Economics Vocabs

**Unit 1**

**Economic systems** - system of production, resource allocation, and distribution of goods and services

**Free market economic systems** - a market in which resource allocation is determined by demand and supply with no government control

**Centrally planned economic system** - an economic system in which resource allocation by the government or central planning authority

**Mixed economy** - a combination of both planned and free market systems and includes both a private and public sector.

**Public sector** - government sector which controls basic services

**Private sector** - economy sector which provides services, free from government control although dangerous goods are illegal

**Positive economic statement** - objective statements that can be tested, amended or rejected by referring to the available evidence.

**Normative economic statement** -subjective statement of opinion which can neither be proven or disproven.

**The basic economic question** - defined as limited resources and unlimited wants

**Ceteris** **paribus** - means that all other variables remain the same

**Unit 2**

**Opportunity cost** - the cost or value of an economic decision in terms of the next best option foregone.

**Free goods** - good that are unlimited in supply with no opportunity cost

**Economic goods** - all goods which have a value with limited in supply

**Market place** - any physical or online location where consumers and suppliers meet, to exchange their goods and services

**Market failure** - inefficient distribution of goods and services in free markets, individual incentives for rational behavior do not lead to rational outcomes

**Demand** - quantity of good that buyers (consumers) are willing and able to buy at various prices over a time period, ceteris paribus

**Supply** - quantity of goods and services that producers are willing and able to produce at a given time, for a given price, ceteris paribus

**Market** **equilibrium** - occur where quantity demanded is equal to quantity supplied

**Allocative** **efficiency** - allocation of resources that results in producing the combination and quantity of goods and services mostly preferred by consumers

**Welfare loss** - loss of social surplus that arises when MSB is not equal to MSC

**Market disequilibrium** - when the market is not allocatively efficient because the market has either too few or too many of the goods and services being produced, from society's point of view

**Price elasticity of demand (PED)** - responsiveness of a good demanded to changes in its prices

**PED formulae** - % change in Qd / % change in price

**PED elastic good** - large responsiveness of Qd due to changes in prices ; PED greater than 1

**PED inelastic good** - small responsiveness of Qd due to changes in prices ; PED smaller than 1

**PED unitary good** - good or service where a change in the price of the product leads to a proportional change in quantity demanded; PED = 1

**Cross price elasticity of demand (XED)** - if there are two goods, X and Y, a change in the price of one may lead to a change in demand for the other

**Income elasticity of demand (YED)** - responsiveness of a good demanded to changes in income levels

**YED formulae** - % change in in Qd / % change in income

**Normal good** - as income rises, D for goods rise - direct relationship b/w income and demand

**Inferior good** - as income rises, D for goods fall - inverse relationship b/w income and demand

**Price elasticity of supply** - responsiveness in Q supplied to changes in price, movement along the supply curve

**PES formulae** - % change in in Qd / % change in price

**Indirect** **tax** - tax placed on a good or service, raising the production costs of the business, tax on expenditure rather than a tax on income

**Specific** **tax** - fixed amount placed upon a good or service

**Ad valorem tax** - a percentage value added to the price of a good or service

**Producer tax** - tax on sales but paid for by the manufacturer or producer

**Excise tax** - tax applied to a narrow range of products such as cigs or alcohol to reduce consumption

**Subsidy** - support provided by the government to encourage production or consumption of a good or service

**Price ceiling** - when a government sets a max price below the equilibrium price

**Shortage** - when a market for a good or service is not in equilibrium because demand for the product is greater than supply

**Price floor** - when a government sets a min price above the equilibrium price

**Externalities** - the spillover costs to a third party caused by production and consumption; MSC ≠ MSB

**Merit good** - good or service which consumers undervalue but governments believe it provides positive externalities

**Positive externality** - benefits enjoyed by a third-party when a consumer makes a purchasing decision

**Marginal private benefit** - additional benefit for consumers arising from consumption

**Marginal social benefit** - additional benefit for society arising from consumption

**Social efficiency** - occur when resources in economy are used in the most efficient way possible and are represented by the output level where SMC = SMB

**Demerit good** - good or service which consumers overvalue but governments believe it provides negative externalities

**Negative externality** - costs to a third-party caused by production or consumption, occur when MSC is greater than MSB

**Marginal private cost** - provide cost by producer or user of one additional unit of a good or service

**Marginal social cost** - additional cost to society arising from production

**Marginal private cost** - additional cost to producers arising from production

**Socially optimum level of output** - MSB = MSC

**Public goods** - a good that is non-rivalrous and non-excludable that has external benefits

**Unit 3**

**Macroeconomic** **objectives** - control of inflation, maintenance of economic growth, low and stable unemployment and the external balance above objectives

**Circular flow of income** - an economic model that illustrates the flow of money and resources between firms and households at an economic level

**Leakages** - money that leaves the circular flow such as savings, taxation, imports

**Injections** - money that enters the circular flow such as investment, government expenditure, exports

**Gross Domestic Product (GDP)** - total value of all final goods and services produced within a country over a time period, regardless who owns the factor of production

**GDP** = C + I + G + (X-M)

**Gross National Income (GNI)** - total income generated by a country and is calculated by adding net property income from abroad to the GDP, equal to value of final goods and services produced by factor of production by a country’s residents

**GNI** = GDP + net property income

**Real GDP/GNI** - GDP or GNI adjusted for the effects of inflation i.e. the rise in general prices.

**GDP / GNI per capita** - measure GNI per head of population

**Big Mac index** - an index used to measure the purchasing power parity (PPP) between two currencies

**Purchasing power parity (PPP)** - long-term exchange rate calculated by considering the ratio of prices in one country compared to another

**Human development index** - used by the United Nations Development Programme to measure a country’s economic development in terms of life expectancy, education, and material standard of living

**OECD better life index** - measure of well-being which looks at some of the key factors that affect welfare of a nation’s population

**Happy planet index** -measures sustainable well-being for a nation’s population

**Aggregate demand** - total spending of all goods and services produced in the economy at a given price level and at a given point in time

**Private consumption (C)** - spending by households on domestic consumer goods and services over a period of time

**Government spending (G)** - public sector spending whether by national or local governments

**Investment (I)** - expenditure by firms on capital equipment and is an injection into the economy

**Net exports (X-M)** - the value of exports (ie export revenues) - value of import (ie import expenditures)

**Aggregate supply** - total quantity of all goods and services the economy can produce at a given price level and in a given time period

**Supply shock** - an unexpected event that impacts on the supply of a product or commodity, resulting in a sudden change in price

**Unemployment rate** - count of jobless people in a country who are seeking work but who do not have a job

**Cyclical unemployment** - caused by a downturn in the economy

**Frictional unemployment** - caused by workers moving between jobs

**Structural unemployment** - people who are unemployed due to technology or innovation

**Hidden unemployment** - individuals who have given up looking for work as they fear they have no chance of being successful

**Inflation** - sustained increase in the average/general level of prices in an economy

**Deflation** - sustained decrease in the average/general level of prices in an economy

**Disinflation** - fall in the rate of inflation in an economy

**Demand pull inflation** - caused by an increase in AD, hence a right shift in AD curve, as price level increases

**Cost push inflation** - caused by a decrease in SRAS, hence a left shift in SRAS curve, resulting from increases in the cost of production, as price level increases

**Macroeconomic equilibrium** - where aggregate supply is equal to aggregate demand.

**Inflationary gap** - inflationary pressure created by the current (or SR) equilibrium being above the full employment (or LR) equilibrium

**Recessionary gap** - where the level of national output is operating below the full employment level of output

**Recession** - a period of time when there is a fall in GDP for two consecutive three-month periods.

**Monetarist / neo-classical** - believe government do not need to intervene and economy is self correcting

**Keynesian economics** - believe government need to intervene and fiscal and monetary policy should be used actively in the short run

**Lorenz curve** - illustrates the level of income inequality within an economy

**Gini coefficient** - can be used to measure the size of a country’s income inequality

**Equality** - fairness in terms of providing everyone with the same opportunities to be successful

**Equity** - everyone has diff advantages and skills and have resources and opportunities needed to reach an equal outcome

**Direct taxation** - taxpayers pay directly to the government, such as income tax, corporate tax

**Indirect taxation** - can be passed on or shifted to another person or group by the person or business that owes it, such as sales tax, excise duty

**Progressive** **taxation** - a tax where the burden paid increases as a household's income rises

**Regressive taxation** - a tax where the burden paid falls as a household's income rises

**Proportional taxes** - taxes where the burden falls equally on both low and high income households

**Monetary policy** - demand-side policy with the central bank using changes in the money supply or interest rates to influence AD

**Central bank** - government’s bank and has control over money supply in the economy

**Base rate or discount interest rate** - interest rate that central bank charge commercial banks for short term loans

**Expansionary monetary policy** - expansion of money supply through reduced interest rate / or quantitative easing

**Contractionary monetary policy** - contraction of money supply through higher interest rate / or lowering the money in circulation

**Quantitative easing** - central bank purchases securities to increase money supply and encourage investment and lending

**Fiscal policy** - demand-side policy to achieve their macroeconomic objectives by using government spending and tax policies to influence economic conditions

**Expansionary fiscal policy** -decrease taxation and or increase government spending to increase AD

**Contractionary fiscal policy** - increase taxation and or decrease government spending to fight inflationary pressures

**Supply-side policies** - policies aimed at increasing AS; shifting from left to right

**Privatization** - transfer of assets from public sector to priv sector

**Market based supply-side policies** - policies aimed at increasing AS by placing a greater emphasis on market forces and competition

**Interventionist supply side policies** - policies aimed at increasing AS by placing a greater emphasis on greater intervention by governments

**Infrastructure** - consists of any large-scale capital used in the production of goods and services ; as it increases infrastructure, it increases LRAS in the economy

**Unit 4**

**International** **trade** - exchange of all goods and services between one country and another

**Free trade** - trade policy that does not restrict imports or exports

**Protectionism** - government policies that restrict international trade to help domestic industries

**Tariff** - tax placed on imported good or service as they enter the domestic economy, paid by the individual or organization importing the good

**Quota** - limit on the numbers of value of a good or service that a country will allow into the country

**Economic integration** - involve different countries coordinating and linking their economic policies

**Trade creation** - occurs when entry to a customs union means that the production of a good or service switches from a high-cost producer to a lower-cost producer

**Free trade area** - where a group of countries agrees to remove trade barriers between them and they set their own tariffs and other trade barriers within countries outside the FTA

**Customs union** - agreement between countries to remove or reduce trade barriers between them but they set common external tariff barriers against non-members

**Exchange rate** - value of one currency expressed in terms of another on the foreign exchange markets

**Balance of payment** - include balance of trade in goods, services, income and transfers. Referred to as “exports of goods and services” and “imports of goods and services”

**Current account** - record of revenues earned from export of G and S and expenditure on imports of G and S

**Current account deficit** - value of total imports of G and S plus net income flows are greater than value of total exports of G and S

**Current account surplus** - revenues from exports of G and S plus net income flows are greater than spending on imports of G and S

**Current transfers** - transfer of money between countries for non-investment purposes

**Credit** - any transactions that results in currency coming into the country, credit items are awarded a positive value on balance of payment

**Debit** - any international transaction which results in money leaving nation, awarded a negative value on balance of payment

**Balancing item** - difference between debit and credit, the amount that a country requires in order to make their debits and credits balance

**Capital account** - transfer of money into and out of a country for investment purposes and is divided into capital transfers and transactions of intangible non financial assets

**Financial account** - measures net change in ownership of financial assets and consists of a record of the number of domestic assets purchased by overseas purchasers, as well as foreign assets purchased by domestic residents

**Sustainable development goals** - 17 life-changing goals including ending extreme poverty, giving people better healthcare etc

**Barriers to development** - factors that act as a barrier to development in many LEDCs e.g. poor infrastructure, low savings rate etc

**Inward-looking development strategies (import substitution)** - trade and economic policy which advocates replacing foreign imports with domestic production

**Outward-looking development strategies (export substitution)** - trade and economic policy which prioritize export goods for which the nation has a comparative advantage

**Aid** - assistance provided to a country that would not otherwise have been given if left up to market forces

**Transfer payments** - government redistribution of income and wealth made without any transfer of goods or services in exchange.

**Import tariffs** - tax on imported goods designed to protect domestic industry

**Government grants** - form of government subsidy provided to help new or struggling businesses

**Bail-outs** - specific help provided to key industries when struggling financially

**Financial assistance** - type of government assistance paid in the form of a grant or loan to encourage businesses to set up in areas of high unemployment

**Spending multiplier** - represents the multiple by which GDP increases or decreases in response to an increase and decrease in government expenditures and investment

**Automatic stabilizers** - occur due to tax and government expenditure automatically change during business cycle, has consequence of inflationary and deflationary gap

**Budget balance** - when government income from taxation and sales of public assets is equal to its total expenditure

**Government expenditure** - government or public spending, classified into current expenditures, capital expenditures and transfer payment

**Government budget** - derived from government income from taxation and sales of public assets minus total expenditures

**Budget deficit** - when government income from taxation and sales of public assets is lower than its total expenditure

**Budget surplus** - when government income from taxation and sales of public assets is greater than its total expenditure

**Income** -money that individual receives from income / rent on land/property / interest on their savings / profit on stocks and shares that they may earn.

**Relative poverty** - the condition in which people lack the minimum amount of income needed in order to maintain the average standard of living in the society in which they live.

**Universal basic income** - a governmental public program for a periodic payment delivered to all on an individual basis without means test or work requirement

**Development** - measures improvement in individual freedom, reducing poverty as well as provision of public services

**Micro-credits / micro loans** - very small loans made to often impoverished borrowers who lack collateral, steady employment or a verifiable credit history

**Appropriate technology** - machinery and technology that is cheaper and more appropriate for LEDCs than conventional technology used in wealthier nations

**Trade liberalization** - reduction or removal trade barriers such as tariffs, quotas and subsidies

**Diversification** - policy of steering an economy away from an over reliance on a narrow range of goods and services

**Multinational company** - company with operations in two or more countries, provide direct foreign investment to different nations, they can be done by setting up a manufacturing plant in a foreign country or acquiring a domestic business in a foreign country

**FDI** - investment in the form of a controlling ownership in a busines in one country by an entity based in another country

**AID** - assistance provided to a country that would not otherwise have been given if left up to market forces

**Remittances** - funds paid to fam members back home by refugees working overseas

**Middle income nation** - diverse band of nations defined as lower middle-income economies, with a GNI per capita between $1006 and $3955

**Economic sectors of the economy** - industrialized nation, more developed or more economically developed country

**Poverty cycle** - involve low incomes which lead to low savings and low investment which ensures low incomes in the future

**Comparative advantage** - economy's ability to produce goods and services at a lower opportunity cost than that of trade partners

**Red tape / bureaucratic barriers** - where the gov imposes excessive rules, regulations and bureaucracy on imported goods ; used as ‘hidden’ trade restrictions to protect domestic producers and reduce imports