Section 3 - Microeconomic decision-makers

Money

Medium of exchange used to buy goods and services.

Money supply

Total amount of money in an economy at a point in time.

Commercial bank

Retail bank providing financial services such as savings

Central bank

Monetary authority that manages the money supply and the banking system.

Foreign exchange market

Market where different currencies are bought and sold.

Exchange rate

Price of one currency in terms of another currency.

Fixed exchange rate system

System where the central bank intervenes to keep the currency at a pegged value.

Floating exchange rate system

System where the currency value is determined by market forces without government intervention.

Appreciation

Increase in the value of a currency relative to another in a floating exchange rate system.

Depreciation (currency)

Fall in the value of a currency relative to another in a floating exchange rate system.

Devaluation

Official and deliberate reduction in the value of a currency in a fixed exchange rate system.

Revaluation

Official and deliberate increase in the value of a currency in a fixed exchange rate system.

Disposable income

Income available to spend after compulsory deductions such as income tax.

Saving

Putting aside part of current income for future spending.

Consumption

Value of all private household spending within a country.

Supply of labour

All people of working age willing and able to work at different wage rates.

Demand for labour

Number of workers firms are willing and able to hire at a given wage rate.

Wage–price spiral

Process where wage rises lead to higher prices

Trade union

Organisation that protects workers’ interests regarding pay and conditions.

Industrial action

Measures taken by trade union members in disputes with employers such as strikes.

Collective bargaining

Trade union representatives negotiating pay and conditions with employer representatives.

Unemployment

When people of working age are willing and able to work but cannot find employment.

Unemployment rate

Percentage of the workforce that is unemployed.

Frictional unemployment

Temporary unemployment when people are between jobs or changing jobs.

Structural unemployment

Long-term unemployment due to decline of certain industries often from foreign competition.

Cyclical unemployment

Unemployment caused by lack of demand in the economy and a fall in national income.

Formal sector employment

Officially recorded employment where workers pay income taxes and are counted in GDP.

Geographical mobility

Willingness and ability of labour to move to different locations for work.

Occupational mobility

Ability of labour to move between different jobs.

Fixed costs

Costs that do not change with the level of output.

Variable costs

Costs that change as output changes.

Total cost

Sum of all fixed and variable costs.

Average fixed cost

Fixed cost per unit of output.

Average variable cost

Variable cost per unit of output.

Average total cost

Total cost per unit of output.

Total revenue

Total money received from selling goods and services.

Sales revenue (total revenue)

Money received from selling goods or services equal to price × quantity.

Profit

Total revenue minus total cost.

Productivity

Output per unit of input such as per worker or per machine hour.

Economies of scale

Cost-saving benefits of large-scale operations that reduce average costs.

Internal economies of scale

Economies of scale arising from within the firm’s organisation.

External economies of scale

Economies of scale arising from factors outside the firm.

Diseconomies of scale

Rising average costs of production as the firm increases in size.

Capital expenditure

Spending on fixed assets that last more than 12 months.

Investment expenditure

Total capital spending by businesses in a country.

Capital-intensive industries

Industries where the use and cost of capital is more important than other factors of production.

Labour-intensive industries

Industries where labour costs are a higher proportion of total costs than other factors.

Franchise

Licence to trade using another firm’s name logos brands and trademarks.

Merger

Two or more firms joining to form one firm.

Horizontal merger

Integration between firms in the same sector of industry.

Vertical merger

Integration between firms in different sectors of industry.

Conglomerate merger

Integration of firms from unrelated areas of business.

Takeover

One firm gaining control of another firm.

Nationalisation

Purchase of private sector assets by the government.

Privatisation

Transfer of ownership from the public sector to the private sector.

Multinational corporation

Organisation operating in two or more countries.

Stocks (inventories)

Raw materials components and finished goods held for production or sale.