| Absolute advantage (HL) | can produce more goods or services with the same resources |
| Accelerator (HL) | Keynesian investment level depends on changes in national income |
| Accounting costs (HL) | explicit monetary production costs |
| Ad valorem tax | indirect tax expressed as a percentage of price (VAT) |
| Administrative obstacles or regulatory barriers | government regulations that cause imports to decrease to protect domestic industries |
| Aggregate demand | planned domestic spending on goods and services at various possible average price levels during a specified time period |
| Aggregate supply | planned output of goods and services at various possible price levels during a certain period of time |
| Aid | flow of capital to developing countries in the form of grants or low interest rate loans |
| Allocative efficiency | when marginal benefit is equal to marginal cost |
| Anti-dumping duties | tariff imposed on import price of good being dumped to reduce harm on domestic industry |
| Appreciation | the increase in value, strengthening of the currency, or increase in the exchange rate |
| Balance of Payments (BOP) | record of all transactions a nation makes, over a given period of time, with other nations, consisting of the Current Account and Capital Account |
| Barrier to entry | things that make it difficult for new firms to enter the market |
| Basic economic question | what to make for whom |
| Bilateral aid | when the government of one country provides aid to the government of another country |
| Breakeven output | total revenue is equal to total costs of production |
| Budget deficit | when spending is more than revenues |
| Buffer stocks | buying surplus stock during a good harvest to stabilize the price |
| Business cycle | fluctuations in real GDP often referred to as peaks, recessions, depressions, troughs, recoveries, and booms. |
| Capital | means of production such as factories, machines, equipment, and tools |
| Capital account of Balance of Payments | foreign direct investments in and out of a country over a given period of time |
| Capital flight | financial capital quickly exiting a country |
| Cartels | formal collusion by oligopolies who behave like a monopoly, driving up price, often achieved by restricting output |
| Centrally planned (command) economy | the government sets prices and output of goods and services |
| Ceteris paribus | all other things remain constant |
| Circular flow of income model | shows how money, factors of production, goods, and services flow around the economy among households, firms, financial markets, overseas markets, and the government |
| Collusive oligopoly | firms agree (formally or tacitly) to fix price, reduce supply, or engage in non competitive behavior, which is illegal in the UK, USA, and Hong Kong |
| Commodities | primary raw material products that are not easily differentiated, like iron ore or wheat |
| Commodity agreements | quotas or buffer stock systems to stabilize prices |
| Commodity concentration of exports | a few commodities make up a large percentage of export revenue, usually of a developing country |
| Common market | free trade and movement of factors of production among members |
| Comparative advantage | goods or services can be produced at a lower opportunity cost |
| Consumption externality | cost are imposed or benefits are enjoyed by third parties not directly involved in the consumption transaction |
| Contestable market | price efficient markets with low cost of entry or exit |
| Cost-push inflation | supply shocks caused by the increasing price of commodities, especially oil |
| Cross-price elasticity of demand | % change in quantity demanded of good X / % change in the price of good Y |
| Crowding-out | when expansionary fiscal spending causes increased interest rates, which leads to reduced private sector spending |
| Current account of the balance of payments | value of exports and imports of goods and services over a specific period of time |
| Customs unions | economic integration to abolish tariffs and trade barriers and strengthen position when negotiating with non-members |
| Cyclical unemployment | a decrease in employment caused by a contraction in the business cycle |
| Deflationary gap | when actual aggregate demand is less than planned aggregate demand |
| Demand for money | the amount of money that people are willing to hold at each and every interest rate |
| Demand pull inflation | when aggregate demand is greater than aggregate supply and drives up prices |
| Depreciation of exchange rate | the external value of the currency falls when measured against foreign currencies |
| Economic cycle | the economy in the long run will fluctuate and have expansions or peaks and contractions or troughs |
| Exchange rate | the price of currencies when measured against other currencies |
| Financial crowding out | when government spending competes with private sector spending, making things more expensive for the private sector |
| Fiscal policy | government spending and taxation to influence economic growth |
| Forward exchange rate market | when the price is set today to trade currencies in the future |
| Frictional unemployment | occurs naturally when people are between jobs |
| Game theory | describes the behaviour of oligopolies as they compete with one another |
| Gini Coefficient | measures income inequality |
| Gross Domestic Product (GDP) | measures the final value of goods and services produced in an economy over a specific period of time |
| Human Development Index (HDI) | a measure of economic development based on life expectancy, level of education, and real GDP per capita at purchasing power parity |
| Infant industry | A new industry that is still relatively small and has not benefited from economies of scale or any competitive advantage |
| Inflation | an increase in the general price level caused by an increase in demand or an increase in the cost of supplies |
| Inflationary gap | when actual aggregate demand is above planned aggregate demand |
| Injection | an increase in investment, government spending, or exports which increases the circular flow of income |
| Interest rate | the opportunity cost of borrowing or saving money |
| Involuntary unemployment | the number of people who are willing and able to work at a given wage, but are not able to find employment |
| J Curve | when a currency is depreciated, the balance of trade may become worse in the short run before it improves in the long run |
| Laffer Curve | shows the relationship between the tax rate imposed by the government and the level of tax revenue collected |
| Less developed country | a nation with low level of income, life expectancy and literacy |
| Liquidity preference | the demand for money in terms of holding cash instead of long term assets and investments |
| Lorenz Curve | shows income inequality by graphing the proportion of income earned by a given proportion of the population in an economy |
| Marginal Efficiency of Capital (MEC) | the expected rate of return on investment projects |
| Marginal Productivity Theory | the demand for labour depends on the marginal revenue product |
| Marginal Propensity to Consume | the proportion spent on consumption out of each extra unit of income |
| Marginal Propensity to Import | the proportion spent out of each extra unit of income on Imports |
| Marshall Lerner Condition | the depreciation in exchange rate will improve the current account if the price elasticity of demand for imports plus the price elasticity of demand for exports is greater than 1 |
| Menu costs | the cost of changing menus and price lists when inflation occurs |
| Monetary policy | a government policy usually implemented by a central bank to affect the control of money supply or interest rates to influence economic growth |
| Monopoly | theoretically, when there is only one seller in the market or legally in the UK, when one firm has 25% market share |
| Multiplier effect | an increase in aggregate demand leads to a greater increase in national income, one’s spending becomes another’s earnings |
| National debt | the total accumulated debt of the government |
| Net investment | gross investment minus depreciation |
| Paradox of Thrift | an economic theory that states the when individuals increase their savings rates during an economic downtown, they deepen and lengthen the downturn, making things worse for themselves |
| Phillips curve | shows the short-run and long-run inverse relationships between inflation and unemployment |
| Potential economic growth | when there is an increase in the capacity of the economy |
| Poverty Trap | when individuals are worse off if they work because they will lose unemployment benefits and need to pay increased taxes |
| Precautionary demand of money | to hold money in case of emergency |
| Progressive tax | when the average tax rate increases with income |
| Protectionism | when a government protects domestic firms against foreign competition |
| Purchasing Power Parity (PPP) | used to inflation rates and exchange rates by standardizing the units of measure across countries |
| Quantity theory of money | the total amount of money in the economy multiplied by the velocity of circulation is equal to the general price level multiplied by the quantity of transactions: MV = PT |
| Quota | the amount that a firm or country can produce or purchase or import or export |
| Recession | when an economy experiences negative growth during two consecutive fiscal quarters |
| Regressive tax | when the average rate of taxation decreases as income increases |
| Regulatory capture | when the government regulator acts in the best interest of the industry being regulated, instead of the public, which may also be considered as a conflict of interest |
| Speculative demand of money | to hold money instead of less liquid assets |
| Tariff | tax placed on imported products |
| Terms of trade | measures the value of imports and exports between two countries |
| Trade creation | when trade shifts from a high-cost producing nations to low-cost producing nations to enjoy comparative advantage |
| Trade diversion | when joining a Custom Union leads to a shift from trade from lower-cost nations to higher-cost nations because of the protectionists measures are implemented against non members |
| Transaction demand of money | money needed to finance day today transactions |
| Unemployment rate | the number of people who are currently looking for work, but are currently without a job, expressed as a percentage of the labour force |
| Velocity of circulation | the number of times that money, on average, is spent on goods and services over a given period of time |
| Vertical equity | when there is a redistribution of income or wealth from the rich to the poor |
| Voluntarily unemployment | when people who are looking for work are not willing to accept the given wage rate |
| Withdrawal | a leakage from the economy that reduces aggregate demand: imports, savings, and taxes |