24. Definitions of economic terms every learner should know

Word/concept Definition

Market The process through which prices are established. It is in fact any arrangement that enables buyers and sellers to get information about goods and services and the trading thereof.

Economics (Def 1) The study of how prices are formed on the micro level and how groups (aggregates such as markets and countries) relate to one another on a macro level.

Microeconomics The study of how individuals and individual businesses make decisions in utilising their limited resources to attain maximum utility.

Microeconomics is the branch of economics that analyzes the market behavior of individual consumers and firms in an attempt to understand the decision-making process of firms and households.Typically, it applies to markets where goods or services are bought and sold. Austrian School of Thought School of economic thought originating in Austria in the late nineteenth century which focuses on the concept of opportunity cost.

Austrian Economic Theory In economic theory, the term Austrian Economics stands for liberalism and laissez-faire-economics (where economic performance is optimised when there is limited government interference).

Business Cycles Central banks expand the money supply too quickly which leads to interest rates falling and more speculative longer term investments being undertaken which leads to a crowding out of productive resources from other projects.

Ceteris paribus Lit: All things being equal (held constant)

Capitalism An economic system where the private owndership of productive resources are employed to produce goods and services to meet the needs of people.

Communism A discredited system proposed by Marx of control and central planning in an attempt to achieve the maximum good for the people. Comparative advantage https://www.youtube.com/watch?v=xN3UV5FsBkU

Economic profit - see here (point 3 Mixed economy The economic system followed by most countries in an attempt to do better than what can be achieved by laissez faire capitalism and free markets. Often leads to less optimal results to also achieve political objectives.

Comparative advantage The insight by David Ricardo that trade could effectively take place between two nations though one country has absolute advantage in the production of all goods another country may have a relative or comparative advantage in the production of some of the goods.

Demand side economics A view proposed by Keynes that a recession (depression) is typified by a lack of demand in an economy and that government intervention was required to boost demand by either cutting interest rates and taxes and/or boosting government spending (a possible contradiction if done at the same time). Productivity Productivity is an average measure of the efficiency of production, It is expressed as the ratio of outputs to inputs used in the production process i.e. output per unit of input. When all outputs and inputs are included in the productivity measure it is called total productivity.

Terms of trade

https://en.wikipedia.org/wiki/Terms_of_trade

https://www.youtube.com/watch?v=wmqnCjjidEM


The Demand Curve (microeconomics) Explain the difference between a change in demand and a change in the quantity demanded. Answer: a change in the quantity demanded is represented by a movement along the demand curve that is related to a change in the price of a product., a change in demand is represented by shifts in the demand curve as a result of other factors such as a change in income or the changes of prices of supplementary (competitive) or complimentary products.

Elasticity of demand The relationship between the price and the quantity demanded of a product. The elasticity would be great if there is a relative large change in the quantity demanded in relation to the change in price.

Cross elasticity/substitutes/compliments - https://en.wikipedia.org/wiki/Complementary_good And https://en.wikipedia.org/wiki/Substitute_good And then: https://en.wikipedia.org/wiki/Cross_elasticity_of_demand Neoclassical economics A set of approaches to economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand. Economics (Def 2) The study of how people choose to use resources (factors of production), the time and talent people have available (Labour), the land and mineral resources (Land), buildings and tools, machines and equipment (capital), and the knowledge of how to combine them (entrepreneurship) to create useful products and services.

Factors of production Natural Resources (Land), Capital (Capital goods), Labour, Entrepreneurship

The Remuneration for the factors of production Substitute goods: Two goods that could be used for the same purpose. If the price of one good increases, then demand for the substitute is likely to rise. Therefore, substitutes have a positive cross elasticity of demand. Rent, wages, interest and profits.

The task of the economic system To provide an answer to the questions "What, How and for whom" should goods and services be produced?

The economic circular flow Firms and households - Factor market / Goods market; Spending and income.
Production Possibilities Frontier The boundary of what can be produced with the available resources and that which cannot

Opportunity cost The value of the next best alternative forgone.

Gross Domestic Product The market price of all the final goods and services produced within the borders of a country in a given period - normally one year. The Value add method to calculate GDP: The value added by firms is relatively easy to calculate from their accounts, but the value added by the public sector, by financial industries, and by intangible asset creation is more complex. These activities are increasingly important in developed economies, and the international conventions governing their estimation and their inclusion or exclusion in GDP regularly change in an attempt to keep up with industrial advances. In the words of one academic economist "The actual number for GDP is therefore the product of a vast patchwork of statistics and a complicated set of processes carried out on the raw data to fit them to the conceptual framework." Coyle, Diane (2014). GDP: A Brief but Affectionate History. Princeton University Press. p. 6. ISBN 9780691156798. Gross National Product The value of the products and services produced by the nationals of a country.

The three macroeconomic flows total production, total income and total spending The most important elements of spending consumption spending by households and investment spending by firms

Gross National Income The income earned by the nationals of a country.

Real national income per capita (per person): Is the total amount of goods and services produced in a particular period (or its equivalent in money income adjusted for variation in purchasing power) divided by the total population during the period.

The three methods of calculating GDP The production method, the income method and the expenditure method.

Marginal propensity to consume

The marginal propensity to consume (MPC) is a metric that quantifies induced consumption, the concept that the increase in personal consumer spending (consumption) occurs with an increase in disposable income (income after taxes and transfers). It is the rate at which consumption will take place (as opposed to savings). Economies of scale https://en.wikipedia.org/wiki/Diseconomies_of_scale Stagflation It denotes an increase in inflation without an increase in production levels, which means that unemployment may remain at unacceptable high levels. This happened in the 70's when policies to increase AD did not result in the desired effects. Regulatory unemployment. Those that are unemployed because of some regulation that is in place. This is very difficult to ascertain or quantify, it is however one of the most important reasons that exist. In a free market there is no real long term unemployment and sticky wages do not exist. Regulations makes it difficult for the market to clear at full employment levels.

Substitute goods are two goods that could be used for the same purpose. If the price of one good increases, then demand for the substitute is likely to rise. Therefore, substitutes have a positive cross elasticity of demand. Regulatory unemployment: Unemployment caused by laws and regulations. During the Apartheid years job reservation laws, pass laws and other measures caused hardship and misery through forced unemployment. In the same way do minimum wage laws, BEE legislation and other laws currently prohibit the entry into paid employment for many individuals and ensure that people who wish to enter the job market are restricted in doing so freely.

See www.aded.co.za/145 1. Marginal cost and revenue 2.Cross elasticity of demand and income elasticity. 3.Fixed costs and variable costs 4.Economic profit and normal profit 5.Economies of scale and deseconomies of scale