Key Definitions Flashcards
Supply
The quantity of a good or service that producers are willing and able to supply at a given time period and price
Demand
The quantity of a good or service that consumers are willing and able to purchase at a given time period and price
Elasticity
A measure of the sensitivity of one variable to changes in another variable
Positive/Negative Externalities
The possible positive/negative spillover effect to an innocent third party not involved in the production or consumption of a good for which they receive no compensation
Inflation definition
A general sustained and persistent rise in the price level of an economy over a given time period
Deflation definition
A general sustained and persistent fall in the price level of an economy over a given time period at a negative figure
Disinflation definition
A general sustained and persistent fall in the price level in comparison to the last measure of an economy over a given time period
Price elasticity of demand
A measure of the sensitivity of quantity demanded in response to a change in its price
Cross-Price elasticity of demand
A measure of the sensitivity of quantity demanded for one good in response to the change in price of another good or service
Income Elasticity of demand
A measure of the sensitivity of quantity demanded in response to a change in consumer income
Price elasticity of supply
A measure of the sensitivity of quantity supplied in response to a change in its price
Indirect Tax
A tax levied on expenditure on goods or services
Direct Tax
A tax levied directly on income
Subsidy
A grant given by the government to producers to encourage its production
Aggregate Demand
The total amount of effective demand in an economy
Aggregate Supply
The total amount of effective supply in an economy
Sticky prices
Pricing that is resistant to changing market conditions;
due to shoe leather costs, menu costs, unit of account costs
Fiscal Policy
Use of taxation and government spending to manage AD in order to achieve the government’s macroeconomic aims
Fiscal Drag
Inflation or income growth moves taxpayers into higher tax brackets
Consumer surplus
A buyers willingness to pay for a product minus what they actually pay
Producer surplus
The difference between the amount the producer is willing to supply goods for and the actual amount received for the good
Deadweight loss
Excess burden, a measure of lost economic efficiency
Supply side policies
Government policies designed to increase the rate of economic growth across the whole economy
Monetary policy
A policy laid by the central bank, making changes to the management of the money supply and interest rate
Balance of payments
Consists of current account*, capital account and financial account
- further consists or trade in goods, trade in services, investment income and transfers
Current Account
Trade in goods/services, investment income, transfers
Capital Account
Reflects net change in national ownership of assets
Financial Account
Transactions in financial assets and liabilities
Exchange Rate
The rate at which one currency can be converted into another
Terms of trade
A measure of the ratio of export prices and import prices
Absolute advantage
One country has an absolute advantage over the other country if it can produce the same amount of goods with fewer resources
Comparative advantage
A country has a comparative advantage in the production of a commodity that it produces at a lower opportunity cost than its trading partners
Assumptions about comparative advantage
No transport costs
Factors are perfectly mobile
No tariffs or trade barriers
Perfect knowledge
Order of economic integration
Increasing integration ^
1. Political Union
2. Fiscal Union
3. Monetary Union
4. Common Market
5. Customs Union
6. Free Trade Area
7. Preferential Trade Area
8. Independant Economy
