quality of life using specified indicators.

238
Q

occupational immobility

A

where workers are unable to easily move from one occupation to another

239
Q

Okun’s law

A

a ‘law’ which is based on observations that in order to keep the unemployment rate steady - real GDP needs to grow at or close to its potential

240
Q

oligopoly

A

competition amongst the few – a market structure in which only a few sellers offer similar or identical products and dominate the market

241
Q

open market operations

A

the purchase and sale of non-monetary assets from and to the banking sector by the central bank

242
Q

opportunity cost

A

whatever must be given up to obtain some item; the value of the benefits foregone (sacrificed)

243
Q

optimum currency area

A

a group of countries for which it is optimal to adopt a common currency and form a currency union

244
Q

outright open market operations

A

the outright sale or purchase of non-monetary assets to or from the banking sector by the central bank without a corresponding agreement to reverse the transaction at a later date

245
Q

Pareto improvement

A

when an action makes at least one economic agent better off without harming another economic agent

246
Q

patent

A

the right conferred on the owner to prevent anyone else making or using an invention or manufacturing process without permission

247
Q

payoff matrix

A

a table showing the possible combination of outcomes (payoffs) depending on the strategy chosen by each player

248
Q

peak

A

a point where related economic variables begin to decline

249
Q

perfect complements

A

two goods with right-angle indifference curves
perfect price discrimination

250
Q

perfect substitutes

A

two goods with straight line indifference curves

251
Q

permanent income

A

a person’s normal income

252
Q

permanent income hypothesis

A

a theory which suggests that consumers will smooth consumption over their lifetime in relation to their anticipated long-term average income

253
Q

Phillips curve

A

a curve that shows the short-run trade-off between inflation and unemployment
Pigovian tax

254
Q

positive statements

A

claims that attempt to describe the world as it is
poverty line

255
Q

poverty rate

A

the percentage of the population whose family income falls below an absolute level called the poverty line

256
Q

Prebisch–Singer hypothesis

A

a hypothesis suggesting that the rate at which primary products exchange for manufactured goods declines over time meaning that countries specialising in primary good production become poorer

257
Q

predatory or destroyer pricing

A

a situation where firms hold price below average cost for a period to try and force out competitors or prevent new firms from entering the market

258
Q

present value

A

the amount of money today that would be needed to produce - using prevailing interest rates - a given future amount of money

259
Q

price ceiling

A

a legal maximum on the price at which a good can be sold

260
Q

price–consumption curve

A

a line showing the consumer optimum for two goods as the price of one of the goods changes - assuming incomes and the price of the good are held constant

261
Q

price discrimination

A

the business practice of selling the same good at different prices to different customers

262
Q

price elasticity of demand

A

a measure of how much the quantity demanded of a good responds to a change in the price of that good - computed as the percentage change in quantity demanded divided by the percentage change in price

263
Q

price elasticity of supply

A

a measure of how much the quantity supplied of a good responds to a change in the price of that good - computed as the percentage change in quantity supplied divided by the percentage change in price

264
Q

price floor

A

a legal minimum on the price at which a good can be sold

265
Q

price level

A

a snapshot of the prices of goods and services in an economy at a particular period of time

266
Q

principal

A

a person for whom another person - called the agent - is performing some act

267
Q

prisoner’s dilemma

A

a particular ‘game’ between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial

268
Q

private goods

A

goods that are both excludable and rival

269
Q

private saving

A

the income that households have left after paying for taxes and consumption
private sector

270
Q

privatization

A

the transfer of publicly owned assets to private sector ownership
procyclical

271
Q

producer prices index

A

a measure of the prices of a basket of goods and services bought by firms
producer surplus

272
Q

production isoquant

A

a function representing all possible combinations of factor inputs that can be used to produce a given level of output
production possibilities frontier

273
Q

productivity

A

the quantity of goods and services produced from each hour of a worker or factor of production’s time

274
Q

progressive tax

A

a tax for which high-income taxpayers pay a larger fraction of their income than do low-income taxpayers

275
Q

property rights

A

the exclusive right of an individual - group or organization to determine how a resource is used

276
Q

proportional tax (or flat tax)

A

a tax for which high-income and low-income taxpayers pay the same fraction of income

277
Q

prospect theory

A

a theory that suggests people attach different values to gains and losses and do so in relation to some reference point
public choice theory

278
Q

public goods

A

goods that are neither excludable nor rival

279
Q

public interest

A

making decisions based on a principle where the maximum benefit is gained by the largest number of people at minimum cost
public saving

280
Q

purchasing power parity

A

a theory of exchange rates whereby a unit of any given currency should be able to buy the same quantity of goods in all countries

281
Q

quantity demanded

A

the amount of a good that buyers are willing and able to purchase at different prices

282
Q

quantity equation

A

the equation (M x V = P x Y ) - which relates the quantity of money - the velocity of money - and the currency value of the economy’s output of goods and services

283
Q

quantity supplied

A

the amount of a good that sellers are willing and able to sell at different prices
quantity theory of money

284
Q

random walk

A

the path of a variable whose changes are impossible to predict

285
Q

rational

A

the assumption that decision-makers can make consistent choices between alternatives

286
Q

rational expectations

A

the theory according to which people optimally use all the information they have - including information about government policies - when forecasting the future

287
Q

rational ignorance effect

A

the tendency of a voter to not seek out information to make an informed choice in elections

288
Q

real economy

A

that part of the economy which is concerned with the production of goods and services

289
Q

real exchange rate

A

the rate at which the goods and services of one country trade for the goods and services of another

290
Q

real GDP

A

the measure of the value of output in the economy which takes into account changes in prices over time

291
Q

real interest rate

A

the interest rate corrected for the effects of inflation

292
Q

real money balances

A

what money can actually buy given the ratio of the money supply to the price level M/P

293
Q

real variables

A

variables measured in physical units
real wage

294
Q

recession

A

a period of declining real incomes and rising unemployment. The technical definition gives recession occurring after two successive quarters of negative economic growth

295
Q

refinancing rate

A

the interest rate at which the European Central Bank lends on a short-term basis to the euro area banking sector

296
Q

regressive tax

A

a tax for which high-income taxpayers pay a smaller fraction of their income than do low-income taxpayers

297
Q

regulatory capture

A

a situation where regulatory agencies become unduly influenced and dominated by the industries they are supposed to be regulating

298
Q

relative position

A

the idea that humans view their own position against a reference point which provides a means of comparison on feelings of well-being

299
Q

relative poverty

A

a situation where an individual is not able to access what would be considered acceptable standards of living in society

300
Q

relative prices

A

price expressed in terms of how much of one good has to be given up in purchasing another

301
Q

rent seeking

A

where individuals or groups take actions to redirect resources to generate income (rents) for themselves or the group

302
Q

repo rate

A

the interest rate at which the Bank of England lends on a short-term basis to the UK banking sector

303
Q

repurchase agreement

A

the sale of a non-monetary asset together with an agreement to repurchase it at a set price at a specified future date

304
Q

retail banking

A

the core banking service of taking in deposits and making loans to households and businesses

305
Q

risk

A

the probability of something happening which results in a loss or some degree of hazard or damage

306
Q

risk averse

A

exhibiting a dislike of uncertainty
rival

307
Q

sacrifice ratio

A

the number of percentage points of annual output lost in the process of reducing inflation by 1 percentage point

308
Q

satisficers

A

those who make decisions based on securing a satisfactory rather than optimal outcome

309
Q

Say’s law

A

an argument that production or supply is a source of demand - that supply creates its own demand

310
Q

scarcity

A

the limited nature of society’s resources
Schengen area

311
Q

screening

A

an action taken by an uninformed party to induce an informed party to reveal information
securitization

312
Q

shoe leather cost

A

the resources wasted when inflation encourages people to reduce their money holdings
shortage

313
Q

stagflation

A

a period of falling output and rising prices

314
Q

standard of living

A

refers to the amount of goods and services that can be purchased by the population of a country. Usually measured by the inflation-adjusted (real) income per head of the population

315
Q

stationary data

A

time-series data that has a constant mean value over time

316
Q

steady-state equilibrium

A

the point in a growing economy where investment spending is the same as spending on depreciation and the capital–output ratio remains constant

317
Q

stochastic trend

A

where trend variables change by some random amount in each time period

318
Q

stock (or share or equity)

A

a claim to partial ownership and the future profits in a firm

319
Q

store of value

A

an item that people can use to transfer purchasing power from the present to the future

320
Q

strike

A

the organized withdrawal of labour from a firm by a union

321
Q

structural deficit

A

a situation where a government’s deficit is not dependent on movements in the economic cycle

322
Q

structural unemployment

A

unemployment that results because the number of jobs available in some labour markets is insufficient to provide a job for everyone who wants one

323
Q

sub-prime market

A

individuals not traditionally seen as being part of the financial markets because of their high credit risk

324
Q

subjective well-being

A

the way in which people evaluate their own happiness
subsidy

325
Q

substitution effect

A

the change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new marginal rate of substitution

326
Q

sunk cost

A

a cost that has already been committed and cannot be recovered

327
Q

supply curve

A

a graph of the relationship between the price of a good and the quantity supplied

328
Q

supply schedule

A

a table that shows the relationship between the price of a good and the quantity supplied

329
Q

supply shock

A

an event that directly alters firms’ costs and prices - shifting the economy’s AS curve and thus the Phillips curve

330
Q

surplus

A

a situation in which the quantity supplied is greater than the quantity demanded at the going market price

331
Q

synergies

A

where the perceived benefits of the combined operations of a merged organization are greater than those which would arise if the firms stayed separate

332
Q

systemic risk

A

the risk of failure across the whole of the financial sector

333
Q

tacit collusion

A

when firm behaviour results in a market outcome that appears to be anti-competitive but has arisen because firms acknowledge that they are interdependent

334
Q

tariff

A

a tax on goods produced abroad and sold domestically
tax incidence

335
Q

theory of liquidity preference

A

Keynes’ theory that the interest rate adjusts to bring money supply and money demand into balance

336
Q

time-series data

A

observations on a variable over a time-period and which are ordered over time

337
Q

total expenditure

A

the amount paid by buyers - computed as the price of the good times the quantity purchased

338
Q

total revenue

A

the amount received by sellers of a good - computed as the price of the good times the quantity sold

339
Q

total surplus

A

the total value to buyers of the goods - as measured by their willingness to pay - minus the cost to sellers of providing those goods

340
Q

total utility

A

the satisfaction gained from the consumption of a good

341
Q

trade balance

A

the value of a nation’s exports minus the value of its imports; also called net exports

342
Q

trade deficit

A

an excess of imports over exports
trade-off

343
Q

trough

A

the point where related economic variables begin to rise

344
Q

utilitarianism

A

the political philosophy according to which the government should choose policies to maximize the total utility of everyone in society

345
Q

unemployment insurance

A

a government programme that partially protects workers’ incomes when they become unemployed

346
Q

unemployment rate

A

the percentage of the labour force that is unemployed
union

347
Q

value

A

the worth to an individual of owning an item represented by the satisfaction derived from its consumption and their willingness to pay to own it

348
Q

value of the marginal product

A

the marginal product of an input times the price of the output

349
Q

variable costs

A

costs that are dependent on the quantity of output produced

350
Q

velocity of money

A

the rate at which money changes hands

351
Q

vertical equity

A

the idea that taxpayers with a greater ability to pay taxes should pay larger amounts
voluntary unemployment

352
Q

wealth

A

the total of all stores of value - including both money and non-monetary assets

353
Q

welfare economics

A

the study of how the allocation of resources affects economic well-being

354
Q

wholesale banking

A

that part of banking dealing with corporate finance and investment in financial instruments

355
Q

willingness to pay

A

the maximum amount that a buyer will pay for a good

356
Q

world price

A

the price of a good that prevails in the world market for that good

357
Q

x-inefficiency

A

the failure of a firm to operate at maximum efficiency due to a lack of competitive pressure and reduced incentives to control costs

P PM (16 decks)

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