Economics terms short
Absolute Advantage, Absolute Poverty, accelerating inflation, accelerator, active balances, Actual growth in national output, ad valorem tax, Adam smith, aggregate demand, aggregate supply, aid, allocative efficiency, allocative mechanism, alternative demand, anticipated inflation, appreciation, at constant prices, asymmetric information, at current market prices, automatic stabilizers, autonomous investment, autofocus savings, average cost, average fixed cost, average product, average propensity to consume, average propensity to import, average propensity to save, average propensity to tax, average revenue, average tax rate, average variable cost, balance of payments, balance of trade in goods account, balance of trade in services account, balanced budget, balancing items, bank deposits, barrier of entry or exit, bilateral trade, break-even point,
Barter, base year, behavioral economics, birth rate, Brics, Broad money supply, budget deficit, budget line, budget surplus, buffer stock, business (or trade) cycle, canons of taxation, capital, Capital account of the balance of payments, capital investment spending, capital output ratio, capital ratio, capital-intensive production, cartel, cash, central bank, ceteris paribus, change in demand, change in quantity demanded, change in quantity supplied, Cheque, circular flow of income, claimant count, closed economy, closed shop, collective bargaining, common external tariff, comparative advantage, complementary goods, composite demand, concentration ratio, conglomerate integration, constant returns to scale, consumer price index, consumer surplus, consumption, contestable market, contracting out, contraction in demand, contraction in supply, Contractionary fiscal policy, cost efficiency, cost of living, cost benefit-analysis, cost-push inflation, credit, credit creation, credit multiplier, creeping inflation, Cross elasticity of demand (or cross- price elasticity of demand), current spending, Current account of the balance of payments, current transfers, custom union, deadweight loss, death rate, Decreasing returns to scale, deficit, deflation, deflationary gap, demand, demand curve, demand schedule, Demand-pull inflation, demerit good, dependency ratio, Depreciation (of capital), deregulation, Derived demand, devaluation, Diminishing marginal utility, “Direct provision of goods and services”, direct tax, Discretionary fiscal policy,diseconomies of scale, disequilibrium, disequilibrium unemployment, disinflation, dissaving, distribution of income, diversification, division of labor, “Double coincidence of wants”, dumping, dynamic efficiency, Economic growth, economic law, economic problem, economic rent, economic union, Economies of large dimensions, Economies of scale, effective demand, efficiency, “Efficient resource allocation”, elastic, embargo, enterprise, enterprise culture, entrepreneur, equality, equilibrium, equilibrium price, equilibrium quantity, equilibrium unemployment, Equi-marginal principle, equity, exchange controls
Absolute advantage :
a situation where a country can produce a particular good or service using fewer resources than another country
Absolute poverty :
a condition where household income is below the level necessary to maintain basic living standards in relation to food, shelter and housing
Accelerating inflation :
a situation where the rate of inflation is rising over a period of time
Accelerator:
a way of calculating the effect of a change in national income on investment in an economy
Active balances :
money that is flowing through the economy, underpinning the transactions and precautionary motives for holding money
Actual growth in national output:
a movement from within the production possibility curve of an economy
to a position on the production possibility curve, resulting from the better utilisation of the existing factors of production
Ad valorem tax :
an indirect tax with a percentage rate (e.g. a tax rate of 20% per product sold)
Adam Smith :
one of the founding fathers of economics (1723–90) and author of The Wealth of Nations, published in 1776
Aggregate demand (AD) :
the total amount that is spent on an economy’s goods and services at a given price level over a given period of time; it is made up of four main components — consumption, investment, government spending and net exports.
Aggregate supply (AS) :
the total output that firms in an economy are able and willing to supply at different price levels in a given period of time; it includes both consumer and capital products.
Aid :
the process of economically developed countries providing financial support to economically developing economies.
Allocative efficiency :
a situation that describes the extent to which the allocation of resources in an economy matches consumer preferences and P = MC
Allocative mechanism :
a method of taking decisions about the different uses that can be made of factors of production
Alternative demand :
a situation where two items are substitutes (i.e. one will be consumed or the other); an example is tea and coffee
Anticipated inflation
the expected future rate of inflation in an economy
Appreciation
a rise in the value of a floating exchange rate
At constant prices
data that have been adjusted to take into account the effects of inflation
Asymmetric information :
a situation in which there is unequal knowledge between the parties of a transaction, resulting in an advantage to the party with additional knowledge
At current market prices :
data that are expressed in terms of the prices of a particular year (i.e. they have not been adjusted to take account of inflation)
Automatic stabilisers :
where changes in the level of taxation and/or public expenditure automatically bring about changes in an economy without the need for deliberate action by a government
Autonomous investment :
capital investment that is not related to changes in the level of national income in an economy.
Autonomous savings :
savings that are not related to changes in the level of national income in an economy
Average cost:
the total cost of employing all the factor inputs divided by the number of units produced; also known as ‘average total cost’
Average fixed cost:
the total fixed cost of production divided by the number of units produced
Average product :
the output per unit of the variable factor (e.g. output per worker per period of time); also referred to as ‘productivity’
Average propensity to consume :
the proportion of income that is spent
Average propensity to import :
the proportion of income that is spent on imports
Average propensity to save :
the proportion of income that is saved
Average propensity to tax :
the proportion of income that is taxed.
Average revenue (AR) :
the total revenue obtained by a firm from sales divided by the number of units sold
Average tax rate
the average percentage of total income that is paid in tax
Average variable cost
the total variable cost of production divided by the number of units produced
Balance of payments : a record of all transactions linked with exports and imports, together with international capital movements; it consists of the current account, the capital account and the financial account
Balance of trade in goods account:
the trade in goods (e.g. cars) between countries
Balance of trade in services account:
the trade in services (e.g. banking) between countries
Balanced budget :
where projected government revenue and planned government expenditure are equal
Balancing item :
a positive or negative figure that accounts for any statistical errors in the balance of payments and ensures that the accounts, when added together, come to zero
Bank deposits :
deposits of money in accounts in financial institutions, many of which in a modern economy are in electronic form
Barriers to entry or exit :
various obstacles that make it very difficult, or impossible, for new firms to enter or exit an industry (e.g. technical economies of scale, patents or heavy capital investments)
Bilateral trade :
where trade takes place between two countries
Break-even point :
the level of output at which a firm is making neither a loss nor a profit
Barter :
the direct exchange of one good or service for another
Base year
a year chosen so that comparisons can be made over a period of time; the base year for an index is given a value of 100
Behavioural economics
an approach to decision making which argues that the behaviour of individuals is often based on ideas that do not correspond to the traditional view of rational economic behaviour
Birth rate : the average number of live births per 1,000 of population of a country in a given time period, usually a year
BRICS/BRICs
refers to the countries of Brazil, Russia, India and China; South Africa is now usually included
Broad money supply
a measure of the stock of money that reflects the total potential purchasing power in an economy
Budget deficit
where projected government revenue is less than planned government expenditure
Budget line
a line showing all the possible combinations of two products that a consumer would be able to purchase with fixed prices and a given income; sometimes known as a ‘consumption possibility line’
Budget surplus
where projected government revenue is greater than planned government expenditure
Buffer stock
a stock of a commodity that is held back from the market in times of high production and released onto the market in times of low production
Business (or trade) cycle
the fluctuations in the national output of a country, involving a succession of stages or phases, including boom, recession, trough and recovery
Canons of taxation
the main principles of taxation, to which any system of taxes should adhere in order to be effective
Capital
the factor of production that includes all the human-made aids to production (e.g. tools, equipment and machinery)
Capital account of the balance of payments
records transactions where there is a transfer of financial assets between one country and another; a financial asset could include the purchase of a physical asset such as land
Capital (investment) spending
government spending on fixed assets
Capital:output ratio
a way of measuring the amount of capital employed in the production of a given level of output
Capital ratio
the amount of a commercial bank’s capital in relation to the amount of risk it is taking
Capital-intensive production
a process of production with a relatively high proportion of capital inputs, compared to other inputs
Cartel
where a number of firms agree to collude, such as by limiting output to keep prices higher than would be the case if there were competition between them
Cash
the notes and coins issued in a country that are legal tender
Central bank
the main bank in a country that is responsible for oversight of the banking system 2
Ceteris paribus
a Latin term that literally means ‘other things being equal’
Change in demand
where there is a change in the conditions of demand, i.e. something other than a change in the price of a product; this is shown by a shift of a demand curve
Change in quantity demanded
where demand for a product changes as a result of a change in the price of the product; change in quantity demanded is shown by a movement along a demand curve
Change in quantity supplied
where the supply of a product changes as a result of a change in the price of the product; change in quantity supplied is shown by a movement along a supply curve
Cheque
a method of payment (i.e. a means of transferring money from one account to another); it is not, however, a form of money
Circular flow of income
the flow of income around an economy, involving a mixture of injections and withdrawals or leakages
Claimant count
the number of people who officially register as unemployed
Closed economy
an economy that does not trade with the rest of the world
Closed shop
a requirement that all employees in a specific workplace belong to a particular trade union
Collective bargaining
the process of negotiation between trade union representatives of the workers and their employers on such issues as remuneration (payment) and working conditions
Common external tariff
where all of the countries in an economic organisation impose the same tariff towards other countries outside the organisation
Comparative advantage
a situation where a country can produce a good or service relatively more efficiently (at a lower domestic opportunity cost) than another country
Complementary goods
goods which are consumed together (e.g. printers and ink cartridges); these goods have a negative cross elasticity of demand (i.e. a rise in the price of one of them will lead to a decrease in the demand for the other)
Composite demand
the demand for a product that can be used for more than one purpose
Concentration ratio
the percentage of a market controlled by a given number of firms (e.g. the five largest firms in an industry might control 80% of the output of the industry)
Conglomerate integration
a merger between firms that are operating in completely different markets rather than in different stages of the same market
Constant returns to scale
where average costs remain the same as the level of output increases
Consumer price index (CPI)
a way of measuring changes in the prices of a number of consumer goods and services in an economy over a period of time
Consumer surplus
some consumers will value a particular product more highly than other consumers and yet they will pay exactly the same price for it as the other consumers; this extra satisfaction is consumer surplus and is shown on a demand and supply diagram by the triangle between the price line and the demand curve. It refers to the difference between what a consumer is willing to pay and what they are actually required to pay
Consumption
the spending by consumers in an economy over a period of time
Contestable market
a situation where it may be relatively easy for new entrants to enter a market or industry; the effect of this is that existing firms in an industry face the threat of new firms coming into the industry and increasing the degree of competition
Contracting out
the transfer of responsibility for the provision of a service from the public to the private sector
Contraction in demand
when the quantity demanded of a product decreases as a result of a rise in the price of the product, shown by a movement up the demand curve
Contraction in supply
when the quantity supplied of a product decreases as a result of a fall in the price of the product, shown by a movement down the supply curve
Contractionary fiscal policy
one that causes aggregate demand in an economy to decrease
Contractionary monetary policy
one that causes aggregate demand in an economy to decrease
Cost efficiency
where a firm uses the most appropriate combination of inputs of factors of production, given the relative costs of those factors
Cost of living
the cost of a selection of goods and services that are consumed by an average household in an economy at a given time
Cost–benefit analysis
an analysis of a project that includes a valuation of the total costs and total benefits involved, including private and external costs and private and external benefits
Cost-push inflation
a rise in the general level of prices in an economy, caused primarily by a significant rise in the costs of production
Credit
a contract agreement in which a borrower receives a sum of money now and repays the lender at a later date, usually with interest
Credit creation
the process by which financial institutions are able to expand their lending by a multiple of any new deposits received; this multiple is known as the ‘credit multiplier’
Credit multiplier
the relationship between new money created and cash deposits made
Creeping inflation
a situation where the rate of inflation is reasonably low, say about 2% 77
Cross elasticity of demand (or cross- price elasticity of demand)
measures the degree to which a change in the price of one product leads to a change in the quantity demanded of another product
Current spending
government spending on day-to-day running costs
Current account of the balance of payments
this comprises trade in goods, trade in services, primary income and secondary income
Current transfers
the net payments by governments and private individuals (e.g. grants for overseas aid or charitable donations)
Customs union
a group of countries that promote free trade between themselves, and that impose a common external tariff on imports from countries outside the area
Deadweight loss
the loss of economic efficiency that occurs when the socially optimal quantity of a product is not produced
Death rate
the number of people per 1,000 of population in a country who die in a given time period, usually a year
Decreasing returns to scale
where an increase in factors of production leads to a less than proportionate increase in output
Deficit
a negative balance in the current account of the balance of payments when expenditure exceeds income
Deflation
a general decrease in the average level of prices in an economy over a period of time
Deflationary gap
a situation where the level of aggregate demand in an economy is less than the aggregate supply at full employment, causing unemployment in the economy
Demand
the quantity of a product that consumers are willing and able to buy at a given price in a given period of time
Demand curve
a curve that shows how much of a good or service will be demanded by consumers at a given price in a given period of time
Demand schedule
a table giving the quantities sold of a product at different prices, enabling a demand curve to be drawn from this information
Demand-pull inflation
a rise in the general level of prices in an economy, caused by too much demand for goods and services
Demerit good
a product that is rivalrous and excludable but, if left to a free market, would be likely to be overproduced and overconsumed
Dependency ratio
the number of dependent people in a country divided by those of working age
Depreciation (of capital)
the decline in the value of a capital asset over a given period of time (usually a year)
Deregulation
a reduction in the number of regulations, rules and laws that operate in an industry or economy
Derived demand
where demand for the components of a product or for workers arises from demand for the final product
Devaluation
the fall in value of a currency that is fixed
Diminishing marginal utility
the principle that the marginal utility of consuming successive units of the same product will fall
“Direct provision of goods and services”
where a government decides to provide particular goods and services itself
Direct tax
a tax that is imposed on the incomes of individuals and firms; examples are income tax (on the incomes of individuals), corporation tax (on the profits of companies) and inheritance tax (on the wealth of individuals)
Discretionary fiscal policy
the use of deliberate changes in taxation and/or public expenditure with the intention of changing the level of aggregate demand in an economy
Diseconomies of scale
where the same proportional increase in productive factors gives rise to decreasing additions to total output; also known as ‘decreasing returns to scale’
Disequilibrium
a situation where there is an imbalance between demand and supply in a market (i.e. there is either excess demand giving rise to a shortage or excess supply giving rise to a surplus)
Disequilibrium unemployment
a situation where the labour market is prevented from clearing because wage rates are above their equilibrium value
Disinflation
a general increase in the average level of prices in an economy over a period of time, where the rate of increase is less than in the previous time period
Dissaving
a situation that can occur when consumption exceeds income, so people have to rely on savings that have been accumulated in the past
Distribution of income
the degree to which income in a country is evenly distributed
Diversification
where a firm decides to operate in a number of markets to spread risk
Division of labour
the way in which production is divided into a sequence of specific tasks which enables workers to specialise in a particular type of job
“Double coincidence of wants”
a situation in a barter system where a seller finds a buyer who wants what is being sold and where the seller also wants something that the buyer has and is willing to trade in exchange
Dumping
the practice of selling a product at a price that is less than the cost of production
Dynamic efficiency
the greater efficiency that can result from improvements in technical or productive efficiency over a period of time
Economic growth
an increase in the national output of an economy over a period of time, usually measured through changes in gross domestic product
Economic law
an economic theory put forward by economists (e.g. the laws of demand and supply)
Economic problem
a situation where there are not enough resources to satisfy all human needs and wants
Economic rent
the extra payment received by a factor of production above what would be needed to keep it in its present use
Economic union
a group of countries which agree to integrate their economies as much as possible through various rules, laws, policies and regulations
Economies of large dimensions
a reduction in average cost as a result of using larger factors of production (e.g. larger containers in the transportation process)
Economies of scale
the benefits gained from a fall in long-run average costs of production as the scale of operations grows and the output of a firm increases
“Effective demand”
demand for a product that is backed by the ability and willingness to pay for it
Efficiency
the use of scarce resources in the most economical or optimal way
“Efficient resource allocation”
the optimal use of scarce inputs to produce the largest possible output
Elastic
where the response of demand (or supply) is proportionately greater than the change in the independent variable; the calculation is greater than 1
Embargo
a ban on imports from particular countries, applied either to particular products or to all products from particular countries, usually for political, diplomatic or military reasons
Enterprise
the factor of production that refers to taking a risk in organising the other three factors of production
Enterprise culture
an economy in which taking a risk in the production of new products is encouraged in the hope of making a profit
Entrepreneur
the individual who takes a risk in combining the factors of production
Equality
the same rights and responsibilities for all the members of a group or society
Equilibrium
a situation where the quantity demanded in the marketplace is exactly equal to the quantity supplied and there is neither excess demand nor excess supply in the market; sometimes referred to as a state of rest or balance or stability where there is no tendency to change
Equilibrium price
the price at which a market clears (this means that at this price, the quantity demanded equals the quantity supplied); the process of market clearing arises because the price is free to change and settle at the equilibrium level
Equilibrium quantity
the quantity at which a market clears, with consumers getting all they want at the equilibrium price and producers not being left with unsold products (i.e. there is no excess demand or supply)
Equilibrium unemployment
a situation where jobs exist but people are unable or unwilling to take them
Equi-marginal principle
a consumer will maximise total satisfaction by equating the utility or satisfaction per unit of money spent on the marginal unit of each product consumed
Equity
the idea of fairness or justice (e.g. in relation to the distribution of income and wealth in an economy)
Exchange controls
restrictions on the buying and selling of foreign currency, which make it more difficult to finance the purchase of imported products
Exchange rate
the value of one currency in terms of another
Excise duty
an indirect tax on expenditure by consumers on such products as fuel, alcohol and tobacco
Excludability
a feature of private goods whereby people can be excluded from consuming a good
Expansionary fiscal policy
one that causes aggregate demand in an economy to increase
Expansionary monetary policy
one that causes aggregate demand in an economy to increase
Expenditure-reducing policy
a policy that attempts to bring about a reduction in the level of aggregate demand in an economy in order to reduce the value of imports
Expenditure- switching policy
a policy that attempts to bring about a change in the pattern of demand in an economy by reducing the demand for imports
Export subsidy
a payment by a government to a domestic firm to help it keep down the costs of production of the products that it is intending to export, and thereby to increase demand for exports
Exports
goods and/or services that are produced domestically in one country and sold to other countries
Extension in demand
when the quantity demanded of a product increases as a result of a fall in the price of the product, shown by a movement down the demand curve
Extension in supply
when the quantity supplied of a product increases as a result of a rise in the price of the product, shown by a movement up the supply curve
External balance
the balance between receipts and payments in relation to international transactions between one country and other countries in the world
External benefits
the positive effects gained by third parties not involved in the economic decision or activity and not paid for
External costs
the negative effects imposed on third parties not involved in an economic decision or activity and not compensated for
External diseconomies of scale
when average costs of production rise because of the growth of an industry
External economies of scale
when costs of production fall because of developments outside a particular firm
Externality
a cost or benefit of either consumption or production that is paid for or enjoyed not by the consumer or the producer, but by a third party
Financial account of the balance of payments
records the capital inflows and capital outflows resulting from investment in different countries
Financial economies
a reduction in average cost as a result of a larger firm being able, for example, to negotiate more favourable borrowing terms on a loan
Firm
a particular and distinct organisation that is owned separately from any other organisation
Fiscal drag
the idea that more people will be dragged into higher tax brackets in a situation of inflation if tax allowances are not increased in line with the rate of inflation
Fiscal policy
the use of public revenue and/or public expenditure to influence the level of aggregate demand in an economy
Fixed costs
the costs of production that remain constant at all levels of output, including zero production (e.g. rent and interest payments)
Fixed exchange rate
an exchange rate that is determined at a particular level by a government
Flat-rate tax
a tax with a constant marginal rate
Fixed factors of production
resource inputs that exist in the short run when the quantity of the factors used cannot be changed (e.g. capital equipment)
Floating exchange rate
an exchange rate that is determined, like any other free market price, by the market forces of demand and supply
Foreign direct investment (FDI)
investment by a company, with a head office in one country, in another country in the form of a factory or distribution outlet
Free good
a good that is not scarce and so does not require a market price to be attached to it
Free rider
the idea that it would be impossible to charge people for using a good or service because it would be impossible to prevent someone who had not paid from benefiting
Free trade
trade that is not restricted or limited by different types of import or export control
Free trade area
a group of countries that promote free trade between themselves, but that retain a separate set of trade barriers against other countries
Full employment
the level of employment as a result of everyone who is able and willing to work having a job
GDP deflator
a ratio of price indices that is used in national income statistics to remove the effect of price changes, so that the figures can be seen as representing real changes in output
General price level
the average level of prices of all consumer goods and services in an economy at a given time
Geographical mobility of labour
when a worker has the ability to move from one place to another within a country or from one country to another
Giffen good
a good for which a higher price causes an increase in demand, reversing the usual law of demand
Gini coefficient
a statistical measurement of the degree of inequality of income in an economy
Globalisation
the process whereby there is an increasing world market in goods and services, making an increase in multilateral trade more likely; it has been made possible by a number of factors, including progress in trade liberalisation
Government budget
a financial statement that outlines a government’s proposed revenue and expenditure for a specific period of time
Government expenditure
the total of all spending by a government
Government failure
a situation where government intervention to correct market failure does not actually improve the level of economic efficiency; such intervention may even reduce the efficiency of the allocation of scarce resources in the economy
Gross domestic product (GDP)
the total value of all that has been produced over a given period of time within the geographical boundaries of a country
Gross national income (GNI)
the gross domestic product of a country plus net income from abroad
Horizontal integration
where firms at the same stage of production merge
Hot money
flows of money that move from one country to another to take advantage of higher rates of return in various countries
Household expenditure
a survey is taken on a regular basis (usually every month) to record changes in the prices of a selection of goods and services that constitutes a representative basket
Human capital
the skills, knowledge and experience possessed by a population in terms of their value or cost to a business or an economy
Human Development Index
a composite measure that combines life expectancy, average income in the form of GNI per capita (PPP US$), and years of schooling
Hyperinflation
a situation where the rate of inflation is becoming very high and is damaging confidence in the country’s economy
Idle balances
money that is withdrawn from the circular flow of money in an economy, underpinning the speculative motive for holding money
Immobility of labour
the degree of occupational immobility and geographical immobility of labour
Impact of a subsidy
the effect of a subsidy on the price and quantity of a product in a market
Impact of tax
the person, company or transaction on which a tax is levied
Imperfect competition
a market that lacks some, or all, of the features of perfect competition
Import duty
a duty that is imposed on an imported product to make it more expensive, in the hope that this will reduce demand for the product
Imported inflation
a rise in the general level of prices in an economy, caused primarily by a significant increase in the price of imports
Imports
goods and/or services that are produced in foreign countries and consumed by people in the domestic economy
Incentivisation
the incentivisation function of the price mechanism is where individuals or firms are encouraged to act in a certain way as a result of higher or lower prices in a market (e.g. individuals are incentivised by the prospect of greater satisfaction, while firms are incentivised by the prospect of greater reward in the form of profit)
Incidence of a subsidy
how the gain from a subsidy is shared between the producer and consumer
Incidence of tax
how the burden of taxation is shared between the producer and consumer
Income
money received, especially on a regular basis
Income tax
a direct tax on the incomes of individuals
Inclusive economic growth
growth that combines increased prosperity with greater equality, creates opportunities for all and distributes the benefits of increased prosperity fairly
Income effect
the effect on consumption of a change in real income that occurs as a result of a price change
Income elasticity of demand
measures the degree to which a change in incomes leads to a change in the quantity demanded of a product
Increasing returns to scale
where an increase in factors of production leads to a more than proportionate increase in output
Indifference curve
a curve showing all the possible combinations of two products between which an individual consumer is indifferent
Indirect tax
a tax that is imposed on expenditure; it is indirect in that the tax is only paid when the product on which the tax is levied is purchased
Induced investment
capital investment that is related to changes in the level of national income in an economy
induced savings
savings that are related to changes in the level of national income in an economy
Industrialisation
the process by which an economy is transformed from primarily agricultural to one based on the manufacture of goods
Industry
a collection of firms producing similar products
Inferior good
a good for which the demand falls with an increase in income
Inelastic
where the response of demand (or supply) is proportionately less than the change in the independent variable; the calculation is less than 1
Infant industry argument
the idea that a newly established industry should be given time to establish itself; it will, therefore, need to be protected, at least temporarily
Infant mortality rate
the number of children dying under 1 year of age divided by the number of live births that year
Inflation
a general increase in the average level of prices in an economy over a period of time
Inflationary gap
a situation where the level of aggregate demand in an economy is greater than the aggregate supply at full employment, causing a rise in the general level of prices in the economy
Information failure
where people lack the full information that would allow them to make the best decisions about consumption
Cambridge International AS & A Level Economics Study and Revision Guide
Injection
spending that adds to the circular flow of income; this can come from investment, government expenditure and exports
Integration
the process whereby two or more firms come together through a takeover or merger
Interest
the reward for parting with liquidity; the reward to capital for the use of the human-made aids to production
Internal diseconomies of scale
the disadvantages of a firm growing in size, resulting in an increase in the average cost of production
Internal economies of scale
the advantages of a firm growing in size in the form of a reduction in the average cost of production
International Monetary Fund (IMF)
set up in 1944 to promote international trade through such measures as providing financial support in the form of a loan, which will help a country to overcome, or at least reduce, a deficit in the balance of payments; it has 190 member countries
Investment
spending on capital equipment (e.g. a machine or a piece of equipment that can be used in the production process)
Involuntary unemployment
a situation where a worker is willing to work at the prevailing wage but cannot find a job
J-curve effect
a situation, after a depreciation or devaluation, when the current account of the balance of payments gets worse before it gets better
Joint demand
a situation where two items are consumed together (i.e. they are complements); an example is shoes and shoe laces
Joint supply
a situation where the process of producing one product leads to the production of another product
Kuznets curve
a curve that shows that as an economy develops, economic inequality first increases and then decreases
Labour
the factor of production that includes all the human effort that goes into the process of production, both mental and physical
Labour force the number of people in a country who are employed or who are looking for work
Labour force survey
a measure of unemployment that includes those people who are out of work without a job, want a job and either have actively sought work in the last
4 weeks and are available to start work in the next 2 weeks or have found a job and are waiting to start it in the next 2 weeks
Labour productivity
productivity measures the level of efficiency in the use of resources; labour productivity, therefore, measures the efficiency of labour in terms of the output per person per period of time
Labour-intensive production
a process of production with a relatively high proportion of labour inputs, compared to other inputs
Laffer curve
a way of showing the relationship between changes in the rate of tax and changes in the total revenue gained from the tax; when the tax rate is increased, the total tax revenue first begins to rise and then falls
Land
the factor of production that includes all the gifts of nature, or natural resources, that can be used in the process of production (e.g. minerals, forests and the sea)
Law of demand
a law (or theory) which states that there is an inverse relationship between the quantity demanded of a product and the price of the product, ceteris paribus
Law of diminishing returns
as additional units of a variable factor (e.g. labour) are added to a fixed factor (e.g. capital), the additional output (or marginal product) of the variable factor will eventually diminish; also known as the ‘law of variable proportions’
Law of supply
a law (or theory) which states that there is a direct relationship between the quantity supplied of a product and the price of the product, ceteris paribus
Leakage (or withdrawal)
money that leaks out of the circular flow of income; this can be as a result of savings, taxation and imports
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