Complete economics dictionary

Complete Economics dictionary

A BALANCE OF TRADE The difference between the value
of visible exports from a country and the value of
ABNORMAL PROFIT The surplus of revenue over costs visible imports to that country, usually measures per
enjoyed by a monopoly that is in excess of profit the month and annually.
same firm could expect to earn if it faced competition
for its market. BARTER The exchange of goods and services without
using money.
ABSOLUTE POVERTY An economic condition of
lacking both money and basic necessities needed BASIC WAGE A guaranteed level of earnings for an
to successfully live, such as food, water, education, employee, excluding any overtime or performance-
health care and shelter. related pay.
ADULT LITERACY RATE A measure of the number BIRTH RATE A measure of the number of babies born
of people of working age as a proportion of the per period per 1,000 people in a population.
total population in a country who are able to read BRAND LOYALTY The extent of the faithfulness of
and write. consumers to the product or products of a particular
ANCILLARY FIRMS Firms which provide goods and firm, expressed through their repeat purchases and
business services for other firms; they are often irrespective of changes in the prices and promotions
located near to their main business customers. of competing products from rival firms.
APPRECIATION An increase in the value of a floating BREAK-EVEN LEVEL OF OUTPUT That volume of
exchange rate of a currency against one or more output which, if completely sold, would raise a
foreign currencies. total revenue exactly equal to the total cost of
its production.
ARTIFICIAL BARRIERS TO ENTRY Obstacles created
by a powerful monopoly or oligopoly purposefully to BUDGET The budget of a government is a forecast or
restrict competition from new firms entering the plan of its intended revenues and expenditures in a
markets they dominate. financial year.
AVERAGE COST The cost per unit of output, calculated BUDGET DEFICIT This financial situation occurs if a
by dividing the total cost of a given level of output by government plans to spend more than it forecasts
that total volume of output. to earn in tax and other public revenues over the
next financial year. An actual budget deficit occurs if
AVERAGE REVENUE The revenue per unit of output actual public spending exceeds actual public revenues.
sold, found by dividing the total revenue from the sale
of a given output by that volume of output. BUDGET SURPLUS This financial situation occurs if a
government plans to spend more than it forecasts to
AVERAGE TAX RATE The total amount of personal or earn in tax revenues over the financial year. An actual
corporate income tax a person or firm pays from their budget deficit occurs if actual tax revenues exceed
total annual income as a proportion of their total actual public spending.
annual income.

B C
CAPITAL EMPLOYED Money invested in or tied up in
BALANCE OF PAYMENTS An accounting record of all productive assets in a firm that enable it to produce
monetary transactions between a country and the goods and services and generate revenues.
rest of the world.
CAPITAL GOODS Human-made resources that do not
BALANCE OF PAYMENTS ON CURRENT ACCOUNT satisfy an immediate consumer want because they
This section of the balance of payments of a country are to be used in the production of other goods and
is used to record and monitor how well or how badly services.
it is performing in international trade in goods and
services, and other flows of incomes and transfers CAPITAL INTENSIVE A production process that employs
with other countries. a significant amount of capital equipment relative
to labour.

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 Complete economics dictionary

CARTEL A formal agreement between a group of and which expresses these average prices as an index
powerful producers to control the market supply and number series.
price of their product. OPEC (the Organization of the
CONSUMERS People and organizations that are willing
Petroleum Exporting Countries) is one of the most
and able to buy goods and services to satisfy their
widely known examples of a cartel.
needs and wants.
CENTRAL BANK The main bank in an economy,
CONSUMPTION The using up of goods and services to
responsible for managing the stability of its national
satisfy human needs and wants.
currency and money supply, and for regulating its
banking system. CONTESTABLE MARKET A market in which a monopoly
prices and acts competitively because there are low
CETERIS PARIBUS A term meaning ‘all other factors
entry barriers which means new firms can easily enter
being unchanged’.
the market to compete.
CLOSED SHOP This exists when trade union membership
CONTRACTIONARY FISCAL POLICY A government
is made a compulsory condition of a taking a job in a
macroeconomic policy that involves cutting public
particular workplace or organization.
expenditure and/or increasing taxes to reduce total
COLLATERAL Security taken by a lender against a loan, demand if an economy is overheating with the
such as a valuable asset owned by the borrower that general level of prices rising rapidly.
the lender could sell to recover the value of the loan
CORPORATION TAX A tax on company profits.
if the borrower is unable to repay it.
COST-PUSH INFLATION Persistently rising general price
COLLECTIVE BARGAINING The process of negotiating
levels caused by increasing production costs.
pay and working conditions between trade union
representatives and employers. CROWDING OUT The displacement of private sector
borrowing and therefore expenditure by increased
COMMERCIAL BANK A type of bank with individual
public sector borrowing and spending. This happens
and business customers that has retail branches in
because the interest rate increases as government
many towns and cities.
borrowing rises
COMMERCIAL LOAN A bank loan to a firm, usually
CYCLICAL UNEMPLOYMENT Joblessness caused by
with a fixed repayment term and interest rate.
deficient demand during an economic downturn
COMPENSATING DIFFERENTIALS Higher rates of pay or recession.
compared with those for other occupations and
required to attract labour to unpleasant, unsociable
or dangerous jobs, i.e. the positive wage differential D
is designed to compensate workers for these DEATH RATE - A measure of the number of people who
unattractive features. die per period per 1 000 people in a population
COMPETITION POLICY Government policies to prevent DECREASING RETURNS TO SCALE - A firm or
and reduce anti-competitive behaviour and the abuse production process will have decreasing returns to
of monopoly power. scale if the rise in output following an increase in
productive scale is proportionately less than the
COMPLEMENTS A good or service that is in joint
increase in inputs
demand with another, for example, cars and petrol, or
milk and coffee. DEFAULT - A term used to describe a situation when a
person, firm or government fails to meet their loan
CONSTANT RETURNS TO SCALE A firm or production
repayments on time
process will have constant returns to scale if output
rises in the same proportion to an increase in inputs. DEFLATION A fall in the general level of prices in an
economy.
CONSUMER DURABLES Goods that are consumed over
a relatively long period of time such as a washing DEMAND The want or willingness of a consumer or
machine, computer and mobile phone. group of consumers to buy a good or service.
CONSUMER EXPENDITURE Spending on goods and DEMAND-PULL INFLATION A persistent increase in
services for final consumption. the general level of prices resulting from a continued
excess of demand over supply.
CONSUMER PRICE INDEX (CPI) A measure of inflation
based on changes in the average price of a basket of DEMAND SIDE POLICY A government policy designed
goods and services purchased by a ‘typical’ household to manage total demand in the economy, in order to

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control the level of price inflation, employment and DIVERSIFICATION Producing a range of different
output. products for different home and/or overseas markets
to spread market risks.
DEPENDENCY RATIO A measure that contrasts the
number of people in the dependent population DIVIDEND A portion of the profit of a company that is
of a country with the working population in the paid to its shareholders for each share they own.
same country.
DIVISION OF LABOUR The separation of a
DEPENDENT POPULATION That part of a population production process into a series of tasks, with
that is economically inactive (not in paid each one completed by a different worker or group
employment) and therefore relies on others to of employees.
produce the goods and services it consumes.
DOUBLE COINCIDENCE OF WANTS A situation which
DEPRECIATION A fall in the value of a floating exchange has to exist in a barter system, where each party
rate of a currency against one or more foreign involved in a transaction wants something offered by
currencies. the other and so the two parties can exchange their
goods or services.
DEREGULATION The simplification or removal of
complex, old or even unnecessary laws and regulations DUMPING A form of international predatory pricing
to reduce burdens on business organizations. and unfair competition used by overseas producers to
flood another country with cheap products to force
DERIVED DEMAND When demand for one good or
its firms out of business.
service occurs as a result of demand for another.
The demand for labour by firms is a derived
demand because labour is needed to produce goods E
and services.
ECONOMIC BOOM A period following economic
DEVELOPED ECONOMY A country with a high level recovery in an economic cycle, characterized by an
of economic development, including high average economy working at full or near-full capacity with
incomes, good quality housing, legal and education a low level of unemployment and total demand,
systems, modern infrastructure and a wide range sales and profits at or near their peak, and often
of industries. accompanied by rising inflation.
DEVELOPING ECONOMY A low- to middle-income ECONOMIC CYCLE The recurrent pattern of fairly
country with a relatively low level of economic predictable fluctuations in the growth rate of real
development and well-being. GDP over time.
DIRECT INWARD INVESTMENT Also known as foreign ECONOMIC GOODS Products that require scarce
direct investment (FDI), it refers the purchase of resources to produce them to satisfy human needs
productive assets, such as a factory and equipment, and wants and are therefore limited in supply.
in a country by overseas firms and residents for the
ECONOMIC GROWTH A sustained increase in the total
purpose of production in that country.
output or real GDP of an economy.
DIRECT TAX A tax levied on the incomes or wealth of
ECONOMIC RECESSION A general slowdown in the
individuals or firms that must be paid from their own
rate of economic growth in an economy following
funds and cannot be passed on to others to pay.
an economic boom. Officially, it is usually associated
DISECONOMIES OF SCALE Problems that cause with prolonged period of negative growth in real GDP.
unit costs to rise as a firm expands beyond its
ECONOMIC RECOVERY A period following an economic
optimum size.
recession in an economic cycle during which total
DISINFLATION A slowdown in the rate at which the demand, output, employment and incomes begin to rise.
general price level is rising over time.
ECONOMIC SYSTEM How an economy allocates
DISPOSABLE INCOME Personal income remaining to resources to competing productive activities and
spend or save after direct income taxes have been assigns the outputs or products of these activities to
deducted from it. different consumers.
DISSAVING Withdrawing or spending from savings, ECONOMIC USE OF RESOURCES An allocation of
for example to meet living expenses when income is resources that yields a total social benefit in excess of
not sufficient. its total social cost.

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ECONOMICALLY ACTIVE POPULATION – Those people EXTERNAL BENEFIT A benefit arising from a positive
in a population willing and able to participate in externality, such as disease prevention due to
productive activity and are therefore either in paid vaccinations, enjoyed at no cost by other people or
employment of actively seeking employment organizations due to actions or decisions taken by others.
ECONOMIES OF SCALE Internal or external factors that EXTERNAL COST A cost arising from a negative
result in falling unit costs of production as the scale externality, such as pollution, that is incurred by other
of production in a firm or entire industry is increased. people or organizations and not by those responsible
EFFECTIVE DEMAND A consumer want for a product for the action or decision that caused it.
backed by an ability to pay for it. EXTERNAL ECONOMIES OF SCALE Cost advantages
EMBARGO A ban introduced by one or more countries enjoyed by a firm and all other firms in the same industry
on the importation of a specific product or all as a result of the scale of the industry being large.
products from another country. EXTERNAL GROWTH An increase in the size of a firm
EMIGRATION The act of leaving your country to through its takeover of, or merger with, another
live overseas. organization.
ENTERPRISE The skills and willingness to take the risks
required to organize productive activity in a firm. F
ENTREPRENEUR A person with enterprise and the FACTOR MOBILITY The ability or ease with which
willingness to take the risks and decisions necessary factors of production can be moved or reallocated
to organize scarce resources into firms to produce between different productive uses without incurring
goods and services. significant costs or a loss of output.
EQUILIBRIUM WAGE RATE The market clearing rate FACTOR REWARDS Payments received by the owners
of pay at which the amount of labour demanded by of factors of production for use of their services in
firms will match the amount supplied. production. They include wages (labour), rent (land),
interest (capital) and profits (enterprise).
EXCESS DEMAND When the market demand for a
product exceeds its market supply so there is upward FACTOR SUBSTITUTION Replacing one factor of
pressure on its market price. production with another in a production process, for
EXCESS SUPPLY When the market supply of a product example, to make production more capital intensive.
exceeds market demand so there is downward FACTORS OF PRODUCTION Scarce resources (land,
pressure on its market price. labour and capital) used in the production of
EXCHANGE RATE The equilibrium market price of goods and services to satisfy consumer needs and
one national currency in terms of another currency wants.
established through trade in currencies on the foreign FAVOURABLE TRADE BALANCE A balance of trade
exchange market. surplus when the total value of exports of goods and
EXCHANGE Trade in goods and services between services from a country exceeds the total value of its
producers and consumers. imports over the same period.

EXCLUSIVE DEALING A restrictive agreement between FULL LINE FORCING Insistence by a powerful supplier
a powerful monopoly and retailers that prevents them that a retailer must buy and stock the full range of its
from stocking the products of competing firms. products, usually to the exclusion of rival products.
EXCISE DUTY A tax or charge applied to certain goods and FINANCIAL ASSETS Non-physical assets, such as bank
services based on their quantity and not their value. deposits, shares, bonds and other financial claims that
have value.
EXPANSIONARY FISCAL POLICY A government policy
that involves expanding public expenditure and/or FINANCIAL INTERMEDIARY An organization, such as
cutting taxes to boost total demand during downturn a bank, that brings together customers who want to
in economic activity. save money and others who wish to borrow it.
EXPERIENCE GOODS Products for which it is difficult FIRMS Organizations in which resources are combined
to judge how much we will enjoy them until we to produce goods and services.
consume them. FIXED CAPITAL Money invested in long-lived productive
EXPORT A credit of flow of income into an economy assets including factories, offices, machinery
from overseas in payment for goods and services sold and vehicles.
to overseas residents.

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FIXED COST A cost of production that does not vary HORIZONTAL MERGER This occurs when two or
with the level of output in a firm. more firms producing similar goods or services at
the same stage of production combine to form a
FLOATING EXCHANGE RATE The market price of a
larger enterprise
national currency against another currency that is
determined on the foreign exchange market by the HUMAN DEVELOPMENT INDEX A composite measure
supply and demand for that particular currency. combining GDP per capita, average years of schooling
and average life expectancy used to compare the
FOREIGN EXCHANGE MARKET The global market for
level of human and economic development or average
the exchange of national currencies.
living standards in different countries.
FRICTIONAL UNEMPLOYMENT An economic situation
HYPERINFLATION An inflation rate that is very high
in which people find themselves voluntarily out of
and out of control, as result of which confidence in a
work usually for short periods of time as they move
currency can be lost because its real value is eroded
between jobs.
very quickly.
FRINGE BENEFITS Perks or non-financial rewards
HYPOTHECATED TAX Term used to describe a tax on
for employees, such as free medical insurance or
a specific good or activity used to raise revenue for
use of a company car, which nevertheless have
a specific purpose, such as paying for road or public
monetary value.
transport improvements, rather than financing
FULL-TIME EMPLOYMENT A contract for work that general public spending.
involves the employee working the full number of
hours defined by his or her employer as a working
week, which is normally around 40 hours each week I
between Monday and Friday. IMMIGRATION Inward migration, the introduction of
people from overseas into the population of a country.
G IMPERFECT COMPETITION Less than perfectly
competitive market structures in which firms have
GAINS FROM TRADE Economic benefits associated with
some degree of influence over market supply and prices,
international specialization and trade.
usually by each firm differentiating its product from
GENDER IMBALANCE An excess of males or females rival products through brand image and marketing.
in a population, usually caused by factors other than
IMPORTED INFLATION A sustained increase in the
nature, such as sex-selection bias, wars and male-
prices of products bought from overseas producers
dominated inward economic migration.
either resulting from their rising costs or a fall in the
GENDER PAY GAP Differential in average earnings exchange rate against overseas currencies.
between male and female employees, which may be
IMPORT A debit or outflow of money from an economy,
due to occupational choices but also discrimination.
and its balance of payments, to pay for goods and
GENERAL UNION A type of trade union with members services produced by firms located overseas.
drawn from many different industries and occupations.
INCREASING RETURNS TO SCALE A firm or production
GROSS DOMESTIC PRODUCT (GDP) The total market process will have increasing returns to scale if the rise
value of all final goods and services produced within in output following an increase in productive scale is
an economy by its factors of production in a given proportionately more than the increase in inputs. For
period of time. It can also be measured by total example, a firm has increasing returns to scale if it
expenditure on domestically produced goods and doubles its inputs but output more than doubles. As a
services or total factor income result, average unit costs will tend to fall.
GROSS DOMESTIC PRODUCT (GDP) PER CAPITA INDEX BASE YEAR The year used as the reference point
Average income per head. or starting point for a consumer or retail prices index
GROSS EARNINGS The total pay received by an in which the weighted average price of the ‘typical’
employee for his or her labour per week or month, basket of products is given the number 100.
including a basic wage or salary and any overtime, INDEXATION The automatic adjustment of a monetary
piece rate or other performance-related payments. variable, such as wages, taxes, welfare or pension
GROSS VALUE ADDED (GVA) The difference between benefits, by the increase in the consumer or retail
the market value of an output and the cost of non- prices index, so that its value rises at the same rate as
labour inputs used to produce it. GVA is therefore inflation, i.e. so that the real value of the variable is
broadly equal to total profits plus total wages. kept constant.

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INDIRECT TAX A tax that is applied to the value of INVOLUNTARY UNEMPLOYMENT A condition of being
transactions or added to the prices of goods or without work against one’s wishes, because there are
services. The collection and payment of indirect insufficient jobs available.
taxes to government is normally the responsibility of
producers who will then pass on as much of each tax
as they can to consumers through higher prices. J
JOINT-STOCK COMPANY A business organization
INDUSTRIAL ACTION Disruptive activities, such as
owned jointly by its shareholders. Also known as a
a strike or work to rule, that workers carry out to
limited company.
strengthen their bargaining position regarding
demands for improved wage and working conditions,
or to address other grievances. L
INDUSTRY A group of firms specializing in similar goods LABOUR DISECONOMIES Rising unit costs resulting
and services, or using similar production processes. from shortages of labour or increasing disputes with
For example, the electricity industry will consist of trade unions as a firm grows beyond its optimum size.
all generators and suppliers of electricity. Similarly,
LABOUR FORCE The total supply of labour or
the manufacturing industry consists of all firms in all
economically active population in an economy.
industries involved in the production of finished and
semi-finished goods. LABOUR INTENSIVE A production process that uses a
large amount of labour input relative to capital.
INFANT INDUSTRY A new industry with growth
potential. LABOUR MARKET Any set of arrangements that
brings together all those people willing and able to
INFERIOR GOODS Products for which demand tends to
supply their labour with organizations that want to
fall as consumers’ incomes rise.
hire labour.
INFLATION A sustained or ongoing increase in the
LABOUR MOBILITY The ease with which workers can
general level of prices in an economy.
move between different occupations or jobs.
INSOLVENT A term referring to people or organizations
LABOUR PRODUCTIVITY The average output or revenue
unable to pay off their debts.
per worker per period of time.
INTEREST RATE The price of money, i.e. the cost of
LABOUR Human effort used in the production of goods
borrowing money or a reward for saving.
and services.
INTERNAL ECONOMIES OF SCALE Reductions in unit
LAND Natural resources used in the production of goods
costs of production enjoyed by a firm as it grows
and services.
in scale.
LATERAL MERGER Also known as conglomerate merger,
INTERNAL GROWTH An ‘organic’ increase in the scale
this is the combining of two or more firms in different
of production in a firm through the employment of
industries into a single enterprise.
additional factors of production.
LEAN MANUFACTURING Using the most modern
INTERNATIONAL TRADE The movement and exchange
production processes and working practices to
of physical goods such as materials, component
continually reduce costs and waste, improve quality
parts, equipment and finished products as well as
and increase output.
services, ideas, capital, currencies and labour across
international borders. LESS-DEVELOPED ECONOMY A developing country with
a low level of economic development and well-being.
INVESTMENT The purchase of productive assets
by firms. LIQUID ASSETS Financial assets that are ‘near money’,
such as bank deposits, which can be converted into
INVISIBLE EXPORT The sale of a service to an overseas
cash easily and quickly.
resident. Payment received for the service will
be credited to current account of the balance of
payments of that country. M
INVISIBLE IMPORT The purchase of a service from an MACROECONOMICS The study of how a national
overseas producer. Payment for the service will be economy works. It involves understanding
debited from the current account of the balance interactions between total or aggregate demand and
of payments. output and national income, employment and the
general level of prices.

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MALIGN DEFLATION A sustained fall in the general collusion between them, the extent of their product
level of prices in an economy associated with a deep differentiation, and the ease with which new firms
and prolonged economic crisis. can enter the market to compete with them.
MANAGED FLOATING A floating exchange rate system MARKET SUPPLY The total volume or value of a product
that is partially controlled by government through supplied to a market by all its producers.
the sale or purchase of its currency reserves to limit
MASS PRODUCTION The production, usually
an appreciation or depreciation in the value of its
in a continuous flow, of a large amount of
national currency.
standardized products.
MANAGEMENT DISECONOMIES Rising unit costs
MEDIUM OF EXCHANGE Any good or commodity
resulting from an increase in management costs as
generally accepted and used as a money in exchange
a firm’s size increases – for example, communication
for other goods or services.
problems caused by too many layers of management
or too many premises in too many locations to MERGER The combining of two or more business
manage effectively enterprises into a single enterprise.
MANUFACTURING Turning unprocessed natural MERIT GOODS Goods or services, such as education
resources and other unfinished products into and health care, usually provided by a government
other goods. because they can benefit everyone in society.
MARGINAL TAX RATE Economic term to describe a tax MICROECONOMICS The study of market structure and
rate applied to each additional unit of taxable income the behaviour of individual producers and consumers
above a pre-defined income threshold. and therefore what determines market outcomes in
terms of product prices, qualities and quantities traded.
MARKET Any set of arrangements that allows producers
and consumers to exchange goods and services. MINIMUM WAGE LEGISLATION Laws that determine
and set the lowest hourly, daily or monthly wage rate
MARKET CAPITALIZATION The total value of a company
or remuneration that employers may legally pay to
measured by multiplying the number of shares it has
their workers in exchange for their labour.
issued by their current market price per share.
MIXED ECONOMIC SYSTEM An economic system
MARKET DEMAND The total demand for a product from
that combines a market economy with government
all its consumers.
planning and the public sector ownership of resources
MARKET DISEQUILIBRIUM A market outcome, in terms and provision of goods and services.
of price and total quantity traded, which is unstable
MONETARY POLICY A government demand-side policy
and liable to change because market demand and
that involves changes in the interest rate or supply of
market supply are not in balance, i.e. there is excess
money in an economy to manage the overall level of
demand or excess supply.
economic activity.
MARKET ECONOMIC SYSTEM An economic system
MONEY MARKET The market for short-term loans and
in which decisions about how resources are used,
liquid financial assets, such as bank deposits, that can
what goods and services they produce and how they
be converted easily to cash. The market consists of
are allocated, are taken by private sector firms and
all those people or organizations willing and able to
consumers.
supply or loan money and all those willing and able to
MARKET FAILURE These occur when market outcomes borrow it.
are inefficient because the decisions of producers or
MONEY SUPPLY The total value of bank deposits and
consumers fail to allocate resources to the production
notes and coins in an economy.
of goods and services that are worthwhile or result in
wasteful or harmful activities. MORTGAGE A long-term loan for buying property.
MARKET PRICE The equilibrium price for a product in MULTINATIONAL A business organization with
a market, determined where market demand exactly production and other facilities or operations in more
matches market supply. than one country.
MARKET SHARE The proportion of the total sales of a MULTIPLIER EFFECT An effect in economics in which a
product attributable to a firm supplying that market change in spending produces a subsequent change in
output and income greater and more widespread than
MARKET STRUCTURE The characteristics of a market,
the initial change in expenditure.
usually on the supply side, including how many firms
compete for the market, the degree of competition or

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 Complete economics dictionary

N NON-TARIFF TRADE BARRIERS A term used to

describe subsidies, quotas, embargoes, licensing
NATIONAL DEBT The total outstanding stock of regulations, arbitrary standards and all other non-tax
public sector borrowing accumulated over time to trade restrictions.
finance shortfalls of public revenues below public
spending. NON-WAGE FACTORS Aspects of a job other than
the wage rate, such as hours of work or holiday
NATIONALIZATION Bringing a private sector industry entitlement, which make it attractive.
under government ownership and control.
NORMAL GOODS Products for which demand rises as
NATIONALIZED INDUSTRY An industry in an economy consumer incomes rise.
owned and controlled entirely by the government.
NATURAL BARRIERS TO ENTRY Obstacles to
increased market entry by new competitors resulting
O
from capital size and cost advantages of the OCCUPATIONAL IMMOBILITY The inability of workers
existing producer or group of producers supplying to move easily between from one occupation to
that market. another because they lack the skills required. It is
often a feature of structural unemployment.
NATURAL MONOPOLY A market structure in which
there is a single firm controlling the entire market OLIGOPOLY A market structure in which a handful of
supply of a product because it has an overwhelming large firms dominate the market supply.
cost advantage over any other potential market OPEN ECONOMY An economy that engages in free or
structure involving more than one firm. relatively unrestricted trade with other countries.
NATURAL RATE OF POPULATION GROWTH Population OPPORTUNITY COST The benefit foregone by giving up
resulting solely from the difference between the birth the next best alternative use of scarce resources.
and death rate, i.e. excluding net migration.
ORDINARY SHARES Common stock with voting rights
NEEDS Human requirements for life and survival. issued by a limited company.
NEGATIVE EXTERNALITY This occurs when an OVERTIME Additional hours worked, usually during
individual or firm making a decision will not have evenings or weekends, over and above agreed or
to pay the full cost of that decision. That is, the contracted hours, and paid a higher than normal
individual or firm imposes an external cost on other wage rate.
people and organizations that did not agree to the
action or decision that created it. OVERDAFT A short-term loan or credit agreement that
allows a bank customer to overdraw their account by
NET ADVANTAGES (OF AN OCCUPATION) The an agreed amount.
balance of all the advantages and disadvantages of a
particular job or occupation that people will consider OVERPOPULATION An economic condition in which
when deciding whether or not to supply their labour. there are too many people and too few resources.

NET EARNINGS Gross earnings after any personal OVERSEAS AID The voluntary transfer of resources from
income and payroll taxes have been deducted, often one country to the benefit of another, for example
referred to as take-home pay. to help it reduce poverty and improve its level of
economic development. This help may be in the form
NET MIGRATION The difference between the number of of financial or technological assistance, food supplies
immigrants and emigrants to and from a country per and debt relief.
period of time.
OVERSPECIALIZATION Specializing in the production of
NEWLY INDUSTRIALIZED ECONOMY A country that one or a narrow range of products to provide incomes
is undergoing rapid economic development through and jobs thereby leaving the economy vulnerable to a
significant growth in its industries and infrastructure fall in demand for its product(s).
but is yet to display the full range of characteristics
of a modern developed economy. OVERTIME BAN An industrial action that involves
workers refusing to work more than their normal hours.
NOMINAL GDP The total market or monetary value of
the GDP of an economy.
P
NON-PRICE COMPETITION - Rivalry between firms
supplying the same market through advertising and PARTICIPATION RATE The percentage of people of
product differentiation strategies. working age who choose to be economically active in
the labour force.

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PARTNERSHIP A legal agreement between two or more PRICE COLLUSION A group of firms acting together
people, usually no more than 20, to jointly own, to determine or influence the market price of their
finance and run a business, and to share any profits. product through their joint control over market supply.
PART-TIME EMPLOYMENT A contract for work in PRICE COMPETITION Rivalry between firms supplying
which an employee’s working time is substantially the same market based on reducing prices or offering
less than a full working week. discounts for customers.
PENETRATION PRICING A price strategy adopted PRICE CONTROLS Legal minimum or maximum prices
by a firm seeking to gain market entry and set by a government for certain goods or services.
expand sales.
PRICE ELASTIC Consumer demand for a product is
PERFECT COMPETITION A theoretical market structure described as price elastic if a small change in its price
in which there are many firms supplying identical causes a larger proportionate demand response.
products to an equally large number of consumers
PRICE ELASTICITY OF DEMAND The responsiveness
such that no individual firm has any influence over
of consumer demand for a product to a change in
market price.
its price.
PERMANENT CAPITAL Money raised from the sale of
PRICE ELASTICITY OF SUPPLY The responsiveness
shares by a company that it will never need to repay.
of producer supply of a product to a change in
PERSONAL DEBT The stock of total borrowing its price.
accumulated by a person.
PRICE INELASTIC Consumer demand for a product
PERSONAL INCOME TAX A direct tax on a person’s is described as price inelastic if a small change
earnings or income. in its price causes a less than proportionate
demand response.
PERSUASIVE ADVERTISING Television, radio, newspaper
and other commercial promotions through the media PRICE MECHANISM The market mechanism that guides
designed to create or influence consumer wants for decisions taken by different producers and consumers
a product. about how scarce resources should be allocated
between competing uses.
PHYSICAL ASSETS Non-financial assets or physical
products, such as commercial and residential PRICE WAR Deep cuts in prices between a small
properties, that have value and therefore group of large competing firms continually trying
contribute to wealth. to undercut each other to attract customers from
their rivals.
PIECE RATE A fixed payment to labour for each
unit produced. PRIMARY SECTOR Extractive industries or those
producing natural resources.
PLANNED ECONOMIC SYSTEM An economic system
in which the government determines what goods PRIVATE BENEFIT A financial benefit, such as sales
and services to produce, their prices and how they revenue, enjoyed by the person or firm responsible for
are allocated. the action or decision that created it.
POLICY INSTRUMENT A tool a government can use, PRIVATE COST A financial cost, such as the purchase
such as public expenditure, tax, the interest rates or a of a new computer, incurred by the person or firm
regulation, to help achieve its economic objectives. responsible for the action or decision that caused it.
POPULATION PYRAMID A graph that shows the PRIVATE EXPENDITURE Money spent by private
distribution of males and females in various age individuals and firms on consumer and capital goods
groups in a population. and services.
POSITIVE EXTERNALITY This occurs when an individual PRIVATIZATION The sale or transfer of public sector
or firm making a decision will not enjoy the full activities to private sector firms who, because they
benefit of that decision. That is, it provides an have a profit motive, may be able to provide them
external benefit for other people and organizations more efficiently than public sector organizations.
that were not involved in the action or decision that
PRODUCERS People – workers and entrepreneurs –
created it.
involved in productive activities.
PREDATORY PRICING A pricing strategy involving deep
PRODUCTION POSSIBILITY CURVE A graph of the
cuts to prices that is often used by an established
combined maximum possible output of two products an
and dominant firm in a market to deter or destroy
economy can produce efficiently with existing resources
new competition.

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and technology. It shows how much of one product QUOTA A restriction on the volume of an imported good
must be given up to produce more of the other. allowed into a country.
PRODUCTION Using scarce resources to make and sell
goods and services that satisfy the needs and wants R
of consumers.
REAL GDP The value of the total output or income of an
PRODUCTS The outputs from productive activities, and economy after adjusting for changes in price inflation
an economics term also used to collectively describe over time. It is a measure of economic growth in the
goods and services. GDP of an economy assuming prices have remained
PROFIT A surplus of revenue from the sale of outputs constant over time
over the costs of their production. REGIONAL UNEMPLOYMENT Unemployment that is
PROFIT MAXIMIZATION This is the aim of most private disproportionately concentrated in a particular region
sector organizations, to increase to the greatest in an economy.
possible extent the surplus of revenue over costs. REGRESSIVE TAX A tax designed to take proportionally
PROGRESSIVE TAX A tax designed to take less in tax from income as it rises. People on low
proportionally more in tax from a higher income than incomes therefore pay proportionally more in tax
a low income. from their incomes than high-income earners.

PROPORTIONAL TAX A flat tax that takes the same REGULATIONS Legal rules created by a government to
proportion of income in tax from all incomes. control the way something is done or the way people
or firms behave.
PROTECTIONISM The use of trade barriers by
governments to protect their domestic industries and RELATIVE POVERTY An economic condition of having
employment from global competition. fewer resources than others in the same society,
usually measured by the extent to which a person’s or
PUBLIC CORPORATION A business organization created household’s financial resources fall below the average
to perform a public sector function or to operate income level of others in their economy.
under government control, such as a municipal water
company, public hospital or central bank. RESOURCE DEPLETION The using up of non-renewable
natural resources through increasing levels of
PUBLIC EXPENDITURE The amount of money spent production, consumption and exchange.
in total by government organizations. It includes
spending on recurrent costs such as public sector
wages and capital items, including investments in S
public infrastructure such as roads. SALARY An annual rate of pay, often paid to employees
PUBLIC GOODS Goods or services, such as street in professional and other non-manual occupations.
lighting and sea defences, that are provided for free SAVING Deferred consumption or the accumulation
by a government because all consumers will benefit of wealth.
from them whether they pay for these products or
not. It is therefore impossible to charge different SAVINGS RATIO Total savings in an economy as a
individuals or businesses different prices for the percentage of total disposable income.
amounts they consume. SEASONAL UNEMPLOYMENT Joblessness resulting
PUBLIC SECTOR BORROWING REQUIREMENT The from seasonal downturns in demand and economic
amount a government must borrow to cover any activity in particular industries, such as in tourism,
shortfall in public sector revenues below public sector agriculture and construction.
spending in any given period. SECONDARY INDUSTRIES All manufacturing and
PURE MONOPOLY A single firm that controls 100% of construction industries.
the supply of a product to a market. SHARE CAPITAL Money raised by companies for
investment from the sale of shares.
Q SHAREHOLDER A person or organization that owns one
or more shares in a joint-stock company.
QUANTITATIVE EASING A monetary policy action
designed to boost the quantity of money held by SINGLE UNION AGREEMENT An agreement between
banks during an economic downturn so they can an employer and trade unions that one union can
increase lending to consumers to spend. It involves represent all workers at a particular workplace. The
the central bank buying financial assets from banks. arrangement saves time negotiating with only one

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 Complete economics dictionary

union and avoids disagreements arising between TAX BASE The assessed value of income, wealth or
different unions. expenditure that is then made subject to taxation.
SME A small or medium-sized enterprise. TAX BURDEN This measures total tax revenue as a
proportion of the national income of an economy.
SOCIAL BENEFIT The total benefit to society of an
activity, including both its private benefits and TECHNOLOGICAL UNEMPLOYMENT Joblessness caused
external benefits. by the substitution of labour in production processes
by modern, capital equipment.
SOCIAL COST The total cost to society of an activity,
including both its private and external costs. TERTIARY SECTOR Service industries form this sector of
an economy.
SOCIAL ENTERPRISE A firm that uses business
strategies to maximize improvements in social and TOTAL DEMAND The total demand for goods and
environmental well-being rather than maximizing services in an economy. It is determined by consumer
profits for its owners. spending, investment, public expenditure and
spending by overseas residents on exports.
SOLE TRADER Also known as a sole proprietorship, a
sole trader is a business organization owned and TOTAL REVENUE Also known as turnover, total
usually controlled by one person. revenue is the total amount of money received by
a firm from the sale of its goods or services in a
SPECIALIZATION Production involving employees or
given period.
organizations each concentrating their productive
efforts on limited range of tasks or products. TOTAL SUPPLY The total output or supply of all goods
and services in an economy that all producers are
STAGFLATION An economic situation in which both
willing and able to supply.
price inflation and unemployment are rising at the
same time. TRADE The exchange of goods and services, usually
for money.
STATE-OWNED ENTERPRISE A firm or business
organization created, owned and controlled by a TRADE BARRIERS Government measures, such as tariffs
government to carry out commercial activities. and quotas, designed to restrict international trade
and competition.
STRIKE A disruptive action taken by a group of workers
who refuse to continue to work. TRADE DEFICIT This occurs when the value of imports
of goods and services to a country exceeds the value
STRUCTURAL UNEMPLOYMENT Joblessness among
of its exports over the same period.
workers because their skills are out of date and no
longer wanted due to changes in demand patterns TRADE INTEGRATION Increased cooperation or
or technologies that have resulted in the decline of agreement between countries to remove trade
some established industries in an economy. restrictions between each other, with the aim of
securing benefits from increased international
SUBSTITUTES Products that compete to satisfy the same
specialization and trade.
consumer demand, such as butter and margarine.
TRADE LIBERALIZATION The removal of or reduction in
SUNSET INDUSTRY An industry in decline.
trade barriers between countries.
SUPPLY-SIDE POLICY A government policy designed to
TRADE PROTECTION The use of trade restrictions
improve the productive capacity of an economy.
or trade barriers by a country to control or limit
SUPPLY The willingness of a producer or group of imports in order to protect its industries from foreign
producers to make a product available. competition.
SUSTAINABLE GROWTH Growth in real output that TRADE SURPLUS This occurs when the value of
is achieved without depleting natural resources or exports of goods and services from a country
harming the natural environment. exceeds the value of its imports over the same
period.
T TRADE UNION Also known as a labour union, a trade
TAKEOVER The transfer of control of one company to union is an association representing employees in
another through the purchase of its shares. a particular workplace or industry with the aim of
improving their pay and working conditions through
TARIFF A tax levied on the price of an imported product negotiations with employers.
to contract domestic demand for it.

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 Complete economics dictionary

TRANSFER PAYMENTS Payments made by a VISIBLE IMPORT A physical product purchased from a
government to individuals, usually through a social producer overseas. Payment for the product involves
welfare programme, including unemployment the transfer of money overseas and will be debited
benefits, disability allowances and old-age pensions. from the current account of the balance of payments
They are ‘transfers’ because they do not involve of the country receiving the product.
payment for goods or services and are paid to people
VOLUNTARY UNEMPLOYMENT Joblessness resulting from
who are not engaged in productive activities from
people choosing not to continue in paid employment.
tax revenues paid by people and businesses that are
economically active.
W
U WAGE DIFFERENTIALS Differences in rates of pay
between different occupations, industries, locations
UNEMPLOYMENT RATE The proportion of the labour
and group of workers.
force in an economy that is out of work but seeking
employment. WAGE RATE The amount paid to an employee per
period of time worked or per unit of output produced.
UTILITY The satisfaction a person gains from consuming
a good or service. WAGE-PRICE SPIRAL An economic situation in which
workers demand higher wages to compensate them
for the impact of rising inflation on the real value
V of their earnings and in so doing force producers to
VALUE ADDED The increase in the ‘value’ of resources pass on increased wage costs to consumers in higher
used up in production to make goods and services prices,, resulting in even higher wage demands,
consumers are willing and able to buy. and so on.
VALUE ADDED TAX A tax added as a percentage of the WANTS Human desires for goods and services. They
value of goods and services at each stage of their are unlimited.
production. Because firms can deduct the tax they WASTEFUL COMPETITION Product duplication or
pay on the purchase of inputs from the tax they marketing rivalry between competing firms that
collect from the sale of their outputs, the tax only uses up resources without adding value or creating
taxes the additional value they add during production. further sales.
VARIABLE COST A cost of production that varies WEALTH The stock of financial and non-financial
directly with the level of output in a firm. assets a person or a household owns that have
VELOCITY OF CIRCULATION The number of time the monetary value.
fixed amount of notes and coins in an economy are WORKING CAPITAL Money used to pay for day-to-day
exchanged between different people and firms on running costs in a business and invested in stocks of
average over a given period of time. finished and unfinished products.
VERTICAL INTEGRATION A merger between two or WORKING POPULATION The economically active
more firms at different stages of production of the population or labour force in an economy.
same product, such as between a farm and a food
processing company.
VISIBLE EXPORT A physical product sold to consumers
X
overseas. Payment for the product involves the receipt X-INEFFICIENCY Increased costs resulting from
of money from overseas and will be credited to the ‘organizational slack’ or a lack of incentives in a firm
current account of the balance of payments of the that is protected from competition because it enjoys
country receiving the product. significant market power.

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