Textbook Glossary Flashcards
Abnormal profit
Arises when total revenue of a firm is greater than its total costs; alternatively when average revenue is greater than average cost, or price is greater than average cost.
absolute advantage
Refers to the ability of a country to produce a good using fewer resources than another country, in other words, the ability of a certain amount of resources in a country to produce more than the same resources can produce in another country.
absolute poverty
The inability of an individual or a family to afford a basic standard of goods and services, where this standard is absolute and unchanging over time; it is defined in relation to a nationally or internationally determined poverty line, which determines the minimum income that can sustain a family in terms of its basic needs.
abuse of market power
Occurs when firms engage in activities that restrict competition.
actual growth (PPC)
In the context of the production possibilities (PPC model), it is growth that occurs due to reduction of unemployment or improvement in efficiency of resource use, resulting in a movement of a point inside the PPC to a point closer to the PPC in the northeast direction.
administrative barriers
Trade protection measures taking the form of administrative procedures that countries may use to prevent the free flow of imports into country; may include customs procedures involving inspections and valuation, controls on packaging, and others. Often considered to be a kind of ‘hidden’ trade protection.
adverse selection
A type of asymmetric information where one party has more information than the other party about the quality of the product being sold. If the seller has more information, such as when selling a used car, the buyer will reduce demand. If the buyer has more information, such as regarding one’s health condition when buying health insurance, the seller will reduce supply. The result in both cases is underallocation of resources to the good or service.
aggregate demand
The total quantity of goods and services that all buyers in an economy (consumers, firms, the government and foreigners) want to buy over a particular time period, at different possible price levels, ceteris paribus
aggregate demand curve
A curve used in macroeconomics showing the relationship between the total amount of real output demanded by the four components (consumers, firms, government, foreigners) and the economy’s price level over a particular time period, 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. The condition for allocative efficiency is given by MSB=MSC(marginal social benefit =marginal social cost or P = MC (price is equal to marginal cost); alternatively it is when social surplus is maximum.
allocative inefficiency
The absence of allocative efficiency; when MSB # MSC (or P + MC).
anchoring
Part of behavioural economics, involve the use of irrelevant information to make decisions, which often occurs due to its being the first piece of information that the consumer happens to come across.
anti-dumping
An argument that justifies trade protection policies: if a country’s trading partner is suspected of practicing dumping (selling a good in international markets at a price below the cost of producing it), then the country should have the right to impose trade protection measures (tariffs or quotas) to limit imports of the dumped good; dumping is illegal according to international trade rules.
appreciation (of a currency)
An increase in the value of a currency in the context of a floating exchange rate system or managed exchange rate system.
appropriate technology
Technologies that are well- suited to a country’s particular economic, geographical, ecological and climate conditions. Often used in connection with labour-abundant developing countries that require labour-intensive (as opposed to capital- intensive) technologies.
asymmetric information
A type of market failure where buyers and sellers do not have equal access to information, usually resulting in an underallocation of resources to the production of goods and services, as parties to a transaction with less access to information try to protect themselves against the consequences of the information asymmetry.
automatic stabilisers (business cycle)
Factors that automatically, without any action by government authorities, work toward stabilising the economy by reducing the short- term fluctuations of the business cycle. Two important automatic stabilisers are progressive income taxes and unemployment benefits.
availability (behavioral economics)
A term from behavioural economics, refers to use of information that is most recently available, which people tend to rely on more heavily, though there is no reason that this information is any more reliable than previously available information.
average costs
Costs per unit of output, or the cost of each unit of output on average. They are calculated by dividing total cost by the number of units of output produced.
average revenue
Revenue per unit of output sold, calculated by dividing total revenue by the number of units of output produced.
average tax rate
Tax paid divided by total income, expressed as a percentage (i.e. tax paid divided by total income multiplied by 100).
balance of payments
A record (usually for a year) of all transactions between the residents of a country and the residents of all other countries, showing all payments received from other countries (credits), and all payments made to other countries (debits).
balance of trade in goods
Part of the balanceof payments, it is the value of exports of goods minus the value of imports of goods over a specific period of time (usually a year).