Studied by 2 peopleAbsolute advantage
When a country's output of a product per unit of input is greater than that of any other country.
Absolute poverty
When a person does not have the income or wealth to fulfil their basic needs.
Aggregate Demand (AD)
The total demand/spending in an economy at a given price level over a given period of time. Made up of consumption, investment, government spending and net external demand.
Aggregate Supply (AS)
The total amount of goods and services that can be supplied in an economy at a given price level over a given period of time.
Aid
The transfer of resources from one country to another.
Allocative efficiency
Where the price of a good is equal to the price consumers are willing to pay. This occurs when all resources are allocated efficiently.
Asymmetric information
Where buyers have more information than sellers in a market, or vice versa.
Automatic stabilisers
Parts of fiscal policy that automatically react to changes in the economic cycle.
Average Cost (AC)
The cost of production per unit of output.
Average Revenue (AR)
The revenue per unit sold.
Backward vertical integration
Where a firm merges with or takes over a firm further back in the production process.
Balance of payments
A record of the international transactions of an economy.
Bank rate
The official rate of interest set by the central bank (e.g. by the Monetary Policy Committee of the Bank of England)
Barriers to entry
Potential difficulties that make it hard for firms to enter a market.
Barriers to exit
Potential difficulties that make it hard for firms to leave a market.
Black market
Economic activity that occurs without taxation and government intervention.
Budget deficit
When government spending exceeds tax revenues.
Budget surplus
When tax revenues exceed government spending.
Capital account of the balance of payments
A part of the balance of payments that shows transfers of non-monetary and fixed assets into and out of the economy.
Cartel
A group of products who collude to limit output in order to keep prices high.
Central bank
The institution responsible for issuing banknotes in an economy, acting as a lender of last resort, and implementing monetary policy.
Ceteris paribus
All other things remaining equal
Circular flow of income
The flow of national output, income and expenditure between firms and households.
Command economy
An economy where only the government determines the allocation of resources.
Comparative advantage
When the opportunity cost of producing a good or service is lower than that of any other country.
Competition policy
Government policy aimed at reducing monopoly power in order to increase efficiency and to ensure fairness for consumers.
Concentration ratio
A measure of the dominance of firms in a market.
Conglomerate integration
Where a firm merges with or takes over a firm in a completely different market.
Consumer surplus
The difference between the price a consumer pays and the price they were willing to pay.
Consumption
The purchase of goods and services.
Contestability
The degree to which new entrants find it easy to enter the market.
Cost-push inflation
Inflation caused by rising costs of production.
Cross elasticity of demand (XED)
A measure of the responsiveness of demand of one good/service to a change in price of another good/service.
Current account of the balance of payments
A part of the balance of payments that consists of: trade in goods, trade in services, primary income and secondary income.
Cyclical unemployment
Unemployment caused by a lack of demand in the economy.
Deflation
The sustained fall in the average price of goods and services in an economy over a period of time.
Demand-pull inflation
Inflation caused by increased demand in the economy.
Demand-side policy
Government policy that aims to alter aggregate demand in the economy.
Demerger
Where a firm sells of a part/parts of its business to create separate firms.
Deregulation
Removing government legislation that could restrict competition.
Derived demand
The demand for a good or service due to its use in making another good or service.
Developed countries
Relatively rich, industrialised countries with a high GDP per capita.
Developing countries
Relatively poor countries that tend to rely on labour-intensive industries, with a low GDP per capita.
Diseconomies of scale
Where average cost rises as output rises.
Disinflation
A fall in the rate of inflation.
Disposable income
Income available for households to spend after their tax obligations are fulfilled.
Dividend
A share in a firm's profits paid to shareholders.
Divorce of ownership from control
When the owner of a firm ceases to control its day-to-day operations, which can lead to the principal-agent problem.
Dynamic efficiency
Where firms improve efficiency in the long run by investing in R&D of products, or investing in the production process.
Economic cycle
The fluctuation in actual growth rates over a period of time.
Economic development
An assessment of the standards of living and overall welfare of a country's population.
Economic growth
An increase in an economy's productive potential.
Economic integration
The process by which the economies of different countries become more closely linked.
Economically active population
The people in an economy who are old enough to and capable of working.
Economies of scale
Where average cost falls as output rises.
Emerging countries
Countries that are further along the development process than most developing countries, but are not yet fully developed.
Equilibrium
Where supply equals demand in a market or economy.
Equity
Fairness
Exchange rate
The price of one currency expressed in terms of another.
Externalities
The costs and benefits of the production and consumption of a good or service that are felt by third parties.
Factors of production
The four inputs used to produce what people want: land, labour, capital and enterprise.
Financial account of the balance of payments
A part of the balance of payments that shows the movements of financial assets.
Financial sector
Firms that provide financial services.
Fiscal policy
Government policy that determines the levels of government spending and taxation.
Fixed costs
Costs that do not vary with output in the short run.
Foreign Direct Investment (FDI)
When a firm in one country makes an investment in a different country.
Forward vertical integration
Where a firm merges with or takes over a firm further forward in the production process.
Free market
A market where there is no government intervention.
Free rider problem
Once a public good is provided, there is no way to stop people who haven't paid for the good from benefiting from it.
Free trade
International trade with no restrictions.
Frictional unemployment
The unemployment experienced by people who are between jobs.
Full employment
Where everyone who is of working age and who wants a job can get one at current wage rates.
Globalisation
The increasing integration of economies internationally.
Government failure
When a government intervention to correct a market failure results in a misallocation of resources.
Gross Domestic Product (GDP)
The total value of all the goods and services produced in an economy in a year.
Gross National Income (GNI)
The GDP of an economy, plus any income earned on investments/assets abroad, minus any income paid to foreigners on domestic investments/assets.
Gross National Product (GNP)
The total output of the citizens of a country, regardless of whether or not they are resident in that country.
Hit-and-run tactics
When a firm enters a market while supernormal profits can be made, and then leaves once prices have been driven down to normal profit levels.
Horizontal equity
Where people in identical circumstances are treated equally.
Horizontal integration
Where a firm merges with or takes over a firm that is at the same stage of production of a similar product.
Human capital
The economic value of a person's skills, experience and training.
Human Development Index
A measure of a country's economic development that takes into account health (life expectancy), education (average and expected years of schooling), and standards of living (real GNI per capita).
Imperfect information
A situation where buyers and/or sellers do not have complete information about the goods and services in a market.
Income
Money a person or firm receives for providing a good or service.
Income elasticity of demand (YED)
A measure of the responsiveness of demand to changes in real income.
Inequity
Unfairness
Inflation
The sustained rise in the average price of goods and services in an economy over a period of time.
Infrastructure
The basic facilities and services required for a country's economy to function.
Inorganic growth
A firm growing through mergers and takeovers.
Interest
The money paid to a lender by a borrower.
Investment
The increase of the capital stock of a firm or economy.
Labour immobility
When labour cannot move to new jobs, or cannot switch between occupations.
Law of diminishing returns
If a firm increases one variable factor of production while others remain fixed, the marginal returns will eventually decrease.
Liquidity
How easily an asset can be spent.
Long-Run Aggregate Supply (LRAS)
The productive potential of economy operating at full capacity.
Marginal cost
The cost of producing the final unit of output.
Marginal product
The extra output produced when one extra unit of input is used.
Marginal propensity to consume (MPC)
The proportion of an increase in income that is spent and not saved.
Marginal revenue
The extra revenue received from selling one more unit of output.
Marginal utility
The utility gained from consuming one more unit of a good.
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