Economic Terms

Absolute poverty

People earning below internationally defined levels of income, currently USD 1.90 per day

Administrative barriers

Non-tariff barriers designed to stop or slow imports

Aggregate demand (AD)

Total value of goods and services demanded by different groups at a given price level in an economy

Aggregate supply (AS)

The total output that all firms in a country are able to produce at any given price level

Balance of payments

A record of transactions in trade, income, transfers and capital flows between one country and the rest of the world over a given period of time

Main components of the balance of payments

Current account, capital account and financial account 

Bilateral trade agreement

Preferential trade agreement (PTA) related to the reduction/removal of trade barriers for specific goods/services between countries

Boom

Peak of the business cycle. Consumer and producer confidence is high; the economy grows and unemployment falls

Budget deficit

When government expenditure is greater than tax revenue

Budget surplus

When tax revenue is greater than government expenditure

Bust

The bottom of the business cycle. Consumer and producer confidence is low, the economy is stagnant, and unemployment is high

Capital

The physical stock used to produce goods and services. Manufactured resources, such as machines, factories, roads and tools

Capital expenditure

Investment in infrastructure and capital employment financed by the government

Central bank

An independent national authority responsible for the monetary system. Determines monetary policy by controlling the money supply/interest rate

Ceteris paribus

All other variables, except the one studied, are assumed to be fixed/unchanged

Complementary goods

Goods that are consumed together

Credit

Money coming into a country. For example, money flowing into the country in exchange for exports

Current expenditure

Daily spending required to keep the government and public sector wages and salaries for public employees

Debit

When money leaves a country. For example, money flowing overseas to pay for imports

Deflation

A sustained decrease in the general price level over a period of time

Demand

Demand is the amount of a good/service that a consumer is willing and able to purchase at a given price in a given time period

Demerit goods

Goods that have negative effects when consumed and cause negative externalities of consumption

Depression

A downward spiral of the economy where GDP falls by 25% or more

Dumping

Firms exporting their goods at a price below production cost

Economic goods

Goods that are produced with scarce resources, and therefore have an opportunity cost and a price; for example, a computer or apples

Externalities

The production or consumption of a good or service has an effect on a third party

Free goods

Goods that aren’t produced with scarce resources, don’t have an opportunity cost, don’t have a price; for example, air, sunlight and rainwater

Inferior goods

Goods whose demand decreases as people’s incomes increase

Merit goods

Goods that are beneficial to the individual and society as a whole

Necessity good

A good or service whose quantity demanded doesn’t change in response to a price change because it’s essential

Normal goods

Goods whose demand increases as people's incomes increase

Private goods

Goods and services that are simultaneously rivalrous and excludable

Public goods

Goods that are both non-rivalrous and non-excludable; for example, street lights

Quota

Physical limit on the volume of a particular good entering the country from abroad

Recession

Negative economic growth occurring over two or more quarters

Substitute goods

Goods that have similar characteristics and uses to consumers

Superior goods

A situation where the percentage change in quantity demanded of a good increases by a larger amount compared to income.

Supply

Supply is the amount of a good/service that a producer is willing and able to supply at a given price in a given time period

Transfer payment

Government expenditure that is not in exchanges for goods and services