Glossary terms Flashcards
absolute poverty
- the inability of an individual or a family to afford a basic standard goods and services, where the standard is absolute and unchanging over time
- determines the minimum income that can sustain a family in terms of its basic needs
actual output
- quantity of output actually produced by an economy
- occurs inside PPC because of unemployed resources and productive inefficiency
- can be higher or lower than potential output (if there’s inflationary or deflationary gap) or it may be equal to potential output (long-run equilibrium)
ad valorem taxes
- taxes calculated as a fixed percentage of the price of the good or service
- amount of taxes increases as the price increases
administrative barriers
- trade protection measures in the form of administrative procedures that countries can use to prevent free flow of imports into a country (NOTE: not the obvious trade protection measures like tariffs)
ex) controls on packaging, customs procedures like inspections
aggregate demand
the total quantity of goods and services that all buyers in an economy want to buy over a particular time period at different possible price levels, ceteris paribus.
aggregate supply
the total quantity of goods and services produced in an economy over a particular time period, at different price levels, ceteris paribus.
allocative efficiency
- an allocation of resources that results in producing the combination and quantity of goods and services mostly preferred by consumers
- achieved when the economy allocates its resources so that no one can become better off from consumption without someone else becoming worse off (P=MC)
anti-dumping
- justifies trade protection policies
- if a country’s trading partner practices dumping, the country can impose trade protection measures to limit quantities of dumped good
appreciation of a currency
-increase in the value of a currency in a floating exchange rate system or managed exchange rate system
appropriate technology
-technologies well suited to a country’s particular economic, geographical, ecological and climate conditions
automatic stabilisers
- factors that automatically work toward stabilizing the economy by reducing the short term fluctuations of the business cycle
- include progressive income taxes and unemployment benefits
balance of payments
- a record of all transactions between the residents of a country and the residents of other countries, showing all payments received from other countries (credits), and all payments made to other countries (debits)
- sum of credits should be equal to sum of debits
balance of trade in goods
the value of exports of goods minus the value of imports of goods over a specific time (usually a year)
balance of trade in services
the value of exports of services minus the value of imports of services over a specific time (usually a year)
balance on capital account
the sum of inflows minus outflows of funds in the capital account of the balance of payments
balance on current account
the sum of inflows minus outflows of funds in the current account of the balance of payments
balance on financial account
the sum of inflows of funds minus outflows in the financial account of the balance of payments
bilateral trade agreement
any trade agreement involving two trading partners, usually two countries. It can also involve a trade agreement between one country and another group of countries when this group acts as a single unit
Ex) European Union
budget deficit
-the government’s budget, where government tax revenues are less than government expenditures over specific period of time (usually a year)
business confidence
a measure of the degree of optimism among firms in an economy about the future performance of firms and the economy
business cycle
fluctuations in the growth of real output, or real GDP, consisting of alternating periods of expansion (increasing real output) and contraction (decreasing real output)
cap and trade scheme
- a scheme in which a government authority sets a limit or ‘cap’ on the amount of pollutants that can be legally emitted by a firm, set by an amount of pollution permits distributed to firms
- firms that want to pollute more can buy more permits, while firms that want to pollute less can sell their excess permits
capital
- one of the factors of production
- also known as “physical capital”, including machinery, equipment, buildings, etc.
- “human capital” refers to skills, abilities, knowledge and levels of good health acquired by people
- “natural capital” has to do with the factor of production ‘land’
- “financial capital” includes stocks and bonds
capital account
inflows minus outflows of funds for
- capital transfers’ (like debt forgiveness and non-life insurance claims)
- purchase or use of non-produced natural resources (like mineral rights, forestry rights, fishing rights, airspace)
capital expenditures
include public investments, or the production of physical capital, such as building roads and schools
capital liberalisation
free movement of financial capital in and out of a country, occurring through the elimination by the government of exchange controls
capital transfers
- part of the capital account
- include inflows minus outflows for debt forgiveness, non-life insurance claims, and invetment
carbon tax
a tax per unit of carbon emissions of fossil fuels, considered by many countries as a policy to deal with the climate change problems
central bank
a financial institution that is responsible for regulating the country’s financial system and commercial banks, and carrying out monetary policy
ceteris paribus
- “other things being equal”
- all other things are assumed to be constant or unchanging
circular flow of income model
model showing the flow of resources from consumers (households) to firms, and the flow of products from firms to consumers, as well as money flows consisting of consumers’ income arising from the sale of their resources and firms’ revenues arising from the sale of their products
clean technology
technology that is not polluting, associated with environmental sustainability; includes solar power, wind power, hydropower, recycling, etc
closed economy
an economy that has no international trade
commercial bank
a financial institution (private or public) whose main functions are to hold deposits for their customers (consumers and firms), to make loans to their customers, to transfer funds by check from one bank to another, and to buy government bonds
common access resources
resources that are not owned by anyone, do not have a price, and are available for anyone to use (ex. lakes, fish in open seas, ozone layer); their depletion leads to environmental unsustainablity
common market
a type of trading bloc in which countries that have formed a customs union proceed further to eliminate any remaining tariffs in trade between them; they continue to have a common external policy, and agree to eliminate all restrictions on movements of any factors of production
Ex) European Economic Community (EEC), the precursor of the present European Union
Competitive market
a market composed of many buyers and sellers acting independently, none of whom has any ability to influence the price of the product
competitive supply
two goods compete with each other for the same resources
ex) if a farmer can produce wheat or corn, producing more of one means producing less of the other
competition
occurs when there are many buyers and sellers acting independently, so that no one has the ability to influence the price at which the product is sold in the market
complements (complementary goods)
- two or more goods that tend to be used together
- an increase in the price of one will lead to a decrease in the demand of the other
ex) a bike and a bike helmet
composite indicator
summary measure of more than one indicator, often used to measure economic development
ex) HDI that measures income, education and health indicators
concessional loan
loans that are offered as part of foreign aid, made on concessional terms; they are offered at interest rates that are lower than commercial rates, with longer repayment periods
conditional assistance
development assistance provided by bilateral or multilateral development organizations, which is extended to countries on condition that they satisfy certain requirements, usually requiring that they adopt particular policies
consumer confidence
a measure of the degree of optimism of consumers about their future income and the future of the economy
consumer price index
a measure of the cost of living for the typical household
consumer surplus
the difference between the highest prices consumers are willing to pay for a good and the price actually paid
consumption
spending by households on goods and services (excludes spending on housing)
contractionary fiscal policy
fiscal policy that is usually pursued in an inflation, involving a decrease in government spending or an increase in taxes (or both)
contractionary monetary policy
monetary policy that is usually pursued in an inflation, involving an increase in interest rates, intended to lower investment and consumption spending
core rate of inflation
a rate of inflation based on a consumer price index that excludes goods with highly unstable prices, notably food and energy prices
cost-push inflation
a type of inflation cased by a fall in aggregate supply, in turn resulting from increases in costs of production
credit items
the payments received from other countries, entering the balance of payments accounts with a plus sign; they represent an inflow of foreign exchange into a country
cross-price elasticity of demand (XED)
- a measure of the responsiveness of the demand for one good to a change in the price of another good; measured by the percentage change in the quantity of one good demanded divided by the percentage change in the price of another good
- if XED>0, two goods are substitutes
- if XED<0, two goods are complements
crowding-out
possible impacts on real GDP of increased government spending (expansionary fiscal policy) financed by borrowing; if increased government borrowing results in a higher rate of interest, this could reduce private investment spending, thus reversing the impacts of the government’s expansionary fiscal policy
current account
-includes the balance of trade (exports o minus imports of goods) plus the balance on services (exports of services minus imports of services), plus inflows minus outflows of income and current transfers
current account deficit
occurs when the current account balance has a negative value, meaning that debits are larger than credits (there is excess of debits)
current account surplus
occurs when the current account balance has a positive value, meaning that credits are larger than debits (there is excess of credits)
current expenditures
- refers to government spending on day-to-day items that are recurring and items that are consumed as a good or service is provided
- include wages and salaries (for gov’t employees), spending for supplies and equipment for daily operation of gov’t activities (ex. school supplies and medical supplies), provision of subsidies, and interest payments on gov’t loans
current transfers
an item in the current account of the balance of payments, refers to inflows and outflows of funds for items including gifts, foreign aid, and pensions
customs union
-a type of trading bloc, consisting of a group of countries that fulfil the requirements of a free trade area (eliminating trade barriers) and adopt a common policy towards all non-member countries
-achieves a higher degree of economic integration than a free trade area, but lower than a common market
Ex) European Union
cyclical unemployment
a type of unemployment that occurs during the downturns of the business cycle, when the economy is in a recessionary gap; the downturn is seen as arising from declining or low aggregate demand, and therefore is also known as ‘demand-deficient’ unemployment
debit items
payments made to other countries, entering the balance of payments accounts with a minus sign; they represent an outflow of foreign exchange from a country
deciles
division of a population into ten equal groups with respect to the distribution of a variable, such as income; for example, the lowest income decile refers to 10% of the population with the lowest income
deficit
the deficiency of something compared with something else
- In the balance of payments, a ‘deficit’ in an account occurs when the credits (inflows of money from abroad) are smaller than the debits (outflows of money to other countries)
- In the case of government budget, a ‘deficit’ occurs when government revenues are smaller than government expenditures
deflation
a continuing decrease in the general price level
demand
the various quantities of a good that consumers (or a consumer) are willing and able to buy at different possible prices during specific time period, ceteris paribus
demand management
policies that focus on the demand side of the economy, attempting to influence aggregate demand to achieve the goals of price stability, full employment and economic growth
demand-pull inflation
a type of inflation caused by an increase in aggregate demand, shown in the AD-AS model as a rightward shift in the AD curve
demand-side policies
policies that attempt to change AD in order to achieve the goals of prices stability, full employment and economic growth, and minimize the severity of the business cycle
-in inflationary/recessionary gap, they try to bring AD to the full employment level of real GDP, or potential GDP.
demerit goods
- goods that are considered to be undesirable for consumers and are overprovided in the market
- reasons for over provision: goods have negative externalities, or consumers are ignorant of harmful effects
depreciation
decrease in the value of currency in the context of a floating exchange rate system or managed exchanged rate system
deregulation
policies involving the elimination or reduction of government regulation of private sector activities, based on the argument that government regulation stifles competition and increases inefficiency
determinants of aggregate demand
factors that influence consumption spending (C), investment spending (I), gov’t spending (G), and net exports (Xn)
devaluation
decrease in the value of currency in the context of a fixed exchange rate system
development aid
foreign aid intended to help economically less development countries; may involve project aid, programme aid, technical assistance or debt relief
direct investment
in the balance of payments, refers to inflows or outflows of funds for the purpose of foreign direct investment
direct taxes
taxes paid directly to the gov’t tax authorities by the taxpayer, including personal income taxes, corporate income taxes and wealth taxes
disinflation
refers to a fall in the rate of inflation; it involves a positive rate of inflation
NOTE: It is different from “deflation”
disposable income
the income of consumers that is left over after the payment of income taxes
distribution of income
concerned with how much of an economy’s total income different individuals or different groups in the population receive, and involves answering the ‘for whom’ basic economic question
diversificatoin
change involving greater variety, and is used to refer to increasing the variety of goods and services produced and/or exported by a country
Note: OPPOSITE of “specialization”
dual economy
arises when there are two different and opposing sets of circumstances that exist simultaneously, often found in economically less developed countries, such as wealthy, educated groups co-existing with poor, illiterate groups
dumping
the practice of selling a good in international markets at a price that is below the cost of producing it (usually by providing export subsidies); while it is illegal according to international trade rules, many countries practice it anyway.
economic development
- broad-based rises in the standard of living and well-being of a population, particularly in economically less developed countries
- involves increasing income levels and reducing poverty, reducing income inequalities and unemployment, and increasing provision of access to basic goods and services such as food, education, health care
economic efficiency
condition that arises when allocative efficiency is achieved
economic growth
-increases in total real output produced by an economy (real GDP) over time
OR
-increases in real output (real GDP) per capita
economically less developed countries
countries that have a per capital GNI below a particular level (which changes from year to year) according to World Bank’s classification system
economically more developed countries
countries that have a per capital GNI above a particular level according to World Bank’s classification system
economics
the study of choices leading to the best possible use of scarce resources in order to best satisfy unlimited human needs and wants
elasticity
a measure of the responsiveness or sensitivity of a variable to changes in any of the variable’s determinants
entrepreneurship
- one of the factors of production
- involves a special human skill that includes the ability to innovate by developing new ways of doing things, to take business risks and to seek new opportunities for opening and running a business
equilibrium
a state of balance such that there is no tendency to change
equilibrium level of output
the level of output (real GDP) where the aggregate demand curve intersects the aggregate supply curve
equilibrium price
the price determined in a market when quantity demanded is equal to quantity supplied, and there is no tendency for the price to change
equilibrium quantity
the quantity that is bought and sold when a market is in equilbrium
equity
condition of being fair or just; should be contrasted with “equality”
errors and omissions
refers to an item that is included to account for possible omissions and errors in items that have been included or excluded, in order to ensure that the balance of payments balances
excess demand
occurs when the quantity of a good demanded is greater than the quantity supplied, leading to a SHORTAGE of the good
excess supply
occurs when the quantity of a good demanded is smaller than the quantity supplied, leading to a SURPLUS
exchange rate
the rate at which one currency can be exchanged for another, or the number of units of foreign currency that correspond to the domestic currency; can be thought of as the ‘price’ of a currency, which is expressed in terms of another currency
excise taxes
taxes imposed on spending on particular goods or services
ex) gasoline/petrol
excludable
a characteristic of goods according to which it is possible to exclude people from using the good by charging a price for it
expansionary fiscal policy
a fiscal policy usually pursued in a recession, involving an increase in government spending or decrease in taxes (or both)
expansionary monetary policy
monetary policy usually pursued in a recession, involving a decrease in interest rates, intended to increase investment and consumption spending
expenditure approach
- a method used to measure the value of aggregate output of an economy, which adds up all spending on final goods and services produced within a given time period
- equivalent to measurement by the income approach and output approach
expenditure flow
it is the flow of spending from households to firms to buy the goods and services provided by the firms
export promotion
- a growth and trade strategy where a country attempts to achieve economic growth by expanding its exports
- looks outward towards foreign markets and is based on stronger links between the domestic and global ecnomics
externality
occurs when the actions of consumers or producers give rise to positive or negative side-effects on other people who are not part of these actions, and whose interests are not taken into consideration
factors of production
all resources or inputs (land, labor, capital, entrepreneurship) used to produce goods and services
financial account
refers to inflows minus outflows of funds due to foreign direct investment, portfolio investment and changes in reserve assets
fiscal policy
manipulations by the gov’t of its own expenditures and taxes in order to influence the level of AD
fixed exchange rate
an exchange rate that is fixed by the central bank of a country, and is not permitted to change in response to changes in currency supply and demand
fixed exchange rate system
an exchange rate system where exchange rates are fixed by the central bank
foreign aid
consists of concessional financial flows from the developed world to economically less developed countries, and includes concessional loans and grants
foreign debt
refers to external debt, meaning the total amount of debt (public and private) incurred by borrowing from foreign creditors
FDI (foreign direct investment)
- refers to investment by firms based in one country in productive activities in another country
- firms that undertake FDI are “multinational corporations”
foreign exchange
refers to foreign national currencies
free rider problem
- occurs when people can enjoy the use of a good without paying for it, and arises from non-excludability: people cannot be excluded from using the good, because it is not possible to charge a price
- is often associated with public goods, which are a type of market failure: due to the free rider problem, private firms fail to produce these goods
free trade
the absence of government intervention of any kind in international trade, so that trade takes place without any restrictions (or barriers) between individuals or firms in different countries
free trade area
- a type of trading bloc, consisting of a group of countries that agree to eliminate trade barriers between themselves; it is the most common type of integration area, and involves a lower degree of economic integration than a customs union or common market
- each member country can pursue its own trade policy towards non-member countries
ex) NAFTA
freely floating exchange rate
- an exchange rate determined entirely by market forces, or the forces of supply and demand
- no gov’t intervention in the foreign exchange market to influence the value of the exchange rate
freely floating exchange rate system
an exchange rate system where exchange rates are determined entirely by market forces
frictional unemployment
- a type of unemployment that occurs when workers are between jobs; workers may leave their job because they have been fired, or because their employer went out of business, or because they are in search of a better job
- tends to be short-term
full employment
- in the context of PPC model, it’s the maximum use of all resources in the economy to produce the maximum quantity of goods and services that the economy is capable of producing, implying ZERO unemployment.
- in the context of AD-AS model, it’s the natural rate of unemployment; it refers to the employment of labour resources
full employment level of output (real GDP)
the level of output at which unemployment is equal to the natural rate of unemployment; the level of output (real GDP) where there is no deflationary or recessionary gap
GDP per capita
gross domestic product divided by the number of people in the population; an indicator of the amount of domestic output per person in the population
Gini coefficient
- a summary measure of the information contained in the Lorenz curve of an economy
- the area between the diagonal and the Lorenz curve, divided by the entire area under the diagonal.
- value is between 0 and 1. The larger, the greater income inequality.
GNI per capita
gross national income divided by the number of people in the population; an indicator of the amount of income in an economy per person in the population
government budget
a type of plan of a country’s tax revenues and government expenditures over a period of time (usually a year)
government intervention
the practice of government to intervene in markets, preventing the free functioning of the market, usually for the purpose of achieving particular economic or social objectives
government spending
spending undertaken by the government, as part of its fiscal policy or as part of an effort to meet particular economic and social objectives (such as provision of subsidies, provision of public goods, etc)
grant
a type of foreign aid consisting of funds that are in effect gifts (they don’t have to be repaid)
green GDP
gross domestic product which has been adjusted to take into account environmental destruction and/or health consequences of environmental problems
GDP
a measure of the value of aggregate output of an economy, it is the market value of all final goods and services produced within a country during a given time period (usually a year)
GNI
a measure of the total income received by the residents of a country, equal to the value of all final goods and services produced by the factors of production supplied by the country’s residents regardless of where the factors are located; GDN=GDP plus income from abroad minus income sent abroad
hidden unemployment
unemployment that is not counted in official unemployment statistics because of such factors as the exclusion of ‘discouraged workers’, the practice of considering part-time workers as full-time workers, and others
household indebtedness
the degree to which households have debts
human capital
the skills, abilities and knowledge acquired by people, as well as good levels of health, all of which make them more productive; considered to be a kind of ‘capital’ because it provides a stream of future benefits by increasing the amount of output that can be produced in the future
HDI
a composite indicator of development which includes income per capita, levels of health and educational attainment; is considered to be a better indicator of development than single indicators such as GNI per capita
humanitarian aid
foreign aid extended in regions where there are emergencies caused by violent conflicts or natural disaster such as floods, earthquakes and tsunamis, intended to save lives, ensure access to basic necessities such as food, water, shelter and health care, and provide assistance with reconstruction
import subsittution
- refers to a growth and trade strategy where a country begins to manufacture simple consumer goods oriented towards the domestic market (such as shoes, textiles, beverages) in order to promote its domestic industry
- it presupposes the imposition of protective measures (tariffs, quotas, etc.) that will prevent the entry of imports that compete with domestic producers
incentive-related policies
- policies involving reduction of various types of taxes, in the expectation that the tax cuts will change the incentives faced by taxpayers
- type of supply side policy
income
in the current account of the balance of payments, it refers to inflows of wages, rents, interest and profits earned abroad minus the same income factors that are sent abroad
income approach
a method used to measure the value of aggregate output of an economy, which adds up all income earned by the factors of production in the course of producing all goods and services within a country in a given time period
income elastic demand
- relatively high responsiveness of demand to changes in income
- YED (income elasticity of demand) > 1
income elasticity of demand
- measure of the responsiveness of demand to changes in income
- percentage change in quantity demanded divided by the percentage change in price
income flow
in the simple circular flow of income model, refers to the flow of income of households that they receive by selling their factors of production to firms
income inelastic demand
-relatively low responsiveness of demand to changes in income
YED<1
indebtedness
the level of debt, or the amount of money owed to creditors
industrial policies
- government policies designed to support the growth of the industrial sector of an economy
- can include support for small and medium0sized firms or support for infant industries through tax cuts, grants, low interest loans and other measures, as well as investment in human capital, research and development, or infrastructure development in support of industry
infant industry
a new domestic industry that has not had time to establish itself and achieve efficiencies in production, and may therefore be unable to compete with more ‘mature’ competitor firms from abroad
inferior good
-a good the demand for which varies negatively (or indirectly) with income
-as income increases, the demand for the good decreases
Ex) McDonald’s coffee
inflation
a continuing increase in the general price level
inflation targeting
- a type of monetary policy carried out by some central banks that focuses on achieving a particular inflation target, rather than focusing on the goals of low and stable rate of inflation and low unemployment
- common inflation targets are between 1.5% and 2.5%
inflationary gap
a situation where real GDP is greater than potential GDP, and unemployment is lower than the natural rate of unemployment
injections
in the circular flow of income model, refer to the entry into income flow of funds corresponding to investment, government spending or exports
interest
- a payment, per unit of time, for the use of borrowed money
- a payment, per unit of time, to owners of capital resources
interest rate
interest expressed as a percentage
IMF (International Monetary Fund)
an international financial institution whose purpose is to make short-term loans to governments on commercial terms (non-concessional) in order to stabilize exchange rates, alleviate balance of payments difficulties and help countries meet their foreign debt obligations
Interventionist policy
any policy based on government intervention in the market
interventionist supply-side policy
any policy based on government intervention in the market intended to affect the supply-side of the economy, usually to shift the LRAS curve to the right, increase potential output and achieve long term economic growth
investment
includes spending by firms or the government on capital goods
joint supply
refers to production of two or more goods that are derived from a single product, so that it is not possible to produce more of one without producing more of the other
ex) butter and skimmed milk are both produced from whole milk, and producing more of one means producing more of the other as well.
Keynesian aggregate supply curve
an aggregate supply curve that has a flat (horizontal) section, and upward sloping section and a vertical section
labor
a factor of production, which includes the physical and mental effort that people contribute to the production of goods and services
labor market flexibility
- refers to the operation of market forces (supply and demand) in the labor market
- can be achieved by reducing or eliminating interference with market forces (ex. reducing minimum wages and labor union activities)
labor market reforms
reforms intended to make labor markets more competitive and flexible, to make wages respond to the forces of supply and demand, to lower labor costs and increase employment by lowering the natural rate of unemployment
ex) abolishing or reducing minimum wages, reducing job security
labor market rigidities
factors preventing the forces of supply and demand from operating in the labor market, and therefore preventing labor market flexibility
ex) include minimum wage legislation
land
- a factor of production which includes all natural resources; land and agricultural land, minerals, oil reserves, underground water, forests, rivers, lakes
- also known as “natural capital”
law of demand
a law stating that there’s a negative casual relationship between the price of a good and quantity of the good demanded, over a particular time period, ceteris paribus
law of supply
a law stating that there is a positive casual relationship between the price of a good and quantity of the good supplied, over a particular time period, ceteris paribus
leakages
in the circular flow of income model, refer to the withdrawal from the income flow of funds corresponding to savings, taxes or imports
long-run aggregate supply (LRAS) curve
- a curve showing the relationship between real GDP produced and the price level when wages change to reflect changes in the price level, ceteris paribus
- is vertical at the full employment level of GDP, indicating that in the long run the economy produces potential GDP, which is independent of the price level
long run
- in microeconomics, it’s a time period in which all inputs can be changed; there are no fixed inputs
- in macroeconomics, it’s the period of time when prices of resources (especially wages) change along with changes in the price level
long-run equilibrium level output
the level of output (real GDP) that results when the economy is in long run equilibrium, occurring when the aggregate demand and short-run aggregate supply curves intersect at a point on the long run aggregate supply curve
long term growth trend
- in the business cycle diagram, refers to the line that runs through business cycle curve, representing average growth over long periods of time
- shows how output grows over time when cyclical fluctuations are ironed out
Lorenz curve
- illustrates the degree of equality of income distribution in an economy
- plots the cumulative percentage of income received by cumulative shares of the population
- the closer the Lorenz curve is to the straight line, the greater the equality in income distribution
luxuries
- goods that aren’t necessary or essential
- have a price elastic demand (PED>1) and income elastic demand (YED>1)
macroeconomic objectives
include full employment, low rate of inflation, economic growth, an equitable distribution of income and external balance
managed exchange rates
- exchange rates that are mostly free to float to their market levels over long periods of time
- but central banks periodically intervene to stabilize them over the short term
managed exchange rate system
also known as the “managed float”
marginal benefit
the extra or additional benefit received from consuming one more unit of a good
marginal cost
the extra or additional cost of producing one more unit of output
marginal private benefits (MPB)
the extra benefit received by customers when they consume one more unit of a good
marginal private costs (MPC)
the extra costs to producers of producing one more unit of a good
marginal social benefits (MSB)
- the extra benefits to society of consuming one more unit of a good
- same as MPB when there are no consumption externalities
marginal social costs (MSC)
- the extra costs to society of producing one more unit of a good
- same as MPC when there are no production externalities
market
any kind of arrangement where buyers and sellers of a particular good, service or resource are linked together to carry out an exchange
market demand
the sum of all individual consumer demands for a good or service
market equilibrium
occurs where quantity demanded is equal to quantity supplied, and there is no tendency for the price or quantity to change
market failure
occurs where quantity demanded is equal to quantity supplied, and there is no tendency for the price or quantity to change where too much or too little goods or services are produced and consumed from the point of view of what is socially most desirable
market supply
the sum of all individual firm supplies of a good or service
market-based supply-side policy
- any policy based on promoting well-functioning, competitive markets in order to influence the supply-side of the economy, usually to shift the LRAS curve to the right, increase potential output and achieve long term economic growth
ex) labor market reforms, competition policies and incentive-related policies
market-oriented policy
a policy in which government intervention is limited, economic decisions are made mainly by the private decision-makers and the market has significant freedom to determine resource allocation
maximum price
- a legal price set by the government, which is BELOW the market equilibrium price
- doesn’t allow the price to rise to its equilibrium level determined by a free market (aka price ceiling)
merit goods
- goods that are held to be desirable for consumers, but which are underprovided by the market
- reasons for underprovision can be that the good has positive externalities, or consumers with low incomes can’t afford it, or consumer ignorance about the good’s benefits
micro-credit
- a programme to provide credit (loans) in small amounts to people who don’t have access to credit
- short repayment periods
MDGs
- eight development goals adopted by the Millennium Declaration of 2000
ex) eradicating extreme poverty and hunger, achieving universal primary education, reducing child mortality, promoting gender equality
minimum price
- a legal price set by the government which is ABOVE the market equilibrium price
- this doesn’t allow the price to fall to its equilibrium level determined by a free market (aka price floor)
minimum wage
a minimum price of labor set by governments in the labor market, in order to ensure that low-skilled workers can earn a wage high enough to secure them with access to basic goods and services
monetarist/new classical model
both monetarist and the new classical are based on the importance of the price mechanism in coordinating economic activities, the concept of competitive market equilibrium, and thinking about the economy as a harmonious system that automatically tends toward full employment
monetary policy
policy carried out by central bank, aiming to change interest rates in order to influence AD
money
- anything that is acceptable as payment for goods and services
- consists of currency and checking accounts
multilateral development assistance
lending to developing countries to assist their development on non-concessional terms by multilateral organizations
ex) World Bank, IMF
multilateral trade agreement
- a trade agreement between many countries
- mainly carried out within the framework of the WTO and involve agreements between WTO member countries
multinational corporation (MNC)
- a firm involved in foreign direct investment (FDI)
- based in one country (home country) and undertakes productive investments in another country
national income
- the total income of an economy
- interchangeable with “the value of aggregate output” in the context of macroeconomic models
national income statistics
statistical data used to measure an economy’s national income and output as well as other measures of economic performance
necessities
- goods that are necessary or essential
- have a price inelastic demand (PED<1)
- have income inelastic demand (YED<1)
negative externality
- a type of externality where the side-effects on third parties are negative or harmful
- known as “spillover costs”
negative externality of consumption
a negative externality caused by consumption activities, leading to a situation where MSB
negative externality of production
a negative externality caused by production activities, leading to a situation where MSC>MPC
net exports
value of exports minus the value of imports
nominal GDP
GDP measured in terms of current (or nominal) prices, which are prices prevailing at the time of measurement
nominal value
value that is in money terms, measured in terms of prices that prevail at the time of measurement, and doesn’t account for changes in the price level
non-excludable
- a characteristic of some goods where it’s not possible to exclude someone from using a good, because it’s not possible to charge a price
- one of the two characteristics of public goods
non-governmental organizations (NGOs)
- non-profit organizations that provide a very wide range of services and humanitarian functions
- provide foreign aid in the form of grants in developing countries
- involved with emergency assistance, promotion of sustainable development, poverty alleviation, protection of child health, provision of technical assistance, etc
non-price rationing
the apportioning or distributing of goods among interested users/buyers through means other than price
- often necessary when there are price ceilings
ex) waiting in line, underground markets
non-produced, non-financial assets
a part of the capital account of the balance of payments, which includes a variety of items such as mineral rights, forestry rights, fishing rights and airspace
non-rivalrous
- a characteristic of some goods where the consumption of the good by a person doesn’t reduce consumption by someone else
- one of the two characteristics of public goods
