TERMINOLOGY+OF+ECONOMICS

flat __ Land __ : all natural resources __ Labor __ : workforce __ Capital __ : manufactured stock of tools, machines, factories, offices, roads and other resources used in the production of goods and services. __ Enterpreneurship __ : those who organize production, and take risks. //** Public Good ** : good where consumption by one person does not reduce the amount available for consumption by another person, (non-excluding / non-rivalrous) leads to the concept of the free rider. // // i.e.: defense, streetlights. // //** Private Good ** : Goods which are excludable, rivalrous. // //** Centrally Planned Economy ** : economic system where the government, through a planning process, allocates resources in society. // //** Free Market Economy ** : economic system which resolves the basic economic problem through the market mechanism. // //** Normal Good ** : good where demand increases when income increases (YED > 0) // //** Inferior Good ** : good where demand falls when income increases (YED <0) // //** Giffen Good ** : special type of inferior good where demand increases when price increases // //** Veblen Good ** : (snob goods) goods bought in order to gain status, often sell better at high prices. // //** Speculative goods ** : a fall in price will discourage people from buying (sometimes) b/c they are afraid of further falls in price. // //** Substitution Effect ** : if price rises, demand will switch to substitute products. // //** Income Effect ** : if prices rises, real income will diminish, and demand will change according to whether the good is normal or inferior. // //** Law of Diminishing Returns ** : if increasing quantities of a variable input are combined with a fixed input, eventually the marginal product and the average product of that variable input will decline. // //** Returns to scale ** : when the change of percentage output is the same as the percentage change in input. // //** Economies of Scale ** : a fall in the long run average costs of production as output rises. // //__ Internal __ : resulting b/c of growth in the scale of production within a firm. // //__ External __ : resulting from a growth in the size of the industry in which a firm operates. // Types: //__ Technical __ : automation, specialized equipment, increased dimensions. // //__ Financial __ : easier credit, lower rate of interest. // //__ Managerial __ : specialized departments. // //__ Marketing __ : advertising (brand name, sponsorship, …), packaging. // //__ Risk-bearing __ : diversify. // //** Monopolistic Competition ** : market structure where a large number of small firms produces non-homogeneous products and where there are no barriers to entry or exit. // //** Oligopoly ** : market structure where there is a small number of firms in the industry and where each firm is interdependent with other firms. // //** Monopoly ** : market structure where one firm supplies all output in the industry without facing competition because of high barriers to entry to the industry. // //** Natural Monopoly ** : where economies of scale are so large relative to demand that the dominant producer in the industry will always enjoy lower costs of production than any other potential competitor. // //** Perfect Competition ** : market structure where there are many buyers and sellers, where there is freedom of entry and exit to the market, perfect knowledge, and where all firms produce a homogeneous product. // //** Imperfect Competition ** : market structure where there are several firms in industry, each of which has some ability to control the price they set for their product. // //** Horizontal Merger ** : merger between two firms in the same industry at the same stage of production. // //** Vertical Merger ** : merger between two firms at different production stages in the same industry. // //** Consumer Sovereignty ** : when resources are allocated according to the wishes of consumers (i.e.: in a perfectly free market) // //** Profit Maximization ** : MC = MR // //** Maximum Revenue ** : MR = 0 // //** Optimal Allocation ** : // //** Productive Efficiency ** : production is at lowest cost (MC = AC) // //** Allocative Efficiency ** : occurs when no one can be made better off by transferring resources from one industry to another without making someone else worse off. (Price = MC) // this is the// social optimum // __ Negative __ : if net social cost is greater than net private cost. __ Positive __ : if net social benefit is greater than net private benefit. __ Internalizing __ : eliminating the externality by bringing it back into the framework of the market mechanism. (i.e.: extending property rights) Economic growth and development Full employment Price stability External equilibrium Long run: Short run:
 * Definitionstoc
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 * Utility ** : satisfaction derived from consuming a good.
 * Profit ** : Profit = TR — TC = Q(AR-AC).
 * Normal Profit ** : profit that the firm could make by using its resources in their next best use (opportunity cost)
 * Supernormal profit ** : profit above normal profit.
 * Welfare maximization ** :
 * Adaptive Expectations ** : where decisions are based upon past information.
 * Rational Expectations ** : where decisions are based on current information and anticipated future events.
 * Rational economic behavior ** :
 * Positive ** : scientific or objective study of the allocation of resources
 * Normative ** : study and presentation of policy prescriptions involving value judgements about the way in which scarce resources are allocated. (subjective approach to economics)
 * Free Good ** : goods which are unlimited in supply and which therefore have no opportunity cost.
 * Economic Good ** : goods which are scarce because their use has an opportunity cost.
 * Scarcity ** : economic agents (firms, governments,…) can only obtain a limited amount of resources at any moment in time.
 * Choice ** : economic choices involve the alternative uses of scarce resources
 * Opportunity **** cost ** : economic cost of production, benefit lost from the next best alternative.
 * Production possibility frontier ** : curve which shows the maximum potential level of output of one good given a level of output for all other goods in the economy.
 * Short Run ** : period of time when at least one factor input cannot be varied.
 * Long Run ** : period of time when all factor inputs can be varied, but the state of tech. remains constant.
 * Very Long Run ** : the period of time when the state of technology may change.
 * Factors of Production ** :
 * Market ** : occurs whenever buyers and sellers are in contact with each other.
 * Ceteris Paribus ** : ‘all other things remaining the same’, the assumption that all other variables within an economic model remain constant whilst one change is being considered.
 * Externalities ** :
 * Merit Good ** : good which is under-provided by the market mechanism. //has positive externalities.//
 * Market failure ** : where resources are inefficiently allocated due to imperfections in the working of the market mechanism.
 * Externality ** :
 * Private cost and benefit ** : cost or benefit to an individual economic unit such as a consumer or a firm.
 * Social cost and benefit ** : cost or benefit to society as a whole.
 * Gross ** :
 * Net ** :
 * Domestic Income ** : excludes the values of incomes generated by assets owned overseas and domestic assets owned by foreigners.
 * National Income ** : includes the above.
 * Factor Cost ** :
 * Market prices ** :
 * Nominal ** : values unadjusted for the effects of inflation / values at current prices
 * Real ** : values adjusted for inflation
 * Macroeconomic Policy Objectives ** :
 * GDP ** : measure of national income before property income from abroad and depreciation have been accounted for.
 * GDP (factor cost) ** : GDP (market prices) - Taxes (indirect) + Subsidies
 * GNP ** : a measure of national income including net property income from abroad but before depreciation.
 * Multiplier ** : figure used to multiply a change in autonomous expenditure, such as investment, to find the final change in income / ratio of the final change in income to the initial change in autonomous expenditure.
 * Accelerator **** Theory ** ; theory that the level of planned investment is related to past D Y. (I=f( D Y) )
 * Absolute advantage ** : when a country is able to produce a good more cheaply in absolute terms than another country.
 * Comparative advantage ** : when a country is able to produce a good more cheaply relative to other goods produced domestically than another country.
 * Free Trade Areas ** : group of countries between which there is free trade in goods and services but which allows member counties to set their own level of tariffs against non-member countries.
 * Customs unions ** :
 * Common markets ** : group of countries between which there is free trade in products and factors of production, and which imposes a common external tariff on imported goods from outside the market.
 * Current Account ** : pare of Balance of payments where payments for the purchase and sale of goods and services are recorded.
 * Capital Account ** : part of the B.o.P. where flows of savings, investment and currency are recorded.
 * Current Balance ** : difference between total exports and total imports.
 * Marshall-Lerner Condition ** : devaluation will result in an improvement on current account if the combined elasticities of demand for exports and imports are greater than 1 (more elastic à better to devaluate)
 * Terms of Trade ** :
 * Economic Growth ** :
 * Economic Development ** :
 * Human Development Index (HDI) ** : compares countries on the basis of real GDP per capita at PPP, life expectancy, education (literacy and school enrolment)
 * Human Suffering Index (HSI) ** : takes into account factors such as access to clean water, adequate food, and education.
 * Valuing Natural Resources ** : takes into account growth without the destruction of natural capita.
 * Measure of Economic Welfare (MEW) ** : allows for leisure, non-marketed goods, public amenities, as well as economic ‘bads’ like pollution or ‘regrettables’ like defense spending.
 * Net Social Product (NSP) ** : adjusts for positive and negative externalities to calculate social benefits and social costs, including pollution, divorce, crime and suicide rates.

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