This page provides an extensive online glossary of useful terms, including key terms from the book.
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Absolute
advantage
the ability of a country to
produce more of a particular commodity than another country, using an equal
quantity of factor inputs
Accelerator
principle
the theory
that the level of net investment depends on the change in output
Accommodating
transaction
one
undertaken for balance of payments purposes
Activist
policy rule
a pre-specified rule for the
conduct of policy that is linked to the state of the economy; also known as a
feedback rule
Adaptive
expectations
an approach
that assumes people’s expectations of the future value of a variable are based
solely on recently observed values of that variable
Adverse
selection
arises in a
market when asymmetric information problems drive out higher-quality goods or
services
Aggregate
demand (AD)
the total
planned expenditures of all buyers of final goods and services; comprises
consumer expenditure, investment expenditure, government expenditure and net
exports
Aggregate
demand management
the use of fiscal and monetary policies
to influence the level of aggregate demand
Aggregate
production function
a functional relationship
between the quantity of aggregate output produced and the quantities of inputs
used in production
Aggregate
supply (AS)
the total
planned output in the economy
Appreciation
the appreciation of a currency
involves an increase in its value in terms of other currencies The term appreciation is used when the
currency in question is not part of some formal fixed exchange rate system
APR
annual
percentage rate of interest
Asymmetric
information
arises when
one party to a transaction has more information about a product than his or her
counterpart
Autonomous
expenditure
expenditure
that does not depend on the level of national income
Autonomous
transaction
one
undertaken for its own sake
Average
cost
the total
cost of producing any given output divided by the number of units produced;
average cost can be divided into average fixed costs and average variable
costs
Average
product of labour
the average quantity of output
produced by each worker employed
Average
revenue
the total revenue divided by
the number of units sold; it also equals price
Balance
of payments
a record of
the transactions that take place between the residents of one country and the
rest of the world over a given time period (usually one year)
Barriers
to entry
barriers or restrictions that
prevent the entry of new firms into an industry
Behavioural
economics
a branch of
economics that studies sub-rational human decision-making
Bretton
Woods system
The system broke down in the
early 1970s
BRIC
economies
Business
cycle
fluctuations
in aggregate economic activity; in particular movements in output around its
trend
Cairns
Group
comprises
Capital–labour
ratio
the amount of capital per
worker; the ratio of the quantity of capital inputs to the number of
workers
Capital–output
ratio
the ratio of the amount of
capital to the amount of output produced by it
Cartel
a group of firms or producers
that agree to act as if they were a single firm or producer, for example with
regard to pricing or output decisions
Centrally
planned economy
one in which resource
allocation is predominantly organized by the state
Ceteris
paribus
all
other things being equal or remaining constant
Classical
economics
a pre-Keynesian approach based
on the assumption that wages and prices adjust to clear markets and that
monetary policy does not influence real variables, such as output and
employment
Coase
theorem
states that where private
parties can bargain in the absence of transaction costs, externality issues may
be resolved without the need for government intervention
Cold
turkey
a rapid and
permanent reduction in the rate f monetary growth aimed at reducing the rate of
inflation
Collective
bargaining
involves negotiations between a
trade union and one or more employers over pay or workplace conditions
Collective
provision
the
provision of goods and services y the state
Comparative
advantage
the ability
of a country to produce a commodity at a lower opportunity cost, in terms of
other commodities forgone, than another country
Competition
policy
government policy aimed at
promoting competitive practices between firms in markets
Complement
a good that
complements another good
Constant
returns to scale
occur where a given percentage
increase in all factor inputs results in the same percentage increase in
output
Consumer
expenditure
the aggregate purchases of
goods and services by households for their own use
Consumer
sovereignty
implies
that the consumption choices of individuals collectively determine production
patterns
Consumer
surplus
the amount
consumers would be willing to pay for a good or service above the price that
they actually pay
Consumption
function
the relationship between
aggregate consumer expenditure and aggregate
income
Contractions
in the quantity demanded
movements
along a demand curve that reduce the quantity demanded
Contractions
in the quantity supplied
movements along a supply curve
that reduce the quantity supplied
Convergence
the
tendency for output per worker in different countries to converge over
time
Cost-push
inflation
inflation caused by cost
increases even though there are no
shortages of goods and services and the economy is below full employment
CPI
consumer prices index
Credit
crunch
the seizure in the world’s
financial system in 2008–9 when
financial institutions greatly reduced their lending to one another and to
their customers
Credibility
the degree to which people believe
the authorities’ announcements about future policy
Crowding
out
the
reduction in private sector expenditure that results following an increase in
government expenditure
Cyclical
unemployment
see demand-deficient unemployment
Deadweight
loss
arises in
the case of monopoly when society is denied output it would prefer to see
produced and consumed
Decrease
in demand
a decrease
in the quantity demanded at all possible prices resulting from an inward shift
of the demand curve
Decrease
in supply
a decrease in the quantity
supplied at all possible prices resulting from an inward shift of the supply
curve
Decreasing
returns to scale
occur where
a given percentage increase in all factor inputs results in a smaller
percentage increase in output
Demand
the
quantity of a good or service that consumers wish to purchase at each
conceivable price, other things being equal
Demand-deficient
unemployment
unemployment that arises
because aggregate demand is insufficient to provide employment for everyone who
wants to work at the prevailing real wage; also known as cyclical
unemployment
Demand-pull
inflation
inflation
caused by an excess demand for goods and services when the economy is at, or
above, full employment
Depreciation
the depreciation
of a currency involves a decrease in its value in terms of other currencies.
The term depreciation is used when the currency is not part of
some formal fixed exchange rate system
Depression
a very severe and prolonged
recession
Derived
demand
arises for
a factor of production because of the demand for the output that the factor
helps to produce. The factor in itself does not generate demand
Devaluation
the
devaluation of a currency involves the lowering of its value in terms of other
currencies when the currency in question is part of some formal fixed exchange
rate system
Diminishing
marginal returns
occur when the extra output
produced from employing additional units of a variable factor alongside the
fixed factors of production diminishes
Diminishing
marginal utility
the decline
in marginal utility that occurs as more and more of a good or service is
consumed
Diminishing
returns
occur when
successive increases in the use of a factor input, holding other factor inputs
constant, eventually result in a fall in the additional output derived from a
unit increase in that factor input
Dirty
flexible/floating exchange rate
see managed exchange rate
Discretionary
policy
a situation
in which the authorities are free to vary the strength of fiscal and/or
monetary policy, in any way they see fit, in order to achieve their desired
objectives
Diseconomies
of scale
occur where the average cost
per unit of output increases as the scale of production increases
Disinflation
a decrease in the rate of
inflation
Disposable
income
income that
households have at their disposal after the payment of tax
Diversified
or conglomerate growth
occurs when
a firm engages in activity in another market or industry in which it has no prior
interest
Dividends
sums of
money paid by a firm to shareholders; each shareholder receives a dividend for
each share held
Dollar
dilemma
this referred to the
contradictory needs inside the Bretton Woods system from the
Dominant
strategy
a course of
action that a player in a game follows regardless of the decisions of other
players
Dumping
the export
of goods to foreign markets with prices set below those normally charged in the
home market
Eclectic
approach
one that combines themes and
policies from different schools of thought
Economic
growth
an increase
in real GDP over time
Economic
rent
payment to
a factor of production above that necessary to retain it in its present
use
Economically
active
economically
active individuals are those people of working age who are either in work or
actively seeking it
Economies
of scale
occur where
the average cost per unit of output falls as the scale of production
increases
Economies
of scope
arise when firms are able to
provide goods and services collectively
at a lower cost than would be
possible were they to provide them discretely
Efficiency
wage
a real wage paid by firms,
above the market-clearing real wage rate, because it is both profitable and
rational for them to do so
Elasticity
of labour supply
measures the responsiveness of
the quantity of labour supplied to changes in the wage rate
Endogenous
variable
a variable that is explained within
a particular model
Entrepreneur
the
risk-taking individual producer who perceives a demand in the market and
organizes resources to meet that demand in the anticipation of profit
Equilibrium
price
the price
at which the quantity demanded equals the quantity supplied
Equilibrium
quantity
the amount
of a good that is bought and sold at the equilibrium price
Euro
area
comprises the 17 economies that
have replaced their national currencies with the euro
European
Central Bank (ECB)
the
monetary authority for the euro area
European
Free Trade Association (EFTA)
a free
trade area that was formed under British leadership to rival the EEC; created
in 1960, it has more recently been absorbed by the EU single market
European
Union
a political,
economic union between 27 European countries
Euroscelerosis
a term used to describe the
belief that Europe suffers from excessive labour market rigidities
Excess
demand
occurs when the quantity
demanded exceeds the quantity supplied at some given price
Excess
supply
occurs when
the quantity supplied exceeds the quantity demanded at some given price
Exchange
rate
the price of one currency
expressed in terms of another
Exchange
rate mechanism (ERM)
the fixed
but adjustable exchange rate element of the European Monetary System (EMS)
Exogenous
variable
a variable that is not
explained within a particular model; its value is taken as given
Expenditure
reduction policy
involves reducing the level of
aggregate demand in the domestic economy in order to improve the balance of
payments position on the current account
Expenditure
switching policy
switches
domestic and foreign demand away from foreign goods and towards home-produced
goods
Extensions
in the quantity demanded
movements
along a demand curve that increase the quantity demanded
Extensions
in the quantity supplied
movements along a demand curve
that increase the quantity supplied
Externalities
the costs
incurred or benefits received by other members of society not taken into
account by consumers or producers. Externalities are also known as third-party
effects
Factor
inputs
any goods
and services used in the process of production
Factor
intensity
the
emphasis in production towards the use of one particular factor of production
above others
Factor
markets
markets in which factors of
productionin land, labour and capitalare bought and sold
Feedback
rule
see activist policy rule
Final
output
goods and services that are
sold to their ultimate users
Fiscal
policy
entails measures that alter the
level and composition of government expenditure and taxation
Fixed
costs
costs that
do not vary with the quantity of output produced; sometimes referred to as
overhead costs or unavoidable costs
Fixed
exchange rate
an exchange
rate that is fixed at a predetermined level by intervention by the country’s
central bank in the foreign exchange market
Flexible
exchange rate
an exchange rate that is
determined in the foreign exchange market by the forces of demand and supply;
also known as a floating exchange rate
Floating
exchange rate
see flexible exchange rate
Foreign
direct investment (FDI)
foreign
direct investment is investment capital provided to a firm from a source in
another country where the investor has a direct influence on the business
activities of the recipient firm
Foreign
exchange reserves
stocks of foreign currencies
held by central banks
Free
market economy
one in
which resource allocation is predominantly market based
Free
rider problem
refers to
the possibility that public goods will be underprovided by the market because
individuals rely on others to pay for them
Free
trade
implies an absence of
government regulation in international markets for goods and services
Frictional
unemployment
unemployment
that arises because it takes time for workers to search for suitable jobs; also
known as search unemployment
Full
employment
a situation in which all
unemployment is frictional and structural, and cannot be reduced by increasing
aggregate demand
Full
employment output
see potential output
G5
the world’s five leading
economies: the United States, Japan, Germany, France and the United
Kingdom
G7
the seven main industrial
economies in the world: the United States, Japan, Germany, France, Italy, the
United Kingdom and Canada
GDP
in current prices
see nominal GDP
GDP
in real prices
see real GDP
Globalization
the spread
of international trade and foreign direct investment to new parts of the
world
Goods
tangible products
Goods
markets
markets in which goods and
services are bought and sold
Gradualism
an approach to disinflation
that involves a slow and gradual reduction in the rate of monetary growth
Gross
domestic product (GDP)
the total
value of goods and services produced in a country by the factors of production
located in that country regardless of who owns them
Gross
national product (GNP)
the value
of final goods and services produced by domestically owned factors of
production; GDP plus net property income from abroad
Heckscher-Ohlin
approach
holds that a country’s
production and trade specialisms will reflect its particular factor
endowments
Horizontal
growth
occurs when a firm expands its
existing form of activity
Horizontal
merger
arises when
two firms in the same industry and stage in the production process merge
together
Human
capital
the knowledge and skills of
workers in an economy
Hyperinflation
a situation
in which the rate of inflation is extremely high
Hysteresis
the
proposition that the equilibrium value of a variable depends on the history of
that variable; if the actual rate of unemployment remains above the natural
rate for a prolonged period, the natural rate will tend to increase, and vice
versa
Information
economics
is
concerned with issues that arise in economic decision-making that are affected
by access to information
Imperfect
competition
a market structure in which
there are a large number of firms selling similar but differentiated products;
also known as monopolistic competition
Imperfectly
anticipated inflation
arises when
the actual rate of inflation differs from the anticipated or expected rate of
inflation
Income
elasticity of demand
the
proportionate change in the quantity of a good demanded divided by the
proportionate change in consumers’ incomes
Increase
in demand
an increase in the quantity
demanded at all possible prices resulting from an outward shift of the demand
curve
Increase
in supply
an increase in the quantity
supplied at all possible prices resulting from an outward shift of the supply
curve
Increasing
returns to scale
occur where
a given percentage increase in all factor inputs results in a larger percentage
increase in output
Industrial
policy
government policy aimed at
enhancing the performance of firms in markets
Infant-industry
argument
suggests that nascent domestic
industries may need temporary protection from foreign competition until they
mature
Inferior
good
one for which demand decreases
when income increases
Inflation
a situation in which the
overall or general level of prices rises over time
Inflation
rate
the rate at which the general
level of prices increases; expressed as a percentage on an annual basis
Inter-industry
trade
refers to
the tendency for countries to produce and trade different kinds of goods and
services
International
division of labour
describes patterns of
specialization in the production of goods and services between nations
International
Monetary Fund (IMF)
an
international agency, located in Washington, which promotes stability of member
countries’ exchange rates and assists them in correcting balance of payments
disequilibria
Intra-industry
trade
arises when countries trade the
same kinds of goods and services
Investment
expenditure
purchases of capital goods,
such as plant, machinery and buildings
Keynesian
economics
an approach based on the belief
that capitalist economies are inherently unstable and can come to rest at less
than full employment for prolonged periods. Keynesian economists favour the use
of discretionary aggregate demand policies to stabilize the economy at, or
near, full employment.
Labour
market segmentation
arises when
labour faces barriers to entry to a particular labour market
Laissez-faire
a situation in which there is
little or no state interference in the market economy
Law
of diminishing returns
states that if more of a
variable input is employed, holding the quantity of other inputs constant, the
marginal product of the variable input will eventually decrease
Legal
monopoly
as defined in the UK, a legal
monopoly arises where a firm enjoys a market share of 25 per cent or more
Leontief
paradox
refers to the finding that, for
the United States, the predictions of the Heckscher-Ohlin model did not appear
empirically verifiable
Limited
liability
a situation
where in the event of losses incurred by a firm, the personal wealth of its
owners is not at risk; liability is limited to the value of the firm
Long
run
a period of time in which all
factors of production may be varied
Loss
aversion
suggests
that people become more attached to an item or asset once they own it and value
it more highly as a consequence
Lucas
critique
the
argument that traditional policy evaluation may be misleading as it fails to
take into account that people may change their expectations and behaviour when
policy changes
Macroeconomics
the study
of the economy as a whole
Macroeconomic
policy
policy used
by governments to try to influence overall economic performance
Managed
exchange rate
an exchange rate that is
influenced by the country’s central bank intervening in the foreign exchange
market; also known as a dirty flexible, or dirty floating, exchange rate
Marginal
cost
the change in total cost
resulting from increasing production by one unit
Marginal
physical product
the change
in a firm’s total output resulting from a unit change in the variable
factor
Marginal
product of labour
the change in total output
produced as a result of employing one more worker
Marginal
propensity to consume
the change
in consumption expenditure resulting from an additional unit of income
Marginal
propensity to import
the change
in import expenditure resulting from an additional unit of income
Marginal
propensity to withdraw
the
fraction of an additional unit of income that is withdrawn from the circular
flow of income
Marginal
revenue
the amount of money that a firm
receives from the sale of one more unit of its output
Marginal
revenue product
the change
in a firm’s total revenue resulting from the sale of output produced by one
more unit of the variable factor
Marginal
social benefit
the money value of the benefit
from one additional unit of consumption
Marginal
social cost
the cost of producing one
additional unit of output. It includes both the marginal cost incurred by the
producer and any marginal costs incurred by other members of society in the form
of externalities
Marginal
utility
the change
in total satisfaction resulting from a one-unit change in the consumption of a
good or service
Market
a framework
that brings buyers and sellers together
Market
clearing
occurs when all goods or services
supplied in a market are sold
Market
concentration
the extent to which a market is
dominated by a small number of firms
Market
failure
arises
where the market either fails to provide certain goods, or fails to provide
them at their optimal or most desirable level
Market
power
the ability of a firm to set
the price of a good or service without risking the loss of its entire market
share
Market
segmentation
the division of a market by the
producer into a number of discrete parts between which consumers cannot easily
move
Market
structure
a market structure
characterizes a market according to the degree of competition in it
Marshall-Lerner
condition
states that a currency
depreciation or devaluation will improve the current account of the balance of
payments so long as the sum of the price elasticities of the demand for imports
and exports is greater than 1
Mercantilism
a policy of state-protected
trade
Merger
and acquisition
the process
in which one firm combines with or takes over another
Microeconomics
the study of the behaviour of
individual households and firms, and the determination of the relative prices
of particular goods and services
Minimum
wage
a legally
binding obligation on employers to pay at least a given hourly rate
Mismatch
unemployment
see structural unemployment
Mixed
economy
one that combines market and
state forms of resource allocation
Monetarism
an approach based on the belief
that capitalist economies are inherently stable, unless disturbed by erratic
monetary growth and will return fairly rapidly to the neighbourhood of the
natural level of output and employment when subjected to some disturbance
Monetary
policy
measures that alter the money
supply and/or interest rates
Monopolistic
competition
see imperfect competition
Monopoly
a market
structure in which there is a sole supplier of a good or service that has no
close substitutes and for which there are barriers to entry into the
industry
Monopoly
power
monopoly power arises where
potential competitors can be excluded from a market
Monopsony
arises where there is a
dominant buyer in a market
Moral
hazard
undesirable or reckless
behaviour in an economic context where there are no incentives to avoid such
behaviour
Multinational
a firm that owns and controls
assets in more than one country
Multiplier
the ratio of the change in
income to a change in autonomous expenditure
NAIRU
see non-accelerating inflation rate of unemployment
Nash equilibrium a situation where
economic agents optimize their actions, given the choices made by other
parties
National
income
the income
that originates in the production of goods and services supplied by residents
of a nation
Natural
monopoly
arises when a single firm is
the most efficient structure for the production of a particular good or
service
Natural
rate of unemployment
the rate of
unemployment that exists when the labour market clears and is in equilibrium;
composed of frictional and structural unemployment
Net exports
exports
minus imports
New
classical economics
an approach
based on the three assumptions of continuous market clearing, incomplete
information and rational expectations
New
Keynesian economics
an approach
that explores a variety of reasons for wage and price stickiness that prevents
market clearing
New
protectionism
the non-tariff-based protection
that emerged after the end of the postwar boom at the beginning of the
1970s
Nominal
GDP
the value of gross domestic
product measured in terms of the prices prevailing at the time; also known as
GDP in current prices
Non-accelerating
inflation rate of unemployment (NAIRU)
the rate of
unemployment at which inflation is stable
Non-system
the broad system of flexible
exchange rates prevailing in the world economy since 1973
Normal
good
one for which demand increases
when income increases
Normal
profit
the minimum
amount of profit a firm must earn to induce it to remain in the industry
Normative
issues
those that are a matter of
opinion
North
American Free Trade Agreement (NAFTA)
a free
trade area that covers the US, Canadian and Mexican economies
Oligopoly
a market
structure in which a small number of firms compete with each other
Opportunity
cost
the cost of
an action measured in terms of the best forgone alternative action
Optimum
currency area
a grouping of economies within
which markets are sufficiently integrated and flexible to make the use of one
currency more desirable than separate national currencies
Organic
growth
the growth
of a firm from its own resources
Organisation
for Economic Co-operation and Development (OECD)
an intergovernmental
organization, based in Paris, which provides a policy forum for the major
industrialized countries for the promotion of economic growth, expansion of
multilateral trade and provision of foreign aid to developing countries
Overhead
costs
see fixed costs
Pareto
efficiency
a situation in which it is
impossible to make someone better off without making someone else worse off;
also known as Pareto optimality
Participation
rate
the proportion of economically
active workers in a particular group of the population
Passive
policy rule
a pre-specified rule for the
conduct of policy not linked to prevailing economic circumstances
Pay
differentials
exist where
there are wage rate premiums attached to particular kinds of work
Perfect
competition
a market
structure most notably characterized by a situation in which all firms in the
industry are price takers and there is freedom to enter and leave the
industry
Perfectly
anticipated inflation
arises when the actual rate of
inflation is equal to the anticipated or expected rate of inflation
Perfectly
elastic demand
arises where the response of
quantity demanded to a price change is infinitely large; price elasticity of
demand is ∞(infinity)
Perfectly
inelastic demand
arises
where the quantity demanded does not respond to a change in price; price
elasticity of demand is 0
Permanent
income
the average
income that people expect to receive over a period of years in the future; also
known as normal income and average expected income
Phillips
curve
depicts the relationship
between the inflation rate and the unemployment rate
Policy
ineffectiveness proposition
the
proposition that anticipated changes in monetary policy have no effect on
output and employment
Political
business cycle
fluctuations in the level of
output and employment caused by the manipulation of the economy for electoral
gains or due to partisan differences
Positive
issues
those that are factually based
Potential
output
the maximum output that can be
produced in an economy, given its factor endowments, without generating
accelerating inflation; also known as full employment output
Price
elastic
a situation
where the proportionate change in quantity demanded is greater than the
proportionate change in price; elasticity is greater than 1
Price
elasticity of demand
the
proportionate change in the quantity demanded of a good divided by the
proportionate change in its price that brought it about
Price
elasticity of supply
the proportionate change in
quantity supplied of a good divided by the proportionate change in its price
that brought it about
Price
inelastic
a situation
where the proportionate change in quantity demanded is less than the
proportionate change in price; elasticity is less than 1
Price
index
a measure
of the average level of prices of a set of goods and services relative to the
prices of the same goods and services in a particular base year
Price
maker
a firm that
can determine the price it charges for its goods
Price
taker
a firm that has to take the
market price of its product as given
Price
transparency
arises in an international
context when countries use the same currencies or, to a lesser extent, when
exchange rates are fixed
Prices
and incomes policy
measures
that establish guidelines or controls for wage and/or price increases
Private
good
one that is wholly consumed by
an individual
Product
life-cycle theory
understands the changing patterns
of international trade by referencing the development of commodities and their
production locations over time
Production
function
a functional relationship
between the output of goods or services produced and the quantity of inputs
used in the production process
Production
quotas
quantitative
limits on the output of an industry
Profit
the difference between total
revenue and total cost
Protectionism
occurs where the principle of
free trade is compromised
Public
good
one that, once produced, can be
consumed by everyone
Public
sector borrowing requirement (PSBR)
the amount
by which the expenditure of the public sector exceeds its revenue
Purchasing
power parity
predicts that the nominal
exchange rate will adjust to offset differences in inflation rates between
economies in the long run
Pure
monopoly
a market
structure in which there is a sole supplier of a good or service that has no
close substitutes and for which there are barriers to entry into the
industry
Q
Quantitative easing
a policy
that injects money directly into the economy in order to boost spending and
prevent inflation falling below target
Quantity
demanded
the amount of a good or service
that consumers wish to purchase at a particular price, other things being
equal
Quantity
supplied
the amount
that producers wish to sell at a particular price, other things being
equal
Quota
a quantitative limit on
goods
Random
walk
the path of
a variable whose changes over time are unpredictable
Rational
expectations
an approach that assumes people
make the best use of all available information to forecast the future
Real
business cycle approach
an approach in which
fluctuations in aggregate output and employment are driven by persistent
supply-side shocks to the economy, most notably random fluctuations in the rate
of technological progress
Real
exchange rate
measures the real purchasing
power of a currency
Real
GDP
the value
of gross domestic product measured in terms of the prices that prevailed in
some particular base year; also known as GDP in constant prices
Real
wage
the money wage divided (or
deflated) by a price index; the amount of goods and services that a money wage
can buy
Recession
a decline in real GDP that
lasts for at least two consecutive quarters of a year
Relative
price
the ratio of the price of one
good to the price of another good; expressed as the number of units of one good
that one unit of another good will buy
Reservation
wage
the minimum
rate required to induce an individual to accept a job
Resource
allocation
the
commitment of a society’s productive endowments, such as labour and machinery,
to particular uses or patterns of use
Resource
scarcity
implies that all resources are scarce in relation to the limitless wants present in
every society
Revaluation
the
revaluation of a currency involves an increase in its value in terms of other
currencies when the currency in question is part of some formal fixed exchange
rate system
Rules
pre-specified
guidelines that determine the conduct of policy
Say’s
Law
states that
supply creates its own demand
Search
unemployment
see frictional unemployment
Services
intangible
products
Shifting
comparative advantage
implies
that patterns of comparative advantage are not stable over time
Short
run
a period of time in which some
factors of production such as capital and land are fixed, while others such as
labour may be varied
Short-run
Phillips curve
depicts the relationship
between inflation and unemployment that exists for a given expected rate of
inflation
Signalling
measures taken by economic
agents to indicate their value to third parties; for example, educational
qualifications signal the potential productivity of workers
Social
provision
see collective provision
Stabilization
policy
policy
aimed at stabilizing output and employment at, or near, their full employment
or natural levels by influencing the level of aggregate demand
Stagflation
a situation
where high unemployment and high inflation occur simultaneously; a combination
of stagnation and inflation
Steady
state
a situation in which output per
worker and capital input per worker are constant or unchanging over time
Structural
unemployment
unemployment that results from
a mismatch between the skills or location of existing job vacancies and the
present skills or location of the unemployed; also known as mismatch
unemployment
Substitute
a good that can be substituted
in place of another good
Supernormal
profit
profit that exceeds the minimum
amount a firm must earn to induce it to remain in the industry
Supply
the quantity of a good or
service producers wish to sell at each conceivable price, other things being
equal
Supply-side
policies
policies
directed towards increasing aggregate supply by altering the response of firms
and individuals to changing conditions
Tariff
a tax on traded goods
Third-part
effects
see externalities
Tiger
economies
Hong Kong; Malaysia; South
Korea; Singapore; Taiwan; and Thailand
Time
inconsistency
the
temptation of policymakers to deviate from a previously announced policy once
private decision makers have adjusted their behaviour to the announced
policy
Total
cost
the sum of
the costs of all inputs used in producing a firm’s output; total cost can be
divided into total fixed costs and total variable costs
Total
product of labour
the total output produced by a
given number of workers
Total
revenue
the amount of money a firm
receives from the sale of its output; it equals the price of output multiplied
by the number of units sold
Trade
union density
the
percentage of employees in an economy who are members of a trade union
Transaction
costs
costs
associated with undertaking business activities or other forms of economic
exchange
Transfer
earnings
payments to a factor of
production that are necessary to retain it in its present use
Transition
economy
an economy in the process of
changing from central planning to capitalism
Unemployed
people who are available for
work and are actively seeking jobs but cannot find them
Unemployment
rate
the
percentage of the labour force unemployed
Unit
elasticity
where the
proportionate change in quantity demanded is equal to the proportionate change
in price; elasticity is 1
Unlimited
liability
places the
entire personal wealth of the owner of a firm at risk in respect of losses that
the firm may incur
Utility
the satisfaction that a
consumer receives from the consumption of a good or service
Valuation
ratio
the market valuation of the
firm, expressed by the price of its shares, divided by the book value of
assets
Variable
costs
costs that
vary with the quantity of output produced; sometimes referred to as direct
costs or avoidable costs
Vertical
growth
occurs when a firm engages in
activity in another part of the production process or market in which it has an
interest
Vertical
merger
when two
firms in the same industry but at different stages in the production process
merge
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