Economics Flashcards A levels

absolute advantage

a situation where, for a given set of resources, one country can produce more of a particular product than another country;

absolute poverty

a condition where people's income is too low to enable them to meet their basic needs;

accelerator theory

a model that suggests investment depends on the rate of change in income;

active balances

the amount of money held by households or firms for possible near-future use;

actual economic growth

an increase in real GDP;

ad valorem tax

a tax that is charged as a given percentage of the price;

adverse selection

when sellers have information that buyers do not have on product quality or when buyers have information that sellers do not have on product quality;

aggregate demand (AD)

the total demand for an economy's goods and services at a given price level in a given time period;

aggregate expenditure

the total amount spent in the economy at different levels of income;

aggregate supply (AS)

the total output (real GDP) that producers in an economy are willing and able to supply at a given price level in a given time period;

aid

assistance given to other countries on favourable terms.

closed economy

an economy that does not trade with other economies;

collusion

an anti-competitive action by producers;

cross elasticity of demand

a measure of the responsiveness of the quantity demanded of one good to a change in the price of another good;

cross-subsidization

offsetting losses in one activity with profits from another;

crowding out

the decrease in private sector spending that occurs when government spending increases;

crowding in

just replacing the decrease in private spending with an increase in public spending;

current account

the sum of the balance of trade, net income from abroad, and net current transfers;

commercial banks

banks which aim to make a profit by providing a range of banking services to firms and households;

comparative advantage

a situation where a country can produce a product at a lower opportunity cost than another country;

compensation of employees

income of workers who work in another country for a short period of time;

complement

a good consumed with another;

concentration ratio

a measure of the combined market share of the biggest three, four or five firms in a market;

conglomerate

a company with a large number of diversified businesses;

credit creation

the process by which banks can make more loans than deposits available;

credit regulations

rules affecting bank lending;

consumer expenditure

spending by households on goods and services;

consumer price index (CPI)

a measure that shows the average change in the prices of a representative basket of products purchased by households;

consumers

individuals or households who buy goods and services for their own use or for others;

consumer surplus

the difference between the price a consumer is willing to pay for a product and its market price;

consumption

spending by households on goods and services;

consumption function

the relationship between income and consumption;

contestability

the extent to which barriers to entry into a market are free and exit from the market is costless;

contestable market

a market where entry is free and exit is costless;

contractionary fiscal policy

decreases in government spending and increases in taxes designed to reduce the growth of aggregate demand;

contraction of demand or supply

a decrease in the quantity demanded or quantity supplied;

cost-benefit analysis

a method of decision-making that takes into account the costs and benefits involved;

cost-push inflation

inflation caused by increases in costs of production;

counter-cyclically

going against the fluctuations in economic activity;

average propensity to consume (APC)

the proportion of income that is consumed;

average propensity to import (APM)

the proportion of income that is spent on imports;

average rate of taxation (ART)

the proportion of income that is taxed;

average revenue (AR)

revenue per unit of output;

balanced budget

government revenue equalling government expenditure;

balance (in the current account of the balance of payments)

debit items on the current account equalling credit items;

balance of payments account

a record of a country's economic transactions with the rest of the world over a year;

bank credit multiplier

the process by which banks can make more loans than deposits available;

barriers to entry

restrictions that prevent new firms entering an industry;

barrier to exit

a restriction that prevents a firm leaving a market;

barter

direct exchange of goods and services for other goods and services;

base year

the reference point in time. It is the starting year in an index and is given a value of 100;

current government spending

government spending on providing goods and services;

customs union

a trade bloc where there is free trade between member countries and a common external tariff on imports from non-members;

cyclical budget deficit

a budget deficit caused by a decline in economic activity;

cyclical unemployment

unemployment that results from a lack of aggregate demand;

deadweight welfare loss

the loss in welfare arising from an inefficient allocation of resources;

death rate

the number of deaths per thousand of the population in one year;

debtors

people, firms or governments who owe money;

decreasing returns to scale

where factor inputs increase at a proportionately faster rate than the increase in output;

deflationary gap

a shortage of aggregate expenditure so that potential output is not reached (equivalent to a negative output gap);

deflation

a sustained fall in the price level;

demand

the quantity of a product that consumers are willing and able to buy at different prices per period of time other things equal, ceteris paribus;

demand curve

a line plotted on a graph that represents the relationship between the quantity demanded and the price of a product;

demand deposit account

a bank account that allows the holder to make and receive payments;

demand-pull inflation

inflation caused by increases in aggregate demand not matched by equivalent increases in aggregate supply;

demand schedule

the data from which a demand curve is drawn on a graph;

demerit good

a good that is thought to be undesirable for consumers and is overprovided by the market because of information failure;

demographers

people who study changes in the structure of human populations;

dependency ratio

the proportion of the economically inactive compared to the labour force;

depreciation

a decrease in the international price of a currency caused by market forces;

depreciation (of capital goods)

the value of capital goods that have worn out or become out-of-date;

depression

a fall in real GDP that lasts several years;

deregulation

when barriers to entry into an industry are removed;

derived demand

where the demand for a good or service depends upon the use that can be made from it;

devaluation

a decision by the government to lower the international price of the country's currency;

development traps

restrictions on the growth of developing economies that arise from low levels of savings and investment;

direct taxes

taxes on income and wealth;

discouraged workers

workers who would like a job but who have given up actively seeking work after a period of trying to find work;

discretionary fiscal policy

deliberate changes in government spending and taxation;

diseconomies of scale

where long-run average costs increase as the scale of output increases;

disequilibrium

a situation where demand and supply are not equal in a market;

disequilibrium unemployment

unemployment that arises when the aggregate supply of labour is greater than the aggregate demand for labour at the current wage rate;

disinflation

a fall in the inflation rate;

disposable income

income minus direct taxes plus state benefits;

dissaving

consumer expenditure exceeds income, with people or countries drawing on past savings, or borrowing;

diversification

where a firm grows through the production or sale of a wide range of different products;

dividend payments

a share of a firm's profits paid to its shareholders;

divider

a share of a firm's profits paid to its shareholders;

division of labour

where a manufacturing process is split into a sequence of individual tasks;

double coincidence of wants

a situation where two people each have something the other one wants;

dumping

selling products in a foreign market at below their cost of production;

dynamic efficiency

when resources are allocated efficiently over time;

economically active

people in the labour force;

economically inactive

people who are not in the labour force;

economic and monetary union

co-ordination of policies and the operation of a single currency by a group of countries;

economic development

an increase in welfare and quality of life;

economic efficiency

where scarce resources are used in the most efficient way to produce maximum output;

economic growth

in the short run, an increase in a country's output and, in the long run, an increase in a country's productive potential;

economic rent

a payment made to a factor of production above that which is necessary to keep it in its current use;

economic system

the way in which production is organised and choices are made in an economy;