Economics

absolute poverty where people do not have enough resources to meet all of their basic human needs

administration activities involved with managing and organising the work of a company or organisation

aggregate demand total demand in the economy including consumption, investment, government expenditure and exports minus imports

aggregate supply total amount of goods and services produced in a country at a given price level in a given time period

anti-competitive practices (or restrictive trade practices) attempts by firms to prevent or restrict competition

appreciate (of a currency) where the value of a currency rises due to market forces – the exchange rate increases as a result

assembly plants factory where parts are put together to make a final product

assets things or resources belonging to an individual or a business that has value or the power to earn money

austerity official action taken by a government in order to reduce the amount of money that it spends or the amount that people spend

balance of payments record of all transactions relating to international trade

balance of trade or visible balance difference between visible exports and visible imports

barriers to entry obstacles that might discourage a firm from entering a market

base rate rate of interest set by government or regional central banks for lending to other banks, which in turn influences all other rates in the economy

basic economic problem allocation of a nation’s scarce resources between competing uses that represent infinite wants

bi-lateral trade agreement trade deal between only two countries

boom peak of the economic cycle where GDP is growing at its fastest; time when business activity increases rapidly, so that the demand for goods increases, prices and wages go up, and unemployment falls

boom and bust when an economy regularly becomes more active and successful and then suddenly fails

budget government’s spending and revenue plans for the next year

budget deficit amount by which government spending is greater than government revenue

bulk buying buying goods in large quantities, which is usually cheaper than buying in small quantities

capital and financial account that part of the balance of payments where flows of savings, investment and currencies are recorded

capital goods those purchased by firms and used to produce other goods such as factories machinery, tools and equipment

capital intensive production that relies more heavily on machinery relative to labour

cartel where a group of firms or countries join together and agree on pricing or output levels in the market

closed shop company or factory where all the workers must belong to a particular trade union

commodities product that can be sold to make a profit, especially one in its basic form before it has been used or changed in an industrial process; examples of commodities are farm products and metals

competition rivalry that exists between firms when trying to sell goods to the same group of customers

complementary goods goods purchased together because they are consumed together

consumer goods those purchased by households such as food, confectionery, cars, tablets and furniture

consumer price index (CPI) measure of the general price level (excluding housing costs)consumption amount of goods, services, energy or natural materials used in a particular period of time

contractionary fiscal policy fiscal measures designed to reduce demand in the economy

cost-push inflation inflation caused by rising business costs

costs expenses that must be met when setting up and running a business

current account part of the balance of payments where all exports and imports are recorded

current account deficit when value of imports exceeds the value of exports

current account surplus when value of exports exceeds the value of imports

current balance difference between total exports and total imports (visible and invisible)

cyclical or demand deficient unemployment unemployment caused by falling demand as a result of a downturn in the economic cycle

de-industrialisation decline in manufacturing

deflation period where the level of aggregate demand is falling

demand curve line drawn on a graph that shows how much of a good will be bought at different prices

demand schedule table of the quantity demanded of a good at different price levels – can be used to calculate the expected quantity demanded

demand-pull inflation inflation caused by too much demand in the economy relative to supply

depreciate (of a currency) where the value of a currency falls due to market forces – the exchange rate falls as a result

depression or slump bottom of the economic cycle where GDP starts to fall with significant increases in unemployment

derived demand demand that arises because there is demand for another good

devalued (of a currency) when a government fixes a new lower exchange rate

direct taxes taxes levied on the income earned by firms and individuals

discretionary expenditure non-essential spending or spending that is not automatic

diseconomies of scale rising average costs when a firm becomes too big

disposable income income that is available to someone over a period of time to spend; it includes state benefits but excludes direct taxes

diversified if a company or economy diversifies, it increases the range of goods or services it produces

dividend part of a company’s profit that is divided among the people with shares in the company

division of labour breaking down of the production process into small parts with each worker allocated to a specific task

downturn period in the economic cycle where GDP grows, but more slowly dumping where an overseas firm sells large quantities of a product below cost in the domestic market

economic growth increase in the level output by a nation

economies of scale falling average costs due to expansion

economy system that attempts to solve the basic economic problem

effective demand amount of a good people are willing to buy at given prices over a given period of time supported by the ability to pay

elastic demand change in price results in a greater change in the quantity demanded (alternative term: price elastic)

elastic supply change in price results in a proportionately greater change in the quantity supplied (alternative term: price elastic)

embargo official order to stop trade with another country

enterprises companies, organisations or businesses

entrepreneurs individuals who organise the other factors of production and risk their own money in a business venture

equilibrium price price at which supply and demand are equal

excess demand where demand is greater than supply and there are shortages in the market

excess supply where supply is greater than demand and there are unsold goods in the market

exchange rate price of one currency in terms of another

excise duty government tax on certain goods, such as cigarettes, alcoholic drinks and petrol that are sold in the country

expansionary fiscal policy fiscal measures designed to stimulate demand in the economy

expenditure spending by a government, usually a national government

exports goods and services sold overseas

external benefits positive spillover effects of consumption or production – they bring benefits to third parties

external costs negative spillover effects of consumption or production – they affect third parties in a negative way

external economies of scale cost benefits that all firms in an industry can enjoy when the industry expands

factors of production resources used to produce goods and services, which include land, labour, capital and enterprise

fast-moving consumer good (FMCG) goods, especially food, that sell very quickly and in large amounts

finite having an end or a limit

fiscal deficit amount by which government spending exceeds government revenue

fiscal policy decisions about government spending, taxation and levels of borrowing that affect aggregate demand in the economy

fiscal surplus amount by which government revenue exceeds government spending

fit for purpose usable (by a consumer) for the purpose for which it was intended

fixed capital stock of ‘man-made’ resources, such as machines and tools, used to help make goods and services

fixed costs (also known as overheads) costs that do not vary with the level of output

foreign exchange market market where foreign currencies can be bought and sold

free rider individual who enjoys the benefit of a good but allows others to pay for it

free trade situation in which the goods coming into or going out of a country are not controlled or taxed

frictional unemployment when workers are unemployed for a short period of time as they move from one job to another

globalisation growing interconnection of the world’s economies

goods things that are produced in order to be sold

gross domestic product (GDP) market value of all final goods and services produced in a period (usually yearly), an internationally recognised measure of national income

hostile takeover takeover that the company being taken over does not want or agree to

human capital value of the workforce or an individual worker

hyperinflation very high levels of inflation; rising prices get out of control

imports goods and services bought from overseas

income elasticity of demand responsiveness of demand to a change in income

income inequality differences in income that exist between the different groups of earners in society, that is, the gap between the rich and the poor

indirect taxes taxes levied on spending, such as VAT

inelastic demand change in price results in a proportionately smaller change in the quantity demanded (alternative term: price inelastic)

inelastic supply change in price results in a proportionately smaller change in the quantity supplied (alternative term: price inelastic)

infant industries new industries yet to establish themselves

inferior goods goods for which demand will fall if income rises or rise if income falls

infinite without limits

inflation rate at which prices rise, a general and continuing rise in prices

innovative commercial exploitation of a new invention

interdependence where the actions of one country or large firm will have a direct effect on others

interest rates price paid to lenders for borrowed money; it is the price of money

internal economies of scale cost benefits that an individual firm can enjoy when it expands

inverse relationship (between price and quantity demanded) when price goes up, the quantity demanded falls and when the price goes down the quantity demanded rises

invisible trade trade in services

job rotation practice of regularly changing the person who does a particular job

labour intensive production that relies more heavily on labour relative to machinery

labour mobility ease with which workers can move geographically and occupationally between different jobs

labour people used on production

laying off to stop employing someone because there is no work for them to do

liabilities amount of debt that is owed or must be paid

Lorenz curve graphical representation of the degree of income or wealth inequality in a country

macroeconomics study of large economic systems such as those of a whole country or area of the world

market clearing price price at which the amount supplied in a market matches exactly the amount demanded

market failure where markets lead to inefficiency

market niche smaller market, usually within a large market or industry

market segments groups of customers that share similar characteristics, such as age, income, interests and social class

maximise to increase something such as profit, satisfaction or income as much as possible

menu costs costs to firms of having to make repeated price changes

merit goods goods that are under-provided by the private sector

microeconomics study of small economic systems that are part of national or international systems

minimum wage minimum amount per hour which most workers are legally entitled to be paid

mixed economy economy where goods and services are provided by both the private and the public sectors

monetarists economists who believe there is a strong link between growth in the money supply and inflation

monetary policy use of interest rates and the money supply to control aggregate demand in the economy

money supply amount of money circulating in the economy

monopoly situation where there is one dominant seller in a market

monopolies situation where a business activity is controlled by only one company or by the government, and other companies do not compete with it

mortgage legal arrangement where you borrow money from a financial institution in order to buy land or a house, and you pay back the money over a period of years; if you do not make your regular payments, the lender normally has the right to take the property and sell it in order to get back their money

multinational corporations (MNCs) companies that operate in many different countries

national debt total amount of money owed by a country

national income value of income, output or expenditure over a period of time

nationalised industries public corporations previously part of the private sector that were taken into state ownership

natural monopoly situation that occurs when one firm in an industry can serve the entire market at a lower cost than would be possible if the industry were composed of many smaller firms

new entrant company that starts to sell goods or services in a market where they have not sold them before, or one of these goods or services

niche market market for a product or service, perhaps an expensive or unusual one, that does not have many buyers, but that may make good profits for companies that sell it

normal goods goods for which demand will increase if income increases or fall if income falls

offset if something, such as a cost or sum of money, offsets another cost it has the effect of reducing or balancing it, so that the situation remains the same

offshoring practice of getting work done in another country in order to save money

oligopoly market dominated by a few large firms

opportunity cost cost of the next best alternative given up (when making a choice)overheat if an economy overheats, demand rises too fast, causing prices and imports to rise, a situation that governments may try to correct by raising taxes and interest rates

patent licence that grants permission to operate as a sole producer of a newly designed product

perfectly elastic (demand) where PED = ∞ (an increase in price will result in zero demand)

perfectly elastic(supply) where PES = ∞ (producers will supply an infinite amount at the given price)

perfectly inelastic (demand) where PED = 0 (a change in price will result in no change in the quantity demanded)

perfectly inelastic(supply) where PES = 0 (the quantity supplied is fixed and cannot be adjusted whatever the price)

piece rate amount of money that is paid for each item a worker produces, rather than for the time taken to make it

policy instruments tools governments use to implement their policies, such as interest rates, rates of taxation, levels of government spending

price elasticity of demand responsiveness of demand to a change in price

price elasticity of supply responsiveness of supply to a change in price

price maker where a dominant business is able to set the price charged in the whole market

price war where one firm in the industry reduces price causing others to do the same

primary income money received from the loan of production factors abroad

primary sector/industry production involving the extraction of raw materials from the earth

private benefits rewards to third parties of an economic activity, such as consumption or production

private costs costs of an economic activity to individuals and firms

private sector provision of goods and services by businesses that are owned by individuals or groups of individuals

privatisation act of selling a company or activity controlled by the government to private investors

product differentiation attempt by a firm to distinguish its product from that of rival

production possibility curve (PPC) line that shows the different combinations of two goods an economy can produce if all resources are used up

production process that involves converting resources into goods or services

productivity rate at which goods are produced, and the amount produced in relation to the work, time and money needed to produce them

progressive taxation where the proportion of income paid in tax rises as the income of the taxpayer rises

proportionate relationship (between price and the quantity supplied) when the price goes up, the quantity supplied also goes up and when the price goes down the quantity supplied goes down

protectionism approach used by governments to protect domestic producers

public goods goods that are not likely to be provided by the private sector

public sector government organisations that provide goods and services in the economy

purchasing power of money amount of goods and services that can be bought with a fixed sum of money

quantitative easing buying of financial assets, such as government bonds from commercial banks, which results in a flow of money from the central bank to commercial banks

quota physical limit on the quantity of imports allowed into a country

rate of interest price of borrowing money

raw materials substances used to make a product

real economy part of the economy that is concerned with actually producing goods and services, as opposed to the part of the economy that is concerned with buying and selling on the financial markets

recession period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters

regressive taxation tax system that places the burden of the tax more heavily on the poor

relative poverty poverty that is defined relative to existing living standards for the average individual

repatriation (of profit) where a multinational returns the profits from an overseas venture to the country where it is based, typically from a developing country to a developed country (not often the other way around)

reserves amount of something valuable, such as oil, gas or metal ore

retail price index (RPI) measure of the general price level which includes house prices and council tax

revalued (of a currency) when a government fixes a new higher exchange rate

revenue money that a business receives over a period of time, especially from selling goods or services

saturated market in which there is more of a product for sale than people want to buy

scale size of a business

scarce resources amount of resources available when supply is limited

seasonal unemployment unemployment caused when seasonal workers, such as those in the holiday industry, are laid off because the season has ended

secondary income government transfers to and from overseas agencies such as the EU

secondary picketing workers in one workplace or company strike in a group at a particular location in order to support the striking workers in a different workplace or company

secondary sector/industry production involving the processing of raw materials into finished and semi-finished goods

shareholders people or organisations that owns shares in a company

shift in the demand curve movement to the left or right of the entire demand curve when there is a change in any factor affecting demand except the price

shift in the supply curve movement to the left or right of the entire supply curve when there is any change in the conditions of supply except the price

shoe leather costs costs to firms and consumers of searching for new suppliers when inflation is high

social benefits benefits of an economic activity to society as well as to the individual or firm

social costs costs of an economic activity to society as well as the individual or firm

specialisation production of a limited range of goods by individuals, firms, regions or countries

spillover effects effect that one situation or problem has on another situation

structural unemployment unemployment caused by changes in the structure of the economy such as the decline in an industry

subsidiaries companies that are at least half-owned by another companysubsidy money that is paid by a government or organisation to make prices lower, reduce the cost of producing goods or providing a service, usually to encourage production of a certain good

substitute goods goods bought as an alternative to another but perform the same function

supply amount that producers are willing to offer for sale at different prices in a given period of time

supply curve line drawn on a graph which shows how much of a good sellers are willing to supply at different prices

supply side policies government measures designed to increase aggregate supply in the economy

takeover act of getting control of a company by buying over 50 per cent of its shares

tariffs or customs duties tax on imports to make them more expensive

tax avoidance practice of trying to pay less tax in legal ways

taxes amount of money that you must pay to the government according to your income/profit, property or goods, which is used to pay for public services

tertiary sector/industry production of services in the economy

total cost fixed costs and variable costs added together

total revenue amount of money generated from the sale of goods calculated by multiplying price by quantity

trade barriers measures designed to restrict imports

trade liberalisation move towards greater free trade through the removal of trade barriers

trading blocs groups of countries situated in the same region that join together and enjoy trade free of tariffs, quotas and other forms of trade barrier

transactions payment, or the process of making one

unemployment when those actively seeking work are unable to find a job

unitary elasticity (with regard to supply) where PES = 1 (a change in price will be matched by an identical change in the quantity supplied)

unitary elasticity where PED = –1 (the responsiveness of demand is proportionately equal to the change in price)

unsustainable growth economic growth that it is not possible to sustain without causing environmental problems

value-added products or services have an increased value because work has been done on them, they have been combined with other products and so on; this increase in value to the buyer is what the buyer pays for

valued-added tax (VAT) tax on some goods and services – businesses pay value-added tax on most goods and services they buy and if they are VAT registered, charge value-added tax on the goods and services they sell

variable costs costs that change when output levels change

variables something that affects a situation in a way that means you cannot be sure what will happen

ventures new business activities or projects that involve taking risks

visible trade trade in physical goods

voluntary unemployment unemployment resulting from people choosing not to work

wage rate the amount of money paid to workers for their services over a period of time (that is, the price of labour)

wholesalers person or company that sells goods in large quantities to businesses, rather than to the general public

working capital or circulating capital resources used up in production such as raw materials and components

World Trade Organization international organisation that promotes free trade by persuading countries to abolish tariffs and other barriers; it polices free trade agreements, settles trade disputes between governments and organises trade negotiations