eco

Positive economic statements

Precise and fact-based statements proved with data.

Normative economic statements

Similar to an opinion and based on the value judgments of the individual giving the opinion.

Single Market

Refers to the EU as one territory without any internal borders or other obstacles to the free movement of goods, services, capital, and people.

Customs Union

Free trade between member states (no barriers to trade) and a common external tariff for non-members.

Bank Run

Occurs when depositors panic and lose confidence in their bank or the financial system.

Economic Shock

An unpredictable event that affects an economy.

Economics

A social science that studies human behaviour and how limited resources are allocated to satisfy our unlimited needs and wants.

Opportunity cost

The cost of foregone alternatives.

Incentive

Something that motivates an individual or a firm to behave in a certain way.

Regulation

A law, rule, or order that must be followed. Violation of the regulation results in punishment.

Specialisation of Labour

The separation of a work process into several tasks with each task carried out by a separate worker or group of workers.

Microeconomics

Analyses the behaviour and decisions of individuals and firms.

Macroeconomics

Studies the behaviour and decisions of governments and countries (looks at the economy as a whole).

Sustainable development

Development that meets the current needs of humankind, without compromising the ability of future generations to meet their needs.

Environmental sustainability

Refers to whether or not natural resources can be maintained into the future.

Economic sustainability

Refers to ensuring that economic growth is not achieved at the expense of future generations.

Social sustainability

Refers to creating equal opportunities for all citizens on the planet.

National Income

The income accruing to the permanent residents of a country from current economic activity during a year.

Economic inequality

The unequal distribution of income and opportunity between different groups in a society.

Individual demand

Refers to the quantity demanded of a good or service by individual consumers at different prices.

Market demand

The aggregate quantity of a good or service that would be demanded by all consumers in a market at different prices.

Derived demand

The demand for a factor of production, not for its own sake but for its contribution to the production process.

Composite demand

Demand for goods when they have more than one use.

Joint demand

Demand for complementary goods that are bought and sold together.

Effective demand

Demand that is supported by the necessary purchasing power. Refers to the willingness and ability of consumers to purchase goods/services at different prices.

Demand schedule

Table that gives the quantities of a good/service that would be demanded by consumers at different prices.

The Law of Demand

States that as the price of a good/service falls then the quantity demanded will rise; vice versa if it rises.

Shift of a demand curve

Refers to a change in demand at any given price.

Movement along the demand curve

A change in the price of the good itself.

Normal good

A good for which demand rises as income rises and falls when income falls.

Inferior good

A good for which demand falls when income rises and rises when income falls.

Substitutes

Goods that are alternatives for one another.

Complements

Goods that are bought and sold together.

The Law of Supply

States as the price for a good/service rises the quantity supplied will rise; vice versa when price falls.

Individual supply

The quantity of a good or service supplied by individual suppliers at different prices.

Market supply

Refers to the aggregate quantity of a good or service supplied by all suppliers in a market at different prices.

Supply schedule

A table that gives the quantities of a good/service that would be supplied by suppliers at different prices.

Movement along the supply curve

Change in the price of the good itself.

Shift of the supply curve

Change in supply at any given price.

Subsidy

A payment to a supplier that covers some of the supplier’s production costs.

Equilibrium price

The price that ensures that there is no unsold stock (excess supply) and no unsatisfied customers (excess demand).

Equilibrium

A point from which there is no tendency to change.

Price ceiling

Price that is below the equilibrium price, above which suppliers cannot charge.

Consumer surplus

The difference between what the consumer actually pays for a good/service and what they would be willing to pay.

Producer surplus

The difference between the price the seller would have accepted for a good/service and the price the seller actually receives.

Utility

The benefit that an individual gets from consuming a good/service (utils).

Consumer sentiment

A mathematical measure of the health of the economy as indicated by consumer opinion.

Rational consumer

A logical or reasonable consumer who makes purchasing decisions using intelligence, not emotion.

Impulse purchase

A purchase made on the spur of the moment and was not planned in advance.

Economic good

A good that gives utility, is easily transferable and commands a price.

The Law of Diminishing Marginal Utility

As a consumer consumes more of a good, the extra satisfaction from each additional unit consumed will eventually decline.

The Law of Equi-marginal returns

States that a consumer maximizing utility will allocate their income so that the ratio of marginal utility to price is the same for all goods consumed.

Price Elasticity of Demand (PED)

Measures the percentage change in quantity demanded due to a percentage change in price.

Relatively elastic

If the percentage change in price is outweighed by the percentage change in quantity demanded.

Unitary elastic demand

If the percentage change in quantity demanded is equal to the percentage change in price.

Perfectly elastic

When demand falls to zero when there is a price increase.

Perfectly inelastic

If there is no change in the quantity demanded when there is a price change.

Income Elasticity of Demand (YED)

Measures the percentage change in quantity demanded in response to a percentage change in income.

Explicit costs

Monetary costs of production that can be accounted for.

Implicit costs

Non-monetary costs that are not accounted for.

Private costs

Costs borne by the individual who engages in the activity.

Social costs

The total costs to society of an activity.

Short run

Period of time in which at least one factor of production is fixed.

Long run

Period of time in which all factors of production can be varied.

Economies of scale

Refers to the cost savings or lower cost per unit a firm enjoys as output increases.

Internal economies of scale

Forces within a firm that result in a fall in the cost per unit as output rises.

External economies of scale

Forces within an industry that result in a fall in the costs per unit for all firms as the industry expands.

Diseconomies of scale

The cost disadvantage or higher costs per unit as the level of output increases.

Internal diseconomies of scale

Forces within a firm that result in higher costs per unit as a firm expands.

External diseconomies of scale

Forces within an industry that result in higher costs per unit as the industry expands.

Moral hazard

The lack of an incentive an individual/firm has to guard against risk when protected from the consequences of their actions.

Normal profit

Profit earned when Average Revenue = Average Cost.

Supernormal (abnormal profit)

Profit earned when Average Revenue > Average Cost.

Demerit

A good that can have a negative effect on the consumer when over-consumed or over-produced, imposing negative external costs on third parties.

Externality

The external cost (or benefit) that accrues to others as a result of production or overconsumption.

Carbon tax

Applied to carbon-emitting fuels like coal, oil, natural gas.

Price floor

Price that is above the equilibrium price, guaranteeing suppliers a certain price.

Market

A place where goods and services are bought and sold, where buyers and sellers interact with each other.

Barriers to entry

Factors that prevent new firms from entering/leaving the market.

Marginal revenue

Extra revenue generated from supplying an extra unit of the good.

Herfindahl-Hirschman Index (HHI)

Used to measure market concentration by squaring the market share of each firm and adding the results.

Competitive advertising

Advertising that promotes the qualities/features of a firm's goods over those of competitors.

Generic advertising

Advertising that promotes the qualities/features of all output of an industry without identifying individual suppliers.

Patent

Gives the inventor/developer the sole right to supply the invention for a period of time.

Copyright

Gives creators of original material the exclusive right to reproduce their original material.

Market failure

Occurs when there is inefficiency in the allocation of goods and services in a free market.

Highly concentrated market

When a small number of large firms account for a large percentage of the market share.

Deregulation

Occurs when laws that prevent new firms from entering a market are removed.

Price discrimination

Charging different consumers different prices for the same good/service, where the price differences are not due to differences in production costs.

Brand loyalty

The tendency of some customers to continue buying a certain brand rather than competing brands.

Interdependence

When firms consider the likely reactions of competitors, especially about price.

Price rigidity

The tendency in oligopolistic markets for prices not to change even if costs change.

Price constancy

Leaving the price unchanged even if costs change.

Price limiting

Occurs when existing firms discourage new firms by charging a lower price than they could, potentially unprofitable and illegal.

Brand proliferation

When one firm has many different variations of the same good/service.

Market sharing

Where rival firms divide up sales territories and do not trade in one another's areas.

Land

Anything provided by nature used to produce goods and services.

Economic rent

The return on any factor of production in excess of its supply price.

Supply price of a factor of production

The minimum payment necessary to bring the factor of production into use.

Entrepreneur

A person who takes a risk to make a profit by organizing resources to produce goods/services.