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| 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. |
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| 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. |
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| 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. |
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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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| Total of all goods and services(including exportsand imports) supplied at every pricelevel, within a national economyduring a given period. Also called total output. |
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| 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. |
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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:
- Progressive Income taxes
- Unemployment benefits.
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| 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). |
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| 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. |
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| 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. |
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| A financial institution that is responisble for regulating the country's financial system and commercial banks, and carrying out monetary policy. |
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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. |
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Term
| Circular Flow of Income Model |
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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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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. |
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| 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. |
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| Arises when a supplier has a lower relative cost or opportunity cost, in the production of a good than another supplier. |
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| 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). |
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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.
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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. |
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| 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. |
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| 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. |
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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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Definition
| Spending by households (consumers) on goods and services (excluding spending on housing). |
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Term
| Cross Price Elasticity of Demand (XED) |
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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. |
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| 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. |
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| 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. |
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| 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. |
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| 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. |
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Term
| Determinants of Aggregate Demand |
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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)
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Term
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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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