Economics Definitions/Explain - Key Taskwords.

Cost Benefit Analysis

• A comparison of the expected costs and the expected benefits of a particular course of action or project. Government uses this to decide on project viability.

Marginal Propensity To consume

• Measures the change in consumption, that would result from a one dollar increase in income. (a number between 0-1). determines how much person or household is likely to spend on consumption (goods and services) rather than save. e.g Someone getting a pay raise and deciding how to spend it.

Budgetory policy

The manipulation of the level of composition of federal governments receipts and outlays in order to assist in the achievement of its economic and social goals for australia.

Monetary Policy

A policy operated by the RBA on behalf of the government and involves the manipulation of key financial variables in the economy (primarily interest rates) in order to achieve specific economic goals and ultimately improve living standards and welfare of all Australians.

Consumer Sovereignty

Where consumers primarily determine what will be produced via their purchasing decisions. Effects the use of resources and economic decisions made by businesses/governments.

Production

Process of converting resources and inputs into goods and services, or the total volume (or value) of goods and services produced over a given time period. Apart of the production, income and expenditure period.

Income

Money that is typically that is typically received on a regular or recurring basis. (e.g. wages and salaries)

Dynamic efficiency

How quickly resources can be reallocated from one activity to another

Expenditure

An alternative word for ‘spending’ or ‘demand’.

Relative Scarcity

A situation where resources are limited compared to demands placed upon those resources via wants and needs

Allocative efficiency

A type of efficiency measured by how well resources are being allocated in the economy, where living standards/welfare are maximised.

Marginal Utility

The satisfaction that consumers gain from consuming an additional unit of a good or service.

Technical efficiency

When its not possible to increase output without increasing input. (resources)

Production is at maximum but costs are at a minimum

Material Living standards

Living standards that are measured by access to goods and services.

Non material Living standards

The aspect of a persons quality of life that cannot be measured by monetary factors.

Intertemporal Efficiency

How well resources are allocated over different time periods. stable balance between current consumption and future consumption

Economic activity

Volume (or real value) of production employment income and expenditure in an economy.

Positive economics

Fact based economic statements

Normative economics

Economic statements based upon opinions or value judgements.

Externalities

An externality arises when the production or consumption of a good or service has an effect

(positive or negative, third party or bystander - someone not part of the transaction)

Oppurtunity cost

The value of the next best alternative that is foregone whenever a choice is made. Sometimes referred to as an economic cost

Economic Agents

An entity, such as a person, household, government or business that makes economic decisions

Net benefits

Benefit less costs. Can either be positive or negative

Trade-offs

Foregoing the opportunity to gain something of value with our time or money once we use our time or spend money on some other activity (or goods and services)