Economics Vocabs

Poverty cycle

involve low incomes which lead to low savings and low investment which ensures low incomes in the future.

Gini coefficient

can be used to measure the size of a countrys income inequality.

Inflation

sustained increase in the average /general level of prices in an economy.

Deflation

sustained decrease in the average /general level of prices in an economy.

Ceteris paribus

means that all other variables remain the same.

Leakages

money that leaves the circular flow such as savings, taxation, imports.

FDI

investment in the form of a controlling ownership in a busines in one country by an entity based in another country.

Equality

fairness in terms of providing everyone with the same opportunities to be successful.

Allocative efficiency

allocation of resources that results in producing the combination and quantity of goods and services mostly preferred by consumers.

Diversification

policy of steering an economy away from an over reliance on a narrow range of goods and services.

Comparative advantage

economy's ability to produce goods and services at a lower opportunity cost than that of trade partners.

Shortage

when a market for a good or service is not in equilibrium because demand for the product is greater than supply.

Lorenz curve

illustrates the level of income inequality within an economy.

Privatization

transfer of assets from public sector to priv sector.

Quota

limit on the numbers of value of a good or service that a country will allow into the country.

Investment

expenditure by firms on capital equipment and is an injection into the economy.

Monetarist neo classical

believe government do not need to intervene and economy is self correcting.

Aggregate demand

total spending of all goods and services produced in the economy at a given price level and at a given point in time.

Market equilibrium

occur where quantity demanded is equal to quantity supplied.

GDP pending multiplier

represents the multiple by which increases or decreases in response to an increase and decrease in government expenditures and investment.

Recession

a period of time when there is a fall in GDP for two consecutive three- month periods.

Macroeconomic objectives

control of inflation, maintenance of economic growth, low and stable unemployment and the external balance above objectives.

Disinflation

fall in the rate of inflation in an economy.

Quantitative Easing

central bank purchases securities to increase money supply and encourage investment and lending.

Demand

quantity of good that buyers (consumers) are willing and able to buy at various prices over a time period, ceteris paribus.

Relative Proverty

the condition in which people lack the minimum amount of income needed in order to maintain the average standard of living in the society in which they live.

Economic systems

system of production, resource allocation, and distribution of goods and services

Free market economic systems

a market in which resource allocation is determined by demand and supply with no government control

Centrally planned economic system

an economic system in which resource allocation by the government or central planning authority

Mixed economy

a combination of both planned and free market systems and includes both a private and public sector

Public sector

government sector which controls basic services

Private sector

economy sector which provides services, free from government control although dangerous goods are illegal

Positive economic statement

objective statements that can be tested, amended or rejected by referring to the available evidence

The basic economic question

defined as limited resources and unlimited wants

Ceteris paribus

means that all other variables remain the same

Opportunity cost

the cost or value of an economic decision in terms of the next best option foregone

Free goods

good that are unlimited in supply with no opportunity cost

Economic goods

all goods which have a value with limited in supply

Market place

any physical or online location where consumers and suppliers meet, to exchange their goods and services

Market failure

inefficient distribution of goods and services in free markets, individual incentives for rational behavior do not lead to rational outcomes

Demand

quantity of good that buyers (consumers) are willing and able to buy at various prices over a time period, ceteris paribus

Supply

quantity of goods and services that producers are willing and able to produce at a given time, for a given price, ceteris paribus

Market equilibrium

occur where quantity demanded is equal to quantity supplied

Allocative efficiency

allocation of resources that results in producing the combination and quantity of goods and services mostly preferred by consumers

Welfare loss

loss of social surplus that arises when MSB is not equal to MSC

Market disequilibrium

when the market is not allocatively efficient because the market has either too few or too many of the goods and services being produced, from society's point of view

Price elasticity of demand (PED)

responsiveness of a good demanded to changes in its prices

PED formulae

% change in Qd / % change in price

PED elastic good

large responsiveness of Qd due to changes in prices ; PED greater than 1

PED inelastic good

small responsiveness of Qd due to changes in prices ; PED smaller than 1

PED unitary good

good or service where a change in the price of the product leads to a proportional change in quantity demanded; PED = 1

Cross price elasticity of demand (XED)

if there are two goods, X and Y, a change in the price of one may lead to a change in demand for the other

Income elasticity of demand (YED)

responsiveness of a good demanded to changes in income levels

YED formulae

% change in in Qd / % change in income

Price elasticity of supply

responsiveness in Q supplied to changes in price, movement along the supply curve

PES formulae

% change in in Qd / % change in price

Indirect tax

tax placed on a good or service, raising the production costs of the business, tax on expenditure rather than a tax on income

Specific tax

fixed amount placed upon a good or service

Ad valorem tax

a percentage value added to the price of a good or service

Producer tax

tax on sales but paid for by the manufacturer or producer

Excise tax

tax applied to a narrow range of products such as cigs or alcohol to reduce consumption

Subsidy

support provided by the government to encourage production or consumption of a good or service

Price ceiling

when a government sets a max price below the equilibrium price

Shortage

when a market for a good or service is not in equilibrium because demand for the product is greater than supply

Price floor

when a government sets a min price above the equilibrium price

Externalities

the spillover costs to a third party caused by production and consumption; MSC ≠ MSB

Merit good

good or service which consumers undervalue but governments believe it provides positive externalities

Positive externality

benefits enjoyed by a third-party when a consumer makes a purchasing decision

Marginal private benefit

additional benefit for consumers arising from consumption

Marginal social benefit

additional benefit for society arising from consumption

Social efficiency

occur when resources in economy are used in the most efficient way possible and are represented by the output level where SMC = SMB

Demerit good

good or service which consumers overvalue but governments believe it provides negative externalities

Negative externality

costs to a third-party caused by production or consumption, occur when MSC is greater than MSB

Marginal private cost

provide cost by producer or user of one additional unit of a good or service

Marginal social cost

additional cost to society arising from production

Marginal private cost

additional cost to producers arising from production

Socially optimum level of output

MSB = MSC

Public goods

a good that is non-rivalrous and non-excludable that has external benefits

Macroeconomic objectives

control of inflation, maintenance of economic growth, low and stable unemployment and the external balance above objectives

Circular flow of income

an economic model that illustrates the flow of money and resources between firms and households at an economic level

Leakages

money that leaves the circular flow such as savings, taxation, imports

Injections

money that enters the circular flow such as investment, government expenditure, exports

Gross Domestic Product (GDP)

total value of all final goods and services produced within a country over a time period, regardless who owns the factor of production

Gross National Income (GNI)

total income generated by a country and is calculated by adding net property income from abroad to the GDP, equal to value of final goods and services produced by factor of production by a countrys residents

Real GDP/GNI

GDP or GNI adjusted for the effects of inflation i.e

GDP / GNI per capita

measure GNI per head of population

Big Mac index

an index used to measure the purchasing power parity (PPP) between two currencies

Purchasing power parity (PPP)

long-term exchange rate calculated by considering the ratio of prices in one country compared to another

Human development index

used by the United Nations Development Programme to measure a countrys economic development in terms of life expectancy, education, and material standard of living

OECD better life index

measure of well-being which looks at some of the key factors that affect welfare of a nations population

Aggregate demand

total spending of all goods and services produced in the economy at a given price level and at a given point in time

Private consumption (C)

spending by households on domestic consumer goods and services over a period of time

Government spending (G)

public sector spending whether by national or local governments

Investment (I)

expenditure by firms on capital equipment and is an injection into the economy

Aggregate supply

total quantity of all goods and services the economy can produce at a given price level and in a given time period

Supply shock

an unexpected event that impacts on the supply of a product or commodity, resulting in a sudden change in price

Unemployment rate

count of jobless people in a country who are seeking work but who do not have a job

Cyclical unemployment

caused by a downturn in the economy

Frictional unemployment

caused by workers moving between jobs

Structural unemployment

people who are unemployed due to technology or innovation