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Vocabulary Only
Some of the key terms from our text book, no practice questions
31
Economics
Not Applicable
05/10/2013

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Term
Actual Output
Definition
The amount of a product that a production facility actually produces, as opposed to the amount that it could produce if it were to run at full theoretical capacity. Determining the difference between potential output and actual output, or output gap, is an important step in identifying sources of waste or defect that can be targeted for process improvement.
Term
Ad Valorem Tax
Definition
A tax calculated as a fixed percentage of the good o r service; the amount of tax increases as the price of the good or service increases.
Term
Aggregate Demand
Definition
Total level of demand for desired goods and services (at any time by all groupswithin a national economy) that makes up the gross domestic product (GDP). Aggregate demand is the sumof consumption expenditure, investment expenditure, governmentexpenditure, and net exports.
Term
Aggregate Demand Curve
Definition

The curve illustrating the relationship between the ttal quantity of goods and services consumers are willing and able to buy in a particular time period, against price level.

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Term
Aggregate Supply
Definition
Total of all goods and services(including exportsand imports) supplied at every pricelevel, within a national economyduring a given period. Also called total output.
Term
Asymmetric Information
Definition
A type of market failure here buyers and sellers do not have equal access to information, usually resulting in an underallocation of resources to the production of goods and services, as parties to a transaction with less access try to protect themselves against the consequences of information asymmetry.
Term
Automatic Stabilisers
Definition

Factors that automatically, without any action by government authorities, work toward stabilising the economy by reducing the short term fluctuations of the business cycle. Two important examples are:

 

  1. Progressive Income taxes
  2. Unemployment benefits.

 

Term
Budget Deficit
Definition
Referring usually to the government's budget, it  is the situation where the government's tax revenues are less than government expenditures over a specific period of time (usually a year).
Term
Capital
Definition
One of the factors of prduction, which itself has been produced (it does not occur naturally), also known as 'physical capital', including machinery, tools, equipment, buildings, etc.
Term
Cartel
Definition
A formal agreement between firms in an industry to undertake concerted actions to limit competition. It may include fixing the price at which output can be sold, amongst other actions. The objective is to increase the monopoly power of the firms in the cartel. Cartels are illegal in many countries.
Term
Central Bank
Definition
A financial institution that is responisble for regulating the country's financial system and commercial banks, and carrying out monetary policy.
Term
ceteris paribus
Definition

A latin expression meaning 'other things being equal.'

Another way of saying this is that all other things in this case are to be considered constant and unchanging.

It is used in economics to isolate changes in only those variables that are being studied.

Term
Circular Flow of Income Model
Definition

A model showing the flow of resources from the consumers (households) to firms and the flow of products from firms to consumers, as wll as money flows consisting of consumers' income and firms' revenues arising from the sale of their products. It illustrates the equivalence of expenditure flows, value of output flows and income flows.

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Term
Closed economy
Definition

An economy that has no international trade.

Usually appears in connection with economic theries and models as virually no economy in the real world is a closed economy.

Term
Common access resources
Definition
REsources that are not owned by anyone, do not have a price, and are available for anyone to use without payment; their depletion or degradation leads to environmental instability.
Term
Comparative advantage
Definition
Arises when a supplier has a lower relative cost or opportunity cost, in the production of a good than another supplier.
Term
Competitive Market
Definition
A market composed of many buyers and sellers acting independently, none of whom has any ability to influence the price of the product (no market power).
Term
Competitive Supply
Definition

In the case of two goods, refers to production of one or the other by a firm; in other words, the two goods compete with eachother for the same resources (for example, wheat or corn- producing one means producing less of the other).

The production of these can be illustrated using a PPF diagram.

 

Term
Competition
Definition
When there are many buyers and sellers acting independenly in a market, so that noone has the ability to influence the price at which the product is sold in the market.
Term
Complementary Goods
Definition
Two or more goods that tend to be used together. If two good are complements, an increase in the price of one will lead to a decrease in the demand of the other.
Term
Consumer confidence
Definition
A measure of the degree of optimism that consumers have about their future income and the future of their economy; it is measured on the basis of surveys on consumers. It is an important determinant of the consumption component of aggregate demand.
Term
Consumer Surplus
Definition

Refers to the difference between the highest prices that consumers are willing to pay for a good, and the price actually paid. In a diagram it is shown by the area beneath a demand curve and above the price paid by customers.

 

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Term
Consumption
Definition
Spending by households (consumers) on goods and services (excluding spending on housing).
Term
Cross Price Elasticity of Demand (XED)
Definition
A measure of how responsive the demand of a good is to a change in the price of another good. Measured by the % change in the price of another good. If XED > 0 the goods are substitutes; of XED < 0 the goods are complements.
Term
Cyclical Unemployment
Definition
A type of unemployment that occurs during the downturns of the business cycle, when the economy is in a recessionary gap. The downturn is seen as arssing from declining or low aggregate demand, and therefore is also known as 'demand-deficient' unemployment.
Term
Deficit
Definition
In general, this refers to the lack of something in comparison to another- for example, a deficit in the balance of trade occurs when the value of exports is smaller than the value of imports.
Term
Demand
Definition
Indicates the various quantitiesof a good that consumers are willing and able to buy at different possible prices, during a given time period, ceteris paribus.
Term
Demerit Goods
Definition
Goods that are considered to be undesirable for consumers and that are over provided by the market. Reasons for over provision may be that the goods have negative externalities, or consumer ignorance about the harmful effects.
Term
Determinants of Aggregate Demand
Definition

Factors that cause shifts in of the Aggregate Demand Curve:

  • Consumption Spending (C)
  • Investment Spending (I)
  • Government Spending (G)
  • Value of Net Exports (X-M)
Term
Direct Taxes
Definition
Taxes paid directly to the government tax authorities by the taxpayer, including personal income taxes, corporate income taxes, and wealth taxes.
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