eco

• Positive economic statements – precise and fact-based statements proved with data

• Normative economic statements – similar to an opinion and based on the value of judgements of the individual giving the opinion

• Single Market – Refers to EU as one territory without any internal boarders 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 loose confidence in their bank or the financial system. Depositors seek to withdraw savings, and banks will run out of cash

• 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 – it is 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 the 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. It is a 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. Able to make 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, easily transferable and commands a price

• The Law of Diminishing Marginal Utility – as a consumer consumes more and more units of a good, the extra satisfaction (marginal utility) derived from each additional unit consumed will eventually decline

• The Law of Equi-marginal returns – states that a consumer who wants to maximise utility will allocate their income so that the ratio of marginal utility to price is the same for all goods they consume

• Price Elasticity of Demand (PED) – measures the percentage change in quantity demanded of a good/service due to a percentage change in the 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 the demand for a good/service 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 the quantity demanded for a good/service 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 account 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 costs savings or lower cost per unit which a firm enjoys once the 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 unity for all firms in the industry as the industry expands

• Diseconomies of scale – the costs disadvantage or higher costs per unit as the level of output produced increases

• Internal diseconomies of scale – forces within a firm that result in a rise in the costs per unit as a firm expands

• External diseconomies of scale – forces within an industry that result in a rise in the costs per unit as the industry expands

• Moral hazard – the lack of an incentive an individual/firm has to guard against risk when they are protected from the consequence of their actions

• Normal profit – profit earned when AR=AC.

• Supernormal (abnormal profit) – profit that is earned when AR > AC

• Demerit – a good that can have a negative effect on the consumer and if over- consumed or over-produced it can impose negative external costs on third parties

• Externality – The external cost (or benefit) that accrue to other individuals or to society as a result of production or overconsumption

• Carbon tax – applied to carbon-emitting fuels like coal, oil, natural gas

• Price ceiling – price that is below the equilibrium price. It is a price above which suppliers cannot charge

• Price floor – price that is above equilibrium price. A price which suppliers are guaranteed to receive

• Market – a place where goods and services are bought and sold, where buyers and sellers interact with each other

• Normal profit – minimum profit a firm must make in order to continue business in the long run (AR = AC)

• Supernormal profit – profits earned in excess of normal profits (AR > AC)

• 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. Calculated by squaring the market share of each firm and adding the results

• Competitive advertising – advertising that promotes the qualities/features of ones firm’s goods over those of its competitors

• Generic advertising – advertising that promotes the qualities/features of all of the 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 the 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 regulations/laws that prevent new firms from entering a market are removed e.g electricity market

• Price discrimination – involves charging different consumers different prices for the same good or service, where the reason of price differences is not due to differences in cost of production

• Brand loyalty – the tendency of some customers to continue buying a certain brand of a good rather than competing brands

• Interdependence – when firms take the likely reactions of their competitors into account, especially about price

• Price rigidity – tendency in oligopolistic markets for prices not to change even if costs change, as a price rise will result in a fall of sales or provoke a price war with competitors

• Price constancy – involves leaving the price unchanged even if costs change as it could actually cost more to change the price of the good than it would to take a dent in the profits

• Price limiting – occurs where existing firms discourage new firms from entering by charging a lower price than they could charge, it’s 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 they will not trade in on another’s area, also involve agreeing on consumers (demographics) they will sell or not sell to

• Land – anything that is provided by nature that is used to produce goods and services

• Economic rent – the return on any FOP in excess of its supply price

• Supply price of a FOP – the minimum payment necessary to bring the factor of production into use and to maintain it in that use

• Entrepreneur – person who takes a risk in order to make a profit by organising the FOP’s to produce goods/services

• Capital – defined as anything human-made that is used to produce goods/services

• Investment – defined as capital formation, or the production of capital goods

• Capital deepening – the increases in labour and capital result in an increase in the ratio of capital to labour

• Capital widening – the increase in labour and capital leaves the ratio of labour to capital unchanged

• Marginal Efficiency of Capital (MEC) – the extra profit that is generated by employing one extra unit of capital

• Labour – the physical effort that goes into supplying goods and services

• Nominal wage – the rate of pay or salary of an employee

• Real wage – purchasing power of wages (nominal – inflation)

• Labour productivity – measures the output that is produced by a worker per period of time

• The Law of Diminishing Marginal Returns (LDMR) – as more and more of a variable factor is added to a fixed factor at some stage the increase in output cause by the last unit of the variable factor will begin to decline

• Marginal revenue productivity (MRP) – the extra revenue earned when an additional unit of factor of production is employed

• Marginal physical product (MPP) – extra output produced when an additional unit of a factor of production is employed

• Occupational mobility of labour – the ability of a worker to move from one job to another

• Geographical mobility of labour – the ability of a worker to move from one area to another

• Wage drift – a situation where wage levels rise above negotiated levels

• Ratchet economy – an economy that experiences wage and price increases, due to increased demand but wages and prices don’t fall when demand does

• Minimum wage – the lowest wage per hour that a worker must be paid

• Gender pay gap – the difference between the average gross earnings of female and male employees

• Unequal pay – different rates paid to men and women for the same job (illegal)

• Market failure - occurs when there is inefficiency in the allocation of goods and services in a free market

• Externalities – the external costs or benefits that accrue to third parties as a result of the production or consumption of a good/service

• Public good – public paths, street lighting and national defence

• Asymmetric information – occurs when one party to an economic transaction has more information than the other

• National income – the income accruing to the permanent residents of a country from current economic activity during a period of time, usually one year

• Recession – the fall in GDP in too successive quarters

• The circular flow of income – flow of receipts and expenditure between companies and households

• Investment – defined as capital formation or the production of capital goods

• Hidden economy – unrecorded economic activity that is not accounted for in national income statistics

• Intellectual property – refers to patents, trademarks, copyrights and trade secrets

• Patent – give the inventor the sole right to produce an invention that they created

• Trademark – refers to brand names

• Copyright – applies to creative works

• Trade secret – process within a company that is not known outside of the company e.g recipe

• Inversion deals – when a firm with an Irish HQ takes over or merges with a firm that is located abroad

• Gross Domestic Product (GDP) – the value of goods and services produced by Irish and foreign-owned factors of production in the domestic economy only

• Gross National Product (GNP) – The value of goods and services produced by Irish- owned factors of production in the domestic economy and abroad (GDP + NFI)

• Net Factor Income (NFI) – income earned by Irish factors abroad that is sent to Ireland minus the income earned by foreign factors in Ireland that is sent abroad

• Gross National Income (GNI) - measures total income that is earned by a county’s residents and businesses regardless of where the income is earned ( GNP + EU subsidies - EU taxes)

• Gross National Disposable Income (GNDI) - measures the income available to the nation for gross saving and final consumption (GNI + current transfers from the rest of the world – current transfers to rest of the world)

• The multiplier – shows the precise relationship between an initial injection into the economy and the eventual increase in national income resulting from the injection

• Marginal propensity to consume (MPC) – fraction of extra income that is spent

• Marginal propensity to save (MPS) – fraction of extra income that is saved

• Marginal propensity to import (MPM) – fraction of extra income that is spent on imports

• Marginal propensity to pay tax (MPT) – fraction of extra income that is paid in taxes

• Closed economy – economy that does not engage in international trade

• Open economy – economy that relies heavily on international trade

• Direct taxes – taxes on incomes and wealth

• Indirect taxes – taxes on goods/services and paid indirectly to the government by final consumers

• Equity – taxes should be fair, those who earn more should pay more tax

• Economy – taxes should be cheap to collect, shouldn’t cost more to collect than the revenue from the tax

• Convenience – taxes should be collected in a manner that is easy for a taxpayer to pay

• Certainty – taxpayers should know their tax liability

• Regressive tax – a tax which does not take account of the taxpayer’s ability to pay, takes higher percentage of income of low-income earners than high-income earners

• Progressive tax – a tax that takes account of the ability of the taxpayer to pay, takes higher percentage from high-income earners than low-income earners

• Value Added Tax (VAT) – an indirect tax on goods and services that is paid final by the consumer

• Excise duties – taxes that are introduced to discourage a certain activity, levied on tobacco, alcohol, and fuel

• Deposit Interest Retention Tax (DIRT) – a tax on interest

• Stamp duty – a tax on certain transactions and instruments e.g purchase of a property

• Capital Gains Tax (CGT) - a tax paid on the earns from the sale of an asset

• Capital Acquisitions Tax (CAT) – a tax on gifts and inheritance

• Corporation Tax – a tax on company’s profits

• Tax avoidance – involves legally arranging your tax affairs to reduce your tax liability or avoid paying tax altogether

• Tax evasion – involves illegally arranging your tax affairs to reduce your tax liability or evade paying any tax

• Impact of a tax – refers to the initial burden of the tax

• Incidence of a tax – refers to the person/firm who actually pays the tax

• Transfer payments – payments to individuals for which no factor of production has been provided

• Fiscal policy – refers to actions taken by the government that influence the timing, magnitude and the structure of government current revenue and expenditure

• Expansionary fiscal policy – increase government expenditure, reduce taxes on labour

• Contractionary fiscal policy – decrease government expenditure, increase taxes on labour

• Fiscal neutrality – when current revenue and expenditure are equal

• National debt – the total amount of government debt that is outstanding

• Debt/GDP ratio – gives an indication of a county’s debt in relation to the size of the country’s economy

• Privatisation – the sale of state-owned firms to private investors

• Full employment – refers to a situation where everyone who wants a job can find one at existing wage levels

• Underemployment – occurs when a worker’s skills/time are not being utilised to their full potential

• The Live Register – measure of all those who receive an unemployment-related social welfare payment

• Structural unemployment – occurs when there is a mismatch between the skills

of those who are unemployed and the jobs available

• Frictional unemployment – occurs due to people being between jobs, left one job and looking for another, entered the workforce and are seeking work

• Seasonal unemployment – results due the seasons or time of the year

• Cyclical unemployment – unemployment that results from the reduction in demand for goods and services associated with a downturn in the economy

• Inflation – the steady and persistent increase in the general level of prices

• Deflation – the reduction in the general level of prices

• Nominal wage – the money wage before adjustment for inflation

• Real wage – the money wage adjusted for inflation, refers to the purchasing power of the nominal wage

• Demand-pull inflation – when the aggregate demand for goods and services is greater than the aggregate supply of goods and services

• Cost-push inflation – when a rise in the costs of production is passed on to consumers in the form of higher prices

• Monetary policy – the use of interest rates, money supply and credit availability to achieve economic objectives

• Quantitative easing (QE) – when a central bank buys financial assets from commercial banks with new money that the central bank has created (printing money)

Chapter 15 – The Financial Sector

• Interest rate – the price of money

• Reserve ratio – the percentage of deposits a financial institution must keep in cash form to meet customers’ demands for cash

• Economic growth – when there is an increase in income per person with no change to the structure of society

• Economic development – when there is an increase in income per person accompanied by changes to the structure of society

• Official Development Assistance (ODA) – defined as government aid to developing countries that is designed to promote the economic development and welfare of those countries

• Globalisation – flow of goods, services, people and knowledge across borders, interdependence of economies upon one another, interconnections between the countries of the world

• Multinational corporation (MNC) – a company that has an established presence in a country other than its home country

• International trade – the exchange of goods and services across international territories

• Visible exports – physics goods sold to other countries

• Invisible exports – services sold to other countries

• Visible imports – physical goods that are bought from foreign-countries

• Invisible imports – services that are bought from foreign-countries

• Balance of Payments (BOP) – a record of all economic activity and financial transactions between the residents of a country and the rest of the world

• BOP on current account – difference between total exports and total imports

• BOP on capital account – record of a country’s receipts and payments for capital items as well as the acquisition and disposal of non-produced, non-financial assets

• BOP on financial account – deals with transactions in foreign financial assets and liabilities

• Dumping – when a firm sells goods abroad at a price much lower than in the home country usually to get a foothold in the market

• Tariff – a tax on imports to make them more expensive that domestic goods

• Quota – a physical or monetary limit on the amount of a good that can be imported

• Embargo – a ban on all trade with a country or an individual good coming from a particular country

• Subsidy – payments made from the government to the firm to reduce the average unit cost of production

• The Law of Absolute Advantage – states that each country should specialise in the production of those goods and services that it can produce more efficiently than other countries

• The Law of Comparative Advantage – states that a country should specialise in the production of those goods and services in which it is relatively most efficient and trade for the remainder requirements

• Terms of Trade – the ratio between the average price of exports and the average price of imports

• National competitiveness – refers to the overall ability of enterprises in that country to compete successfully in international markets

• Exchange rate – the price of one currency in terms of another

• Trading bloc – a group of countries sharing free trade agreements with each other

• Hot money – the capital that gets transferred between financial institutions in order to take advantage of interest rates