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Micro and Macor
Simple definitions of both topics.
64
Economics
11th Grade
10/13/2012

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Term
´╗┐Market
Definition
The interaction between buyers and sellers in order to exchange goods or services
Term
Demand
Definition
Willingness and ability to consume a good or service at a given price in a given time period.
Term
Supply
Definition
Willingness and ability to produce a good or service at a given price in a given time period.
Term
The Law of Demand
Definition
As the price of a good or service increases, the quantity demanded decreases, ceteris paribus.
Term
The Law of Supply
Definition
As the price of a good or service increases, the quantity produced increases, ceteris paribus.
Term
Consumer Surplus
Definition
The aggregate difference between the ability and the willingness to pay, of consumers.
Term
Producer Surplus
Definition
The aggregate difference between the ability and the willingness to produce, of producers.
Term
Price Elasticity of Demand
Definition
The responsiveness of the quantity demanded of a good when there is a change in the price of the good.
Term
Income Elasticity of Demand
Definition
The responsiveness of the quantity demanded of a good when there is a change in income.
Term
Cross Elasticity of Demand
Definition
The responsiveness of the quantity demanded of a good when there is a change in the price of another good.
Term
Price Elasticity of Supply
Definition
The responsiveness of the quantity supplied of a good when there is a change in the price of the good.
Term
Market Failure
Definition
Occurs when market is not allocatively efficient. MSC =/= MSB at equilibrium.
Term
Externality
Definition
Effect upon a third party not accounted for by the market.
Term
Positive Externality of Consumption
Definition
Positive effect on a third party when good is consumed. MSC =/= MSB at equilibrium.
Term
Positive Externality of Production
Definition
Positive effect on a third party when good is produced. MSC =/= MSB at equilibrium.
Term
Negative Externality of Consumption
Definition
Negative effect on a third party when good is consumed. MSC =/= MSB at equilibrium.
Term
Negative Externality of Production
Definition
Negative effect on a third party when good is produced. MSC =/= MSB at equilibrium.
Term
Merit Goods
Definition
A good that is perceived by the government to be beneficial to society.
Term
Demerit Goods
Definition
A good that is perceived by the government to be harmful to society.
Term
Subsidy
Definition
Payment by government to firms to reduce costs of production. Shifts supply curve right.
Term
Indirect Tax
Definition
A tax on expenditure. It is added to the selling price of a good or service.
Term
Maximum Price
Definition
Imposed by the government and is set below the equilibrium price.
Term
Minimum Price
Definition
A lower price limit to which the price charged to the consumer may not fall, imposed by the government and is set above the equilibrium price.
Term
Informal market
Definition
These refer to markets in which economic activity is not officially measured or recorded.
Term
Property rights
Definition
Property rights give people a legal right to own property/assets.
Term
Gross Domestic Product
Definition
Value of all goods and services produced in an economy in a given time period.
Term
GDP per capita
Definition
A measure of output in the economy in one year per head of the population.
Term
Real Price
Definition
The price of something, where the effect of inflation has been eliminated from the nominal value.
Term
Economic Growth
Definition
Growth of real output in an economy over time
Term
Aggregate Demand
Definition
Total demand of all goods and services produced in an economy over a given period of time. AD comprises of (C+I+G+(XM))
Term
Consumption
Definition
Spending by households on domestic consumer goods and services. (Injection into the economy)
Term
Investment
Definition
The addition of capital stock to the economy or expenditure by firms on capital. (Injection into the economy)
Term
Aggregate Supply
Definition
the total supply of all goods and services produced in an economy, over a period of time
Term
Inflationary Gap
Definition
An inflationary gap is present if equilibrium real output exceeds the level corresponding to the full employment level of output.
Term
Deflationary Gap
Definition
A deflationary gap is present if equilibrium real output falls short of the level corresponding to the full employment level of output as a result of insufficient aggregate demand.
Term
DemandSide Policies
Definition
Policies aimed at influencing the level of aggregate demand in order to affect growth, employment and inflation. They include monetary and fiscal policy.
Term
Fiscal Policy
Definition
A demandside policy using changes in government spending and/or direct taxation to shift the AD curve.
Term
Budget Deficit
Definition
If government spending exceeds government revenue.
Term
Monetary Policy
Definition
A demandside policy using changes in the money supply or interest rates to shift the aggregate demand curve.
Term
Interest Rates
Definition
The price of borrowed or loaned money/The price of capital
Term
Multiplier Effect
Definition
The idea that a rise in injections will lead to a greater than expected increase of national income.
Term
SupplySide Policies
Definition
Policies designed to shift the AS curve to the right.
Term
Unemployment
Definition
People in the labour force, who are without work, willing and able to work and are actively seeking work at the current wage rate.
Term
Full employment
Definition
Labour market is in equilibrium
Term
Underemployment
Definition
When individuals are employed but are working less than they would have wanted to or in positions below their skills.
Term
Labour force/Human Resources
Definition
Total human capital of a country
Term
Labour force participation rate
Definition
Labour Force/(Working Age Population) * 100
Term
Unemployment rate
Definition
The number of unemployed expressed as a percentage of the workforce.
Term
(Voluntary unemployment
Definition
Part of the labour force that chooses not to work.)
Term
(Involuntary unemployment
Definition
Part of the labour force that wishes to work but is unable to work.)
Term
Structural Unemployment
Definition
Longterm unemployment that is caused as a result of a fall in the demand for a particular type of labour.
Term
Inflation
Definition
A persistent increase in the average price level in an economy.
Term
Deflation
Definition
A persistent decrease in the average price level of an economy.
Term
Disinflation
Definition
Decrease in the rate of inflation
Term
Stagflation
Definition
Increase in the rate of inflation and increase in the rate of unemployment
Term
Galloping inflation
Definition
Over 10% rate of inflation
Term
Hyperinflation
Definition
Over 50% rate of inflation
Term
Recession
Definition
At least two consecutive quarters of negative economic growth.
Term
Transfer Payments
Definition
A payment made by the government to individuals (for the purpose of redistributing wealth). Not included in calculating Aggregate Demand.
Term
Crowding Out
Definition
The idea that expansionary fiscal policy is not as effective as Keynesian theory claimed because deficit spending required financing which would lead to increased interest rates, which results in contractionary monetary policy.
Term
Savings
Definition
Present consumption foregone/Income that is not spent.
Term
Business cycle
Definition
Describes the periodic fluctuations in GDP around the productive potential (long term trend of the economy). Economies tend to move through stages including boom and trough. (Can illustrate through diagram)
Term
Progressive Taxes
Definition
Taxation where the proportion of income paid in tax increases as the income of the taxpayer rises.
Term
Working age population
Definition
Everyone who is of legal working age.
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