Economics Key Terms from all topics that are great to know :)

What is the European Union?

A customs union including 27 countries.

What is the European Single Market?

A common market that includes 31 countries

What is the Eurozone?

A monetary union that includes 20 countries.

What is an example of a free market area? 

The USMCA (United States-Mexico-Canada Agreement) 

What is a monetary union?

Where all members remove trade barriers between themselves, have a common external tariff on non-member countries, allow the free movement of factors of production and share a common currency.

What is a customs union?

Where all member countries remove trade barriers between themselves and agree upon common external tariffs on non-member countries.

What is a common market?

Where countries agree to remove trade barriers between themselves, agree upon common external tariffs on non members and allow the free movement of factors of production.

What is a free trade area?

Where countries agree to remove tariffs between themselves and have differing tariffs on non-members of their own choice.

What are expenditure switiching policies? 

Policies that aim to switich consumer demand from imports to domestic goods such as the use of lowering interest rates to depreciate the currency and improving the current account. 

What are expenditure reducing polcies? 

Where income tax is increased to reduce people’s disposable income and overall expenditure. Meaning they will import less and import expendtiure will go down which will improve the current account. 

What are pros and cons to a firm de-merging?

• Pros are the workers will benefit from reduced cultural conflicts

What are the YEDs for luxury, necessity, normal and inferior goods?

• Luxury goods have a YED greater than 1 and are highly responsive to a change in relative incomes.

• Necessities have a YED between 0 and 1 and are less responsive to a change in relative incomes.

• Normal goods are both necessity and luxury goods which demand decreases as incomes fall where YED>0.

• Inferior goods have a YED below 0 and when income rises it causes demand to increase.

What is marginal revenue and cost?

Change in either cost or revenue divided by the change in quantity not just simple subtraction as if change is £20 and quantity changed by 5 than the MR or MC would be £4

What is absolute poverty?

Absolute poverty is being not able to afford basic necessities such as food, clean water and shelter. The World Bank measures absolute poverty by looking at the number of people living on less than $3 a day in 2025.

How many people live in absolute poverty in 2025?

Around 700 million

What is relative poverty?

Earning less than a particular percentage of a country’s average income. In the UK this is less than 60%.

How does education and poverty influence poverty?

It allows people to transcend economic classes and access jobs that are higher paying and better quality through student loans for example reducing poverty.

What is collusive behaviour?

An agreement or understanding between firms to cooperate rather than compete, often by fixing prices, limiting output, or sharing markets, in order to increase joint profits.

What is an oligopoly?

A market structure dominated by a small number of large firms, where each firm’s decisions affect the others

What is price co-ordination?

An agreement between firms to set prices at a similar or agreed level, reducing price competition.

What is a price war?

A situation where firms repeatedly undercut each other’s prices, leading to falling profits across the industry.

What is price transparency?

The ease with which consumers and firms can observe and compare prices in a market.

What is tacit collusion?

Collusion that occurs without explicit communication or formal agreements, where firms coordinate behaviour through observation and repeated interaction.

What is explicit collusion?

A formal and illegal agreement between firms to fix prices, limit output, or share markets.

What is contestability?

The degree to which a market is open to potential competition, even if there are few existing firms

What is parallel pricing?

When firms set similar prices independently, without explicit collusion, often due to similar costs or price leadership