Economics in Minutes
Page 13
Competition
Situations in which firms compete for buyers with many other firms, driving down prices and profits.
Consumption
Spending on goods in order to directly satisfy the desires of individuals. Spending on a restaurant meal is consumption, whereas the restaurant’s purchase of a new oven is not.
Cost
The amount of money that a firm needs to spend to produce a certain level of output. Costs include expenditure on raw materials and labour.
Debt
Money that is owed by a borrower to a lender. Debts can be incurred by individuals, firms and governments.
Deflation
The opposite of inflation, deflation is a situation in which the general level of prices in an economy is falling.
Demand
The amount of a good or service that buyers are willing to purchase at a particular price. Usually, demand rises when the price falls, but there are exceptions to this pattern.
Direct tax
A tax that is levied on the person who pays it, such as taxes on employees’ incomes, and which is paid directly to the tax authority.
Division of labour
The separation of a production process into steps, each of which is carried out by specialized workers. Division of labour is an important element of modern production methods.
Exchange rates
The price of one currency such as the British pound, in relation to another, such as the US dollar.
Fiscal policy
The setting of levels of taxation and spending by the government in order to influence the level of demand in the economy, and the distribution of income.
Gross Domestic Product (GDP)
The total value of goods and services produced in a country over a year – a common measure of national income.
Human capital
The economically productive capacity of people. Human capital can be enhanced through training and education.
Indirect tax
A tax imposed on goods that are purchased, as opposed to direct taxes on earned income.
Inflation
Increase in the general level of prices – that is, increases in the prices of many goods and services.
Investment
Expenditure on capital goods, such as machines, which are in turn used to make other goods, such as those ultimately purchased by consumers. Firms make investments in order to expand and renew their stock of capital.
Marginal cost
The extra cost incurred by a firm as a result of a small increase in production.
Marginal revenue
The extra revenue earned by a firm as a result of a small increase in sales of its good.
Monetary policy
Actions taken by governments or central banks to influence the amount of money in the economy.
Monopoly
A firm that is the only supplier of a good or service. Monopolists are able to charge higher prices because of the lack of competition.
Oligopoly
A market that is dominated by a handful of large firms, whose decisions may therefore have an influence on each other beyond the normal laws of the market.
Opportunity cost
The cost of an option in terms of the next best alternative. For example, the opportunity cost of investment in new hospital equipment might be computers for a school that could have been bought instead.
Productivity
The efficiency with which raw materials are made into goods. Productivity is higher when more can be produced with less.
Profit
The excess of revenue over costs, and the goal of profit-maximizing firms.
Recession
A period of declining economic output, usually coinciding with rising unemployment and falling prices.
Revenue
The amount of money a firm earns from selling some quantity of its goods.
Saving
Income that is not spent on goods and services, but is instead preserved for anticipated future spending.
Share
Part ownership in a firm. Shares in public companies are traded on stock exchanges, and offer rights to a say in a firm’s management and a share in its profits.
Supply
The amount of a good or service that firms are willing to supply at a particular price. Usually, supply rises when prices increase.
Tariff
Taxes imposed on imports. These raise revenue for the government and reduce demand for foreign goods.
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