Economics

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Abnormal profit

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A firm makes supernormal profit when its total revenue exceeds its total cost.

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Absolute poverty

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This is when someone doesn't have the income or wealth to meet the basic needs, such as food shelter and water.

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Accelerator process

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The accelerator effect happens when an increase in national income (GDP) results in a proportionately larger rise in capital investment spending. In other words, we often see a surge in capital spending by businesses when an economy is growing quite strongly.

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Aggregate demand

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The total demand or the total spending in the economy at a given price level over a given period of time. it's made up of consumption, investment, government spending and net exports

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Aggregate supply

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the total amount of goods and services which can be supplied in an economy at a given price level over a given period of time.

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Aid

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The transfer of resource from one country to another.

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Allocative efficiency

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This is when the price of a good is equal to the price that consumers are happy to pay for it. this will happen when all resources are allocated efficiently.

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Asymmetric information

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This is when buyers have more information than sellers (or the opposite) in a market.

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Automatic stabilisers

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These are parts of fiscal policies that will automatically react to changes in the economic cycle. For example during recession, government spending is likely to increase because the government will automatically pay out more unemployment benefits which may reduce the problems of the recession.

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Average cost

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The cost of production per unit of output - i.e. a firm's for a given period of time, divided by the quantity produced.

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Average revenue

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The revenue per unit sold - i.e. a firm's total revenue for a given period of time, divided by the quantity sold.

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Backward vertical integration

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Backward integration is when a firm buys a company who previously supplied raw materials to the firm. It is a type of vertical integration, but specifically refers to the merging with firms who used to supply the firm.

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Balance of payment

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A record of the country's record of all economic transactions between the residents of the country and the rest of the world in a particular period (over a quarter of a year or more commonly over a year).

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Bank rate

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The official rate of interest set by the Monetary Policy Committee of the Bank of England.

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Barriers to entry

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Barriers to entry are any potential difficulties that make it hard for a firm to enter the market.

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Barriers to exit

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Barriers to exit are any potential difficulties that make it hard for a firm to leave the market.

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Black market

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Economic activities that occurs without taxation and government regulation. Also called the informal market.

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Budget deficit

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When government spending is greater than the revenue.

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Budget surplus

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When government spending is less than the revenue

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Capital account on the balance of payment

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A part of the record of a country's international flow of money. This includes the transfer of non-monetary and fixed assets, such as through emigration and immigration.

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Cartel

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A group of producers that agree to limit production in order to keep the price of goods or services high.

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Central bank

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The institution that is responsible for issuing a country's banknote, acting as the leader of last resort for other banks, and implementing monetary policy. (eg: setting interest rates).

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Circular flow of income

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The flow of national output, income and expenditure between households and firms.

National output = National income = National expenditure

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Command econamy

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An economy where the government, not the market, determine how to allocate resources.

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Comparative advantage

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A country has a has a comparative advantage if the opportunity cost of it producing a good is lower than the opportunity cost for other countries.

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Competition policy

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Government policy aimed to reducing monopoly power in order to increase efficiency and ensure fairness for consumers.

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Concentration ratio

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This show how dominant firms are in a market, e.g if three firms in a market have 90% market share, then the three firm concentration ratio is 90%.

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Conglomerate integration

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mergers or takeovers between firms which operate in completely different markets.

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Consumer surplus

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when a consumer pays for less than they were prepared to, this difference is the consumer surplus.

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Consumption

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The purchase/use of goods or services.

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Contestability

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A market is contestable if it's easy for a new firm to enter the market, i.e if barriers to entry are low.

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Cost benefit analysis

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This involves adding up the total private and external cost and benefits of a major product in order to decide if the project should go ahead.

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Cost-push inflation

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Inflation caused by the rising cost of inputs to production.

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Creative destruction

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This occurs when the innovation and invention of new products and production methods causes the destruction of existing markets and creates new ones.

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Cross elasticity of demand (XED)

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This is a measure of how the quantity demanded of one good/service responds to a change in the price of another good/service.

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Current account and the balance of payment

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A part of the record of a country's international flows of money. It consists of: trade, in goods, trade in service, international flows of income (salaries, interest, profit and dividends), and transfers.

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Cyclical unemployment

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Unemployment caused by a shortage of demand in an economy, e.g when there is a slump.

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Demand-pull inflation

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Inflation caused by excessive growth in aggregate demand compared to aggregate supply.

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Demand-side policy

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Government policies that aims to increase aggregate demand compared to aggregate supply.

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Demerger

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A firm selling off part(s) of its business to create a separate firm, or firms.

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Demerit good

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A good or service which has greater social costs when it is consumed than private costs. Demerit goods tend to be over consumed.

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Dependency ratio

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How many people are either too young or too old to work, relative to the number of people of working age.

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Deregulation

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Removing rules imposed by a government that can restrict the level of competition in a market.

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Derived demand

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The demand for a good or factor of production due to its use in making another good or providing a service.

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Developed countries

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Relatively rich, industrialised countries with a high GDP per capita.

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Developing countries

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Countries that rely on labour-intensive industries. They have a relatively low GDP per capita.

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Diminishing returns

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This is when the level of profits or benefits gained is less than the amount of money or energy invested.

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Diseconomies of scale

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A firm is experiencing diseconomies of scale when the average cost of production is rising as output rises.

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Disposable income

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income including welfare benefits, that is available for households to spend after income tax has been paid.

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Dividend

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A share in a firm's profit that is given to the firm's shareholders.

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Divorce of ownership from control

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This occurs when the firm's owners are no longer in control of the day to day running of the firm (e.g because it is run by directors). This can lead to the principle-agent problem, where those in control act in their own self-interest, rather than the interest of the owners.

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Dynamic efficiency

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This is about firms improving efficiency in the long term by carrying out research and development into new or improved products, or investing in new technology and training to improve the production process.

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Economic cycle

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The economic cycle (also known as a business or trade cycle) is the fluctuations in actual growth over a period of time (several years or a decade).

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Economic development

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An assessment of living standards and people's overall welfare in a country.

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Economic growth

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An increase in an economy's productive potential. Usually measured as the rate of change of the gross domestic product (GDP), or a GDP per Capita.

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Economic integration

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The process by which economies of different countries become more closely linked, e.g. through free trade agreement.

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Economic rent

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The excess a worker is paid above the minimum required to keep them in their current occupation (this minimum payment is their transfer earning)

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Economically active population

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The people in an economy who are capable of and old enough to work.

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Economies of scale