Econs definitions

absolute poverty

the inability of an individual or a family to afford a basic standard of goods and services. It is defined in relation to the minimum income that can sustain a family in terms of its basic needs.

actual growth

growth that occurs when previously unemployed factors of production are brought in to use, represented by a movement from a point within a PPC to a new point nearer to the PPC.

administrative barriers

trade protection measures taking the form of administrative procedures that countries may use to prevent the free flow of imports into a country. It may include customs procedures involving inspections and valuation, controls on packaging, and others.

aggregate demand

the total quantity of goods and services that all buyers in an economy (consumers, firms, the government and foreigners) want to buy over a particular time period, at different possible price levels. ceteris paribus.

aggregate supply

the total quantity of goods and services produced in an economy over a particular time period, at different price levels, ceteris paribus.

allocative efficiency

an allocation of resources that results in producing the combination and quantity of goods and services mostly preferred by consumers. It is achieved when MSB=MSC, and when social surplus is maximum.

appreciation

an increase in the value of a currency in a floating exchange rate system or managed exchange rate system

appropriate technology

technology that caters to the particular economic, social, and environmental characteristics of its users.

balance of payments

a record of all transactions between the residents of a country and the residents of all other countries over a particular time period.

balance of trade in goods/services

a measure of the revenue received from the exports of tangible goods/services minus the expenditure on the imports of tangible goods/services over a given period of time.

budget deficit

the situation where government tax revenues are less than government expenditures over a specific period of time

budget surplus

the situation where government tax revenues are greater than government expenditures over a specific period of time

business confidence

a measure of the degree of optimism among firms in an economy about the future performance of firms and the economy

business cycle

fluctuations in the growth of real output, consisting of alternating periods of expansion and contraction

capital

the factor of production that has been produced with investment in physical capital and human capital

capital account

sum of the balance of capital transfers and transactions for non-financial, non-produced assets

capital flight

the large scale transfer of privately-owned financial capital to another country resulting from fear and uncertainty of holding domestic assets.

carbon tax

a tax levied on the carbon contents of fossil fuels

central bank

the institution responsible for an economy’s monetary policy. It issues currency and regulates commercial banks.

circular economy

an economic system in which goods are produced to be repaired rather than thrown out. They would be made out of biological materials to prevent pollution of the planet.

circular flow of income

a flow of income in an economy where the value of output produced is equal to the total income generated in producing that output, which is equal to the expenditures made to purchase that output.

circular flow of income model

a model showing the flow of resources from consumers to firms and the flow of products from firms to consumers, and money flows consisting of consumer’s income arising from the sale of their resources and firms’ revenues arising from the sale of their products

common market

a form of trading bloc that builds on a customs union by allowing free movement of factors of production among member countries.

common pool resources

resources that are available to use for everyone, but are susceptible to depletion; rivalrous and non-excludable

competitive supply

products are produced by the same factors of production, and compete with each other for the same resources

complements

two or more goods that tend to be used together

consumer confidence

a measure of the degree of optimism of consumers about their future income and the economy

consumer price index

a measure of the cost of living for a typical household measured by comparing the value of a basket of goods and services in a given year to the base year

consumer surplus

difference between the highest prices consumers are willing and able to pay for a good and the price actually paid

contractionary fiscal policy

fiscal policy aiming to reduce aggregate demand by decreasing government spending or increasing taxes

contractionary monetary policy

monetary policy designed to decrease aggregate demand by increasing interest rates

cost-push inflation

a type of inflation caused by a fall in aggregate supply, resulting from increases in costs of production

current account

sum of the balance of trade in goods and services, income, and current transfers.

customs union

a form of trading bloc that fulfils the requirements of a free trade area and adopt a common policy towards all non-member countries

cyclical unemployment

a type of unemployment that occurs during economic downturns, when the aggregate demand declines

debt relief

the cancellation or forgiveness of all or a portion of a country’s debt

deflation

a persistent fall in the general price levels in an economy

demand

various quantities of a good or service consumers are willing and able to buy at different prices during a particular time period, ceteris paribus

demand-pull inflation

a type of inflation caused by an increase in aggregate demand

demerit goods

goods or services considered to be socially undesirable for consumers and are overprovided by the market

depreciation

a decrease in the value of a currency in a floating exchange rate system or managed exchange rate system

deregulation

policies involving the elimination or reduction of government regulation of private sector activities

devaluation

refers to a decrease in the value of a currency in a fixed or pegged exchange rate system

development aid

foreign aid intended to help economically less developed countries with their growth and development efforts

disinflation

a fall in the rate of inflation

diversification

expanding the range of goods and services produced or exported by a country to reduce risk and enhance economic stability

dumping

selling of a good in another country at a price below its unit cost of production

economic barriers

structural challenges that prevent countries from achieving sustainable economic growth and development

economic development

a broad concept involving improvement in standards of living, reduction in poverty, improved health and education along with increased freedom and economic choice

economic growth

increase in the real value of output produced by on economy over time, usually measured as growth in real GDP.

economic inequality

the degree to which people in a population differ in their abilities to satisfy their economic needs

economic integration

economic interdependence between countries, usually achieved by agreement between countries to reduce or eliminate trade and other barriers between them

economic well-being

the level of prosperity, economic satisfaction and standards of living among the members of an economy

economies of scale

decreases in the average costs of production when a firm increases its output by scaling up all its inputs

economically least developed countries

developing countries with very low incomes that have low levels of human capital and a high degree of economic vulnerability

entrepreneurship

the factor of production involving organising and risk-taking

exchange rate

the value of one currency expressed in terms of another currency

expansionary fiscal policy

fiscal policy aimed at increasing aggregate demand by increasing government spending and/or decreasing taxes

expansionary monetary policy

monetary policy aimed to increase aggregate demand by decreasing interest rates

export promotion

a growth and trade strategy where a country attempts to achieve economic growth by expanding its exports

exports

goods and services produced in one country and purchased by consumers in another country.

factors of production

all resources or inputs used to produce goods and services

financial account

the sum of foreign direct investment, portfolio investment, reserve assets, and official borrowing

firm

productive units in the economy that turn the factors of production into goods or services

fiscal policy

a demand-side policy using changes in government spending and/or direct taxation to achieve economic objectives

fixed exchange rate

an exchange rate that is fixed by the central bank of a country, and not permitted to change in response to changes in currency supply and demand

floating exchange rate

an exchange rate determined entirely by market forces

foreign aid

the transfer of funds or goods and services to developing countries with the main objective of improving economic, social or political conditions

foreign direct investment (FDI)

investment in productive activities by a multinational corporation in a foreign country

free good

any good that is not scarce therefore has a zero opportunity cost

free rider problem

occurs when people can enjoy the use of a good without paying for it, resulting in overconsumption

free trade

the absence of government intervention in international trade, so that it takes place without any restrictions between individuals or firms in different countries

free trade agreement

an agreement made between countries to eliminate trade barriers between themselves, but retain the right to pursue its own trade policy towards non-member countries

frictional unemployment

a type of unemployment that occurs when workers are between jobs

full employment level of output

the level of output at which unemployment is equal to the natural rate of unemployment

Gender Inequality Index

a composite indicator that measures inequalities between the genders in three dimensions: reproductive health, empowerment and labour market participation

gini coefficient

a summary measure of the information contained in the Lorenz curve of an economy, defined as the area between the line of perfect equality and the Lorenz curve divided by the entire area under the line of perfect equality.

government debt

government’s accumulation of budget deficits minus budget surpluses

government intervention

the practice of government to intervene in markets, usually for the purpose of achieving particular economic or social objectives

gross domestic product (GDP)

the market value of all final goods and services produced within a country during a given time period

GDP per capita

gross domestic product divided by the number of people in the population

Gross national income

the market value of all final goods and services produced within a country plus net property income from abroad during a given time period

government spending

an expenditure made by the government on the economy

growth in production possibilities

an outward shift in the PPC curve caused by an increase in the quantity and/or quality of factors of production

Happiness Index