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Advalorem tax
Tax levied as a percentage of the price of a good.
Aggregate demand
Total demand in the economy including consumption, investment, government expenditure and exports minus imports.
Anti-competitive practices or restrictive trade practices
An attempt by firms to prevent or restrict competition.
Assisted areas
Areas designated as having problems by the UK or EU and are eligible for support.
Average costs
The cost per unit of output; it is equal to total cost divided by output.
Backward vertical integration
Merging with a firm that operates in the previous stage of production.
Balance of payments
A record of all transactions relating to international trade.
Balance of trade or visible balance
The difference between visible exports and visible imports.
Barriers to entry
Obstacles that might discourage a firm from entering a market.
Base rate
The rate of interest set by the MPC which influences all other rates in the economy.
Basic economic problem
Allocation of a nation's scarce resources between competing uses that represent infinite wants.
Boom
The peak of the economic cycle where GDP is growing at its fastest.
Budget
The government's spending and revenue plans for the next year.
Budget deficit
The amount by which government spending exceeds government revenue.
Budget surplus
The amount by which government revenue exceeds government spending.
Capital intensive
Where production relies more heavily on machinery relative to labour.
Cartel
Where a group of firms or countries join together and to agree on pricing or output levels in the market.
Choice
Deciding between alternative uses of scare resources.
Collusion
Agreements between firms to restrict competition.
Competition
The rivalry that exists between firms when trying to sell goods to the same group of customers.
Competition Commission
A government body that carries out investigations into mergers and markets where there may be some consumer exploitation.
Complementary goods
Goods purchased together because they are consumed together.
Conglomerate or diversifying merger
The merging of firms involved in completely different business activities.
Consumer price index (CPI)
A measure of the general price level; used in the UK and across the Eurozone.
Contractionary fiscal policy
Fiscal measures designed to dampen demand in the economy.
Cost-push inflation
Inflation caused by rising business costs.
Costs
The expenses incurred when producing goods and services.
Current account
Part of the balance of payments where all exports and imports are recorded.
Cyclical or demand deficient unemployment
Unemployment caused by falling demand as result of a downturn in the economic cycle.
De-industrialisation
The decline in manufacturing.
Deflation
A period where the level of aggregate demand is falling.
Demand
The amount a good will be bought at given prices over a period of time.
Demand curve
Line drawn on a graph which shows how much of a good will be bought at different prices.
Demand-pull inflation
Inflation caused by too much demand in the economy relative to supply.
Depression or slump
The bottom of the economic cycle where GDP starts to fall with significant increases in unemployment.
Derived demand
Demand that arises because there is demand for another good.
Devaluation
The depreciation or fall in the value of a currency.
Developing countries
Poorer, less economically developed nations in the world.
Development aid
Money and other forms of assistance that is given to less developed countries by governments in developed countries.
Direct taxes
Taxes levied on the income earned by firms and individuals.
Discretionary expenditure
Non-essential spending or spending that is not automatic.
Diseconomies of scale
Rising average costs when a firm becomes too big.
Dividends
Payments made to shareholders from profit.
Division of labour
The breaking down of the production process into small parts with each worker allocated to a specific task.
Downturn
A period in the economic cycle where GDP grows, but more slowly.
Dumping
Where an overseas firm sells large quantities of a product below cost in the domestic market.
Economic growth
The increase in national income over time.
Economic policy
The range of actions taken by the government to help achieve its macroeconomic objectives.
Economies of scale
Falling average costs due to expansion.
Economy
System that attempts to solve the basic economic problem.
Effective demand
The amount people are willing to pay for a good at given prices over a given period of time backed by the ability to pay.
Efficiency
Minimising costs and the use of resources.
Elastic demand
A change in price results in a greater change in demand.
Entrepreneur
An individual who organises the other factors of production and risks their own money in a business venture.
Equilibrium price
Price where supply and demand are equal.
Excess demand
Where demand is greater than supply and there are shortages in the market.
Excess supply
Where supply is greater than demand and there are unsold goods in the market.
Exchange rate
The price of one currency in terms of another.
Expansionary fiscal policy
Fiscal measures designed to stimulate demand in the economy.
Exporter
Firms that sell overseas.
Exports
Goods and services sold overseas.
External economies of scale
The cost benefits that all firms in the industry can enjoy when the industry expands.
Externalities
The spillover effects of consumption or production. They affect others and can be positive or negative.
Factors of production
The resources used to produce goods and services. They include land, labour, capital and enterprise.
Fiscal policy
Decisions about government spending, taxation and levels of borrowing which affect aggregate demand in the economy.
Fixed capital
The stock of 'man-made' resources such as machines and tools used to help make goods and services.
Fixed costs
Costs that do not vary with the level of output.
Foreign direct investment (FDI) or inward investment
Business investment undertaken by a firm in another country, building a factory for example.
Foreign exchange market
The markets where foreign currencies can be bought and sold.
Forward vertical integration
Merging with a firm that operates in the next stage of production.
Free trade
Trade between nations that is completely without government restrictions.
Frictional unemployment
When workers are unemployed for a short period of time as they move from one job to another.
Globalisation
The growing integration of the world's economies.
Gross domestic product (GDP)
An internationally recognised measure of national income.
Horizontal integration
The merging of two firms which are in exactly the same line of business.
Human capital
The value of the workforce or an individual worker.
Imports
Goods and services bought from overseas.
Income elasticity of demand
The responsiveness of demand to a change in income.
Index linked/linking
Where certain government payments are linked to increases in the RPI.
Indirect taxes
Taxes levied on spending in the economy.
Inelastic demand
A change in price results in a proportionately smaller change in demand.
Infant industries
New industries yet to establish themselves.
Inferior good
A good for which demand will fall if income rises or rise if income falls.
Inflation
A general and persistent rise in prices.
Innovation
The commercial exploitation of a new invention.
Interdependence
Where the actions of one large firm in an oligopolistic market will have a direct effect on others.
Internal economies of scale
The cost benefits that an individual firm can enjoy when it expands.
Inverse relationship (between price and quantity demanded)
When price goes up the quantity demanded falls and when the price goes down the quantity demanded rises.
Invisible trade
Trade in services.
Labour
The people used to production.
Labour intensive
Where production relies more heavily on labour relative to machinery.
Lateral integration
The merging of two firms that produce similar goods but are not in competition with each other.
Macroeconomic objectives
The aims of a government relating to key economic performance indicators such as economic growth, inflation and unemployment.
Macroeconomics
The study of the economy as a whole.
Market
A set of arrangements allowing buyers and sellers to communicate and exchange goods and services.
Market clearing price
Price where the amount supplied in a market matches exactly the amount demanded.
Market failure
Where markets lead to inefficiency.
Market system or price mechanism
The automatic determination of prices and the allocation of resources by the operation of markets in the economy.
Merger
The joining together of two or more businesses, usually to make one new one.
Microeconomics
The study of individual parts of the economy.
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