Economics Glossary Terms

Absolute advantage

This is where a country is able to produce more output than other countries using the same input of factors of production.

Absolute poverty

Absolute poverty is measured in terms of the basic need for survival. It is the amount of income a person needs to have in order to stay alive.

Actual growth

This occurs when previously unemployed factors of production are brought into use.

Adverse selection

This occurs when a buyer and seller do not have the same information, causing a transaction to take place based upon uneven terms.

Aggregate demand

The total spending in an economy consisting of consumption, investment, government expenditure and net exports.

Allocative efficiency

The level of output where marginal cost is equal to average revenue.

Allocative inefficiency

This occurs where the marginal social cost of producing a good is not equal to the marginal social benefit of the good to society.

Asymmetric information

This is where one party in an economic transaction has access to more or better information than the other party.

Automatic stabilizers

The features of government fiscal policy that automatically counter-balance fluctuations in economic activity.

Average tax rate

The proportion of a person’s income that is paid in tax, usually expressed as a percentage.

Balance of payments

It is a record of the value of all transactions between the residents of a country with the residents of all other countries over a given period.

Behavioural economics

This is a branch of economic research that adds elements of psychology to traditional models to better understand decision-making.

Budget deficit

A situation that exists when planned government spending exceeds planned government revenue.

Consumer surplus

The additional benefit/utility received by consumers by paying a price lower than they are willing to pay.

Demand-pull inflation

Inflation that is caused by increasing aggregate demand in an economy.

Equilibrium

A state of rest, self-perpetuating in the absence of any outside disturbance.

Marginal utility

The extra utility derived from consuming one more unit of a good or service.

Market failure

The failure of markets to produce at the point where community surplus is maximised.

Opportunity cost

The next best alternative foregone when an economic decision is made.

Public goods

Goods or services which would not be provided at all by the market.

Sustainability

Meeting the needs of the present generation without compromising the ability of future generations to meet their own needs.

Utility

A measure of the satisfaction derived from purchasing a good or service.