Aqa Economics Unit 1 And 2 Full Definitions

Front 1

Aggregate Demand

Back 1

Total planned expenditure in the economy known by the identity C + I + G + (X - M)

Front 2

Aggregate Supply

Back 2

The total value of goods and services supplied in the economy

Front 3

Allocative Efficiency

Back 3

This is achieved in an economy when it is not possible to make everyone better off without making someone worse off or you cannot produce more of one good without making less of another

Front 4

Balance Of Payments

Back 4

Exports minus imports - a deficit means more is imported than exported

Front 5

Balance of Trade

Back 5

Visible exports minus visible imports

Front 6

Budget Deficit

Back 6

Where government spending exceeds government receipts in a financial year (PSNCR)

Front 7

Budget Surplus

Back 7

Where government recipts exceeds spending in a financial year (PSDR)

Front 8

Capital Spending

Back 8

Government spending to improve the productive capacity of a nation, including infrastructure, schools and hospitals

Front 9

Competition

Back 9

A market situation in which there are a large number of buyers and sellers

Front 10

Complimentary Product

Back 10

Goods that are consumed together, for example bread and butter or dvd and dvd players

Front 11

Contraction in Supply

Back 11

When the amount offered for sale is reduced because the price level has fallen

Front 12

Contractionary Fiscal Policy

Back 12

Increasing levels of tax revenues related to government spending, appropriate during a boom in economic activity

Front 13

Contraction in Demand

Back 13

Falls in the quantity demanded caused by rises in prices

Front 14

Cost Push Inflation

Back 14

Where increased cost of production results in firms increasing their prices leading to an increase in the general price level

Front 15

CPI (Consumer Price Index)

Back 15

A measure of the price level similar to HICP (Harmonised Index of Consumer Prices) used widely in the Eurozone. Used since 2004 as a target measure for inflation by the government and MPC

Front 16

Cyclical Unemploymet

Back 16

Demand deficient employment that occurs as a result of the economic cycle

Front 17

Deflation

Back 17

A situation where prices persistently fall

Front 18

Demand

Back 18

The amount that consumers are willing and able to buy at each given price level

Front 19

Demand Pull Inflation

Back 19

Where aggregate demand exceeds aggregate supply leading to an increase in the level of prices

Front 20

Demerit Goods

Back 20

A good that would be over-consumed in a free market, as it brings less overall benefit to consumers than they realise

Front 21

Disequilibrium

Back 21

A situation within the market where supply does not equal demand

Front 22

Disposable Income

Back 22

Income available to households after the payment of income tax and national insurance contribution

Front 23

Division of Labour

Back 23

Breaking the production process down into a sequence of tasks, with works assigned to a particular task

Front 24

Economic Growth

Back 24

The capacity of the economy to produce more goods and services overtime

Front 25

Employment

Back 25

Where labour is and actively engaged in a productive activity usually in exchange for payment such as wages

Front 26

Equilibrium

Back 26

The price at which demand is equal to supply and there is no tendancy for change

Front 27

Excess Demand

Back 27

When demand is greater than supply at a given price

Front 28

Excess Supply

Back 28

When supply at a particular price is greater than demand, this should signal to producers to lower prices

Front 29

Exchange Rate

Back 29

The prices at which one currency, e.g the pound, exchanges for another e.g. the US dollar

Front 30

Expansionary Fiscal Policy

Back 30

Increasing levels of government spending relative to tax revenue, appropriate to stimulating aggregate demand during a down turn in economic activity

Front 31

Exporting

Back 31

The sale of goods or services to a foreign country generates income for the home country

Front 32

Exports

Back 32

Goods or services sold abroad

Front 33

Extension in Supply

Back 33

When there is an increase in supply because the market price has risen

Front 34

Extensions in Demand

Back 34

Increases in demand caused by changes (falls) in price

Front 35

Externalities

Back 35

Cost or benefits that spill over to third parties external to a market transaction

Front 36

Failure of Information (Information Failure)

Back 36

Where economic agents do not properly percieve the benefits or disadvantages of a transaction

Front 37

Fiscal Policy

Back 37

The policy of the government regarding taxation and government expenditure

Front 38

Fixed Costs

Back 38

Cost of production that do not vary as output changes

Front 39

Free Market Economy

Back 39

One in which their is very limited government involvement in providing goods and services. It's main role is to ensure that the rules of the market are fair so that for e.g, people can not steal each others property

Front 40

Free-rider Problem

Back 40

Where some consumers benefit from other consumers purchasing a good particularly in the case of public goods

Front 41

Frictional/Search Unemplyment

Back 41

People between jobs

Front 42

GDP per capita

Back 42

GDP divided by the population - a measure of living standards

Front 43

Government Failure

Back 43

When government intervention to correct market failure does not improve the allocation of resources or leads to worsening the situation. The government cost of intervention may therefore exceed the benefits

Front 44

Gross Domestic Product

Back 44

The total value of goods and services produced in the economy

Front 45

Hot Money

Back 45

Money that is liable to rapid transfer from one country to another

Front 46

Importing

Back 46

The purchase of goods and services from abroad-leads to expenditure for the home country

Front 47

Imports

Back 47

Goods or services purchased from abroad

Front 48

Income

Back 48

A flow of earnings to a factor of production over a period of time e.g wages or salaries

Front 49

Income elasticity of Demand

Back 49

The proportion to which demand changes when their is a change in income

Front 50

Indirect tax

Back 50

Tax on spending

Front 51

Inferior Goods

Back 51

Goods or services that will see demand fall when income rises

Front 52

Marginal external beneit

Back 52

The spillover benefit to third parties of an economic transaction

Front 53

Marginal External Cost

Back 53

The spillover cost to third parties of an economic transaction

Front 54

Marginal Private Benefit

Back 54

The benefit to an individual or firm of an economic transaction

Front 55

Margianal Private Cost

Back 55

The cost to an individual or firm of an economic transaction

Front 56

Marginal Social Benefit

Back 56

The full benefit to society of an economic transaction including private and external benefits

Front 57

Marginal Social Costs

Back 57

The full costs to society of an economic transaction including private and external costs

Front 58

Market Clearing Price

Back 58

The price at which all goods that are supplied will be demanded

Front 59

Market Demand

Back 59

Total demand in a market for a good, the sum of all individuals demand at each given price

Front 60

Market Failure

Back 60

Where the market fails to produce what consumers require at the lowest possible cost

Front 61

Market Supply

Back 61

The sum of all individual firms supply curves at each given price

Front 62

Merit Good

Back 62

A good that would be under consumed in a free market as individuals do not full perceive the benefits obtained from consumption

Front 63

Minimum Price

Back 63

A price floor below which the price of a good or service is not allowed to decrease

Front 64

Negative Exteralities

Back 64

Cost imposed on a third party not involved in the consumption or production of the good

Front 65

Normal Good

Back 65

Goods or services that will see an increase in demand when income rise

Front 66

Opportunity Cost

Back 66

The next best alternative foregone (given up) when an economic decision is made, note it is only the next best alternative not a range of alternatives

Front 67

Positive Externalities

Back 67

A positive spillover effect to third parties of a market transaction

Front 68

Price Elasticity

Back 68

The responsiveness of demand to a change in the price level, the formula is percentage change in quantity demand divided by percentage change in price

Front 69

Private Good

Back 69

A good that is both excludable and rival in consumption

Front 70

Productive Efficiency

Back 70

When a firm operates at minimum average total cost, producing the maximum possible output from inputs into the production process

Front 71

Profit

Back 71

When total income or revenue for a firm is greater than total cost

Front 72

Public Goods

Back 72

A good that posses the characteristics of non excludabilty and non rivalry in consumption.

Front 73

Quasi- Public Good

Back 73

A good that has som eof the qualities of a public good but does not fully posses the two required characteristics of non rivalry and non excludability

Front 74

Real GDP/Real National Income/ Real Output

Back 74

GDP/Income/Output figures adjusted for inflation

Front 75

Real Interest Rate

Back 75

The money rate of interest minus the rate of inflation

Front 76

Recession

Back 76

When an economy is growing at less that its long-term trend rate of growth

Front 77

Renewable Resources

Back 77

Resources that are able to be replenished over time, whereas non-renewable such as oil and gas are likely to run out

Front 78

RPIX

Back 78

A measure of the price level that excludes payments to service mortgage interest from the Retail Price Index measure. Used as the target measure of inflation by the government and MPC until the end of 2003

Front 79

Savings

Back 79

Withdrawl from the circular flow

Front 80

Specialisation

Back 80

The production of a limited range of goods by an individual factor of production or firm or country in cooperation with others so that together a complete range of goods is produced

Front 81

Structural Employment

Back 81

Unemployment caused by a change in the demand side or supply side of the economy.

Front 82

Subsidies

Back 82

Payments by government to producers to encourage production of a good or service. Often subsidies are found in farming where farmers receive funds from government per tonne or unit of output. This typically means that prices can be lower than would otherwise be the case

Front 83

Substitutes

Back 83

Goods that can be used as alternative to another good, i.e bus and railway services. Close substitutes are good alternatives whereas weak substitutes are not very good or likely alternatives such as gas fired power in the UK and hydroelectric power

Front 84

Supply

Back 84

The amount offered for sale at each given price level

Front 85

Supply-side Fiscal Policy

Back 85

Changes in the level or structure of government spending and taxation designed to improve the supply side of the economy through influencing incentives to save, to supply labour , to be entrepreneurial, and to promote investment , which are largely micro economic in nature

Front 86

Supply-side Policies

Back 86

A range of measures designed to increase aggregate supply and hence the economy and hence the potential output of the economy though many improvements may come from the private sector

Front 87

Inflation

Back 87

A persistent increase in the level of prices

Front 88

Injections

Back 88

Money that originates outside the circular flow and so will increase national income/output/expenditure

Front 89

Investment

Back 89

Spending by firms on buildings, machinery and improving the skills of the labour force

Front 90

Investment Good

Back 90

A product that will increase in value over time

Front 91

Long Run Aggregate Supply

Back 91

The economy's productive capacity

Front 92

Monetary Policy

Back 92

Controlling the macro economy via changes to monetary variables such as the money supply or interest rates

Front 93

Multiplier Effect

Back 93

Where an increase or decrease in spending leads to a larger than proportionate change in the national income

Front 94

Negative Output Gaps

Back 94

Where the economy is producing less than trend output

Front 95

Nominal GDP

Back 95

GDP figures not adjusted to inflation

Front 96

Positive Output Gap

Back 96

Actual GDP exceeds trend GDP increasing inflationary pressure

Front 97

Trade Off

Back 97

Where one macroeconomic objective has to be curtailed in favour of another objective

Front 98

Transfer Payments

Back 98

Government payment to individuals for which no service is given in return e.g state benefits

Front 99

Unemployment

Back 99

Those without a job who are seeking work at current wage rate

Front 100

Wealth

Back 100

A stock of owned assets e.g house or portfolio of shares

Front 101

Withdrawls

Back 101

Any money not passed on in the circular flow and has the effect of reducing national income/output/expenditure