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Abuse of market power

When a firm acts with the intention to eliminate competitors or to prevent the entry of new firms in a market.

Actual growth

Occurs when real output (real GDP) increases through time and is a result of greater or better use of existing resources.

Allocative efficiency

Achieved when goods and services are produced in such a way that scarce resources are allocated in the best possible way, where price equals marginal cost (P = MC).

Allocative inefficiency

When either more or less than the socially optimal amount is produced and consumed, resulting in misallocation of resources.

Anti-dumping

Refers to tariffs that aim at raising the artificially low price of a dumped imported good to the level of the higher domestic price.

Business confidence

A measure of the degree of optimism that businesses have about the economic future.

Business cycle

The short-term fluctuations of real GDP around its long-term trend.

Capital

Physical capital refers to the means of production including machines, tools, and factories; human capital refers to the skills and experience embodied in the labor force.

Central bank

An institution charged with conducting monetary and exchange rate policy, regulating commercial banks, and providing banking services to the government.

Ceteris paribus

A Latin expression meaning 'other things being equal.'

Circular flow of income

A simplified illustration showing the flows of income and expenditures in an economy.

Collective self-governance

In the case of a common pool resource, users solve the problem of overuse by creating rules regarding obligations, monitoring, penalties, and conflict resolution.

Competitive market

A market with many firms acting independently, where no firm has the ability to control the price.

Competitive supply

When goods that a firm is producing use the same resources, thus competing with each other for the use of those resources.

Complements

Goods that are jointly consumed, for example, coffee and sugar.

Consumer confidence

A measure of the degree of optimism that households have about their income and economic prospects.

Consumer price index (CPI)

The average of the prices of the goods and services that the typical consumer buys, expressed as an index number.

Consumer surplus

The difference between how much a consumer is at most willing to pay for a good and how much they actually pay.

Demand

The relationship between possible prices of a good or service and the quantities that individuals are willing and able to buy over a period of time.

Demand curve

A curve illustrating the relationship between possible prices of a good or service and the quantities that individuals are willing and able to buy.

Demand management

Policies that aim to manipulate aggregate demand through changes in interest rates or government expenditures and taxation to influence growth, employment, and inflation.

Demand-side policies

Economic policies that aim to affect aggregate demand and thus macroeconomic variables such as growth, inflation, and employment.

Demerit goods

Goods or services that harm individuals and society at large and tend to be overconsumed, usually due to negative consumption externalities.

Deregulation

Policies that reduce or eliminate regulations to decrease production costs, resulting in increased competition and higher output levels.

Direct taxes

Taxes on income, profits, or wealth paid directly to the government.

Economics

The study of how to make the best possible use of scarce resources to satisfy unlimited human needs and wants.

Economic well-being

A multidimensional concept related to prosperity and quality of living standards in a country.

Efficiency

Making the best use of scarce resources, either by producing at the lowest cost or achieving allocative efficiency where marginal social costs equal marginal social benefits.

Elasticity

A measure of the responsiveness of an economic variable to a change in another economic variable.

Elasticity of demand for exports

A measure of the responsiveness of the volume of exports to a change in their price.

Elasticity of demand for imports

A measure of the responsiveness of the volume of imports to a change in their price.

Engel curve

A curve showing the relationship between consumers' income and quantity demanded of a good, indicating whether a good is normal or inferior.

Entrepreneurship

Refers to the ability of certain individuals to organize other factors of production and their willingness to take risks.

Equilibrium

A state of balance that is self-perpetuating in the absence of any outside disturbance.

Equity

The concept of fairness in economic transactions.

Excludable

A characteristic that allows producers to charge a price and exclude non-payers from enjoying the good.

Externalities

External costs or benefits to third parties when a good or service is produced or consumed. These are not compensated or paid for by the third party.

Factors of production

Resources used in the production of goods and services; include land (natural resources), labor, capital, and entrepreneurship.

Firm

An entity that uses factors of production to produce and sell goods and services, aiming to earn profits.

Foreign sector

In an open economy, refers to exports and imports.

Free goods

Goods that are not considered scarce and do not have an opportunity cost, such as air or sea water.

Free market economy

An economy where the means of production are privately owned, and market forces determine the answers to fundamental economic questions.

Free rider problem

Arises when individuals consume a good or service without paying for it because they cannot be excluded from enjoying it.

Government (national) debt

The total amount a government owes to domestic and foreign creditors, accumulated from past budget deficits minus any surpluses.

Growth in production possibilities

When the production possibilities of a country increase due to more/better resources or technology, shown by a shift outwards of the production possibilities curve (PPC).

Human capital

The education, training, skills, experience, and good health embodied in a country's labor force.

Incentive role of prices

Prices provide the incentive for producers to respond to changes in supply and for consumers to adjust their demand.

Income

The flow of earnings from using factors of production to produce goods and services, including wages (labor), interest (capital), rents (land), and profits (entrepreneurship).

Income effect

States that if the price of a good increases, the real income of consumers decreases, and they typically tend to buy less of the good.

Income elasticity of demand (YED)

The responsiveness of demand for a good or service to a change in income.

Indirect taxes

Taxes levied on expenditure to buy goods and services.

Inferior goods

Goods that are considered lower quality, for which demand decreases as income increases.

Infrastructure

Physical capital, typically funded by governments, that is essential for economic activity, such as roads, telecommunications, and sanitation.

Injections

Expenditures on domestic output that do not come from households, including investment spending, government expenditures, and exports.

Interest rate

The cost of borrowing money or the reward for saving money, expressed as a percentage over a specific period.

Investment (I)

Spending by firms on capital goods, such as machines, tools, and factories.

Joint supply

When producing one good automatically results in the production of another, such as beef and cattle hides.

Labour

One of the four factors of production, referring to the physical and mental contributions of workers to the production process.

Labour market flexibility

The ability of the labor market to quickly adjust to changes in labor demand and supply conditions.

Labour union

An organization of workers that seeks to improve working conditions and negotiate for higher compensation for its members.

Laissez faire

The belief that markets should be left to operate freely without government intervention, as this will lead to efficient outcomes.

Land

One of the four factors of production, referring to natural resources used in production.

Law of demand

States that as the price of a good falls, the quantity demanded will increase, ceteris paribus.

Law of diminishing marginal returns

States that as more units of a variable factor (usually labor) are added to a fixed factor (usually capital), total product increases but at a decreasing rate, eventually leading to diminishing marginal product.

Law of diminishing marginal utility

The idea that as an individual consumes additional units of a good, the additional satisfaction (utility) derived from each unit decreases.

Law of supply

States that as the price of a good rises, the quantity supplied will rise, ceteris paribus.

Leakages

Income not spent on domestic goods and services, including savings, taxes, and import expenditure.

Long run in microeconomics

The period of time when all factors of production are variable.

Luxury goods

Goods for which demand is highly income elastic (YED > 1); when incomes rise, demand for luxury goods increases significantly.

Manufactured products

Products or goods produced by workers often using capital goods.

Marginal benefit

The extra or additional benefit enjoyed by consumers from consuming one more unit of output.

Marginal costs

The extra or additional costs of producing one more unit of output.

Marginal revenue

The extra or additional revenue that arises from selling one more unit of output.

Marginal social benefit (MSB)

The additional benefit to society of consuming an extra unit of output, including both private benefits and external benefits.

Marginal social cost (MSC)

The additional cost to society of producing an extra unit of output, including both private costs and external costs.

Marginal utility

The extra or additional satisfaction (utility) derived from consuming one more unit of a good or service.

Market

Any arrangement where buyers and sellers interact to carry out an economic transaction.

Market demand

The sum of all individual demand curves in a market for a particular good or service.

Market equilibrium

The point at which the quantity of a good demanded is equal to the quantity supplied, meaning there is no excess demand or excess supply.

Market failure

The failure of markets to achieve allocative efficiency, where marginal social benefits are not equal to marginal social costs, resulting in a misallocation of resources.

Market mechanism

The system in which the forces of demand and supply determine the prices of products, also known as the price mechanism.

Market supply

The horizontal sum of all individual supply curves in a market for a particular good or service.

Maximum price

A price set by the government or other authority that is below the market equilibrium price, also known as a price ceiling.

Merit goods

Goods or services that are considered beneficial for people and tend to be underprovided by the market, leading to under-consumption due to positive externalities.

Microeconomics

The study of the behavior of individual consumers, firms, and markets, and the determination of market prices and quantities of goods, services, and factors of production.

Minimum price

A price set by the government or other authority above the market equilibrium price, also known as a price floor.

Minimum wage

A type of price floor where the wage rate is set above the market equilibrium wage rate.

Mixed economy

An economy that has elements of both a planned economy and a free market economy, with varying degrees of government intervention.

Money

Anything that is generally accepted as a means of payment for goods and services, typically consisting of currency and checking accounts.

Necessity

A good that is essential, and for which demand increases less proportionally than income (income inelastic).

Negative externalities of consumption

The harmful effects of consuming a good or service that are suffered by third parties who are not compensated.

Negative externalities of production

The harmful effects of producing a good or service that are suffered by third parties who are not compensated.

Non-excludable

A characteristic of a good or service that prevents people from being excluded from using it, regardless of whether they pay for it (common in public goods).

Non-rivalrous

A characteristic of goods where one person's consumption does not reduce the availability of the good for others (often associated with public goods).

Normal goods

Goods for which demand increases as income increases.

Opportunity cost

The next best alternative forgone when a decision is made.

Output approach

A method of measuring GDP by adding the value of all final goods and services produced in a given time period.

Perfectly elastic demand

A situation where any price change leads to an infinitely large change in the quantity demanded (PED is infinite).

Perfectly elastic supply

A situation where any price change leads to an infinitely large change in the quantity supplied (PES is infinite).

Perfectly inelastic demand

A situation where a change in price does not affect the quantity demanded (PED = 0).