ECONOMICS 144 A1 Vocabulary Flashcards

Vocabulary flashcards covering key terms, concepts, definitions, and equations across Units 1 through 3 for Economics 144 A1.

Narrow Labour Force

The measure of the labour force that includes employed individuals plus unemployed individuals seeking work, while excluding discouraged work seekers.

Broad Labour Force

The measure of the labour force that includes employed individuals, unemployed work seekers, and discouraged work seekers.

Nominal Wage ($W$)

The actual money paid to workers for their labour.

Real Wage ($w$)

The purchasing power of a worker's wage, defined mathematically as $w = \frac{W}{P}$, where $W$ is the nominal wage and $P$ is the price level.

Wage-Setting (WS) Curve

The curve showing the real wage firms must set to recruit and motivate workers at each aggregate employment level ($N$).

Price-Setting (PS) Curve

The curve determining the real wage consistent with firms' price-setting behavior, given labour productivity and product market markup.

Reservation Wage

The minimum wage rate required to make accepting a job worthwhile for a worker compared to their next-best outside option.

Employment Rent

The net benefit or economic value a worker receives from being employed relative to their next-best alternative, which is lost if dismissed.

No-Shirking Wage

The wage level above the reservation wage that firms must offer to ensure that job loss is sufficiently costly to motivate worker effort.

Markup ($\mu$)

The profit margin set by firms, defined as a proportion of price: $\mu = \frac{P - MC}{P}$.

Lorenz Curve

A graphical representation of income distribution that plots cumulative population shares against cumulative income shares.

Gini Coefficient

A summary metric of inequality derived from the Lorenz diagram, calculated as $\text{Gini} = \frac{A}{A + B}$, where 0 represents perfect equality and 1 represents complete inequality.

Market Income

Income generated from market activities prior to government taxation and transfer redistribution.

Disposable Income

The income available to households for consumption or saving after accounting for direct taxes and government transfers.

Segmented Labour Markets

Labour markets divided into distinct sub-markets where different worker groups face non-identical opportunities, wages, and entry barriers.

Autonomous Consumption ($c_0$)

The baseline level of planned spending on consumption that occurs independently of current disposable income.

Marginal Propensity to Consume ($c_1$ / MPC)

The proportion of an additional unit of disposable income that a household spends on consumption.

Marginal Propensity to Save (MPS)

The fraction of an additional unit of disposable income saved by households, satisfying $\text{MPC} + \text{MPS} = 1$.

Marginal Propensity to Import ($m$)

The change in import spending generated by an additional unit of national income.

Consumption Smoothing

The practice of spreading consumption over time so that current spending changes less than one-for-one with temporary income fluctuations.

Credit Constraints

Limits placed on household borrowing that prevent individuals from achieving desired consumption smoothing when facing negative income shocks.

Value Added

The monetary value of output produced by a firm minus the value of intermediate inputs used in production.

Purchasing Power Parity (PPP)

An economic adjustment metric that equalizes the purchasing power of different currencies to enable cross-country living-standard comparisons.

Self-Insurance

An individual strategy using private savings or borrowing to buffer income fluctuations against personal economic shocks.

Co-Insurance

A risk-pooling arrangement among social networks, families, or government institutions (such as unemployment benefits) to share the burden of income shocks.