Glossary of Terms

Introduction to Economics

·     Capital are useful not in themselves but for the goods and services they can help produce in the future. This includes factory buildings, offices, machinery, IT equipment, which are used to make other goods and services.

·     Command economy is when resource allocation is dictated by government

·     Division of labour refers to a situation where labour specialises in separate tasks and performs that task repeatedly.

·     Economic growth refers to an increase in the productive capacity of the economy or an increase in the real output of the economy.

·     Enterprise is the resource which brings together the other factors of production so that goods and services can be produced, who takes the risks involved in production.

·     Factors of production are resources and include land, labour, capital, and enterprise.

·     Free market economy allows individuals to decide how resources are allocated without interference from government. Resources are allocated after prices change to reflect supply and demand (S = D). This is the price mechanism

·     Functions of money are as a medium of exchange, a measure of value, a store of value, and a method of deferred payment.

·     Labour refers to those involved in the production of goods and services and includes all human effort both physical and mental.

·     Land includes all natural resources, raw materials, the fertility of soil, and resources found in the sea.

·     Mixed economy is when resources are allocated by both the market and by government

·     Non-renewable resources are resources that are depleted after use/ the resource cannot be repeatedly consumed/ eventually run out/ not replenished

·     Normative statements are statements that are concerned with value judgment which cannot be tested.

·     Opportunity cost is the value of the next best alternative forgone when making an economic decision

·     Positive statements are statements of facts which can be scientifically tested.

·     Production possibility frontiers shows the maximum output a country can produce given full and efficient use of the available resources

·     Productivity is output per worker (or other factor of production) per unit of time

·     Renewable resources are resources that are not depleted after use / the resource can be used repeatedly / once used not run out / replenished

·     Scarcity exists because resources are finite whereas wants are infinite

·     Specialization is a system of organization where economic units such as households or nations are not self-sufficient but concentrate on producing certain goods and services.

Microeconomics

How Markets Work

·     A substitute is a good which can be replaced by another good. If two goods are substitutes for each other, they are said to be in competitive demand.

·     Behavioural Economics is a method of economic analysis that applies psychological insights into human behaviour to explain economic decision-making.

·     Complements are goods that are used together. Complementary goods have a negative XED. In other words, if the price of a good rises and the demand for a related good falls, then the goods are complements.

·     Complements are goods which are in joint demand.

·     Consumer surplus is the difference between the amount consumers are willing to pay and the amount that they do pay

·     Cross Price Elasticity of Demand measures the responsiveness of quantity demanded of one good to a change in price of another good.

·     Demand refers to the amount that consumers are willing and able to purchase at a given price over a given period (e.g a week, or a month, or a year).

·     Equilibrium Price is the price which there is no tendency to change (i.e. stable) because planned purchases (i.e. demand) is equal to planned sales (i.e. supply).

·     Equilibrium Quantity is where quantity demanded equals to quantity supplied.

·     Excess Demand is where demand is greater than supply.

·     Excess Supply is where supply is greater than demand.

·     Incentive (Functions of Price Mechanism) Changes in the price provide incentives to buyers and sellers.  A lower price encourages consumers to increase the quantity they demand.  A higher price encourages producers to increase the quantity supplied.  This incentive function means that buyers and sellers respond to the signals being given by the market.

·     Income Effect  is the effect of a change in price on quantity demanded arising from the consumer becoming better or worse off as a result of the price change

·     Income Elasticity of Demand (YED) measures the responsiveness of quantity demanded to a change in income.

·     Indirect taxes are taxes on consumption that increase the supply price (left shift in supply). A specific indirect tax is a tax imposed per unit of consumption.  An ad valorem indirect tax is a tax imposed as a % of the supply price.

·     Inferior goods are goods which have a negative Income Elasticity of Demand. In other words, the demand for this product rises (or falls) when income falls (or rises).

·     Irrational Behaviour is when consumers may not behave rationally. This is because of the consideration of the influence of other people’s behaviour, the importance of habitual behaviour, and consumer weakness at computation

·     Law of Demand – When Price Rises, Quantity Demanded will fall, c.p, v.v.

·     Law of diminishing marginal utility states that as consumption of a product is increased, the consumer’s utility increases but at a decreasing rate.

·     Long run is a period of time where all factors of production can be varied

·     Marginal utility is the change in total utility from consuming an extra unit of a product.

·     Normal goods are goods which have a positive Income Elasticity of Demand. In other words, the demand for this product rises (or falls) when income rises (or falls).

·     Price Elasticity of Demand (PED) measures the responsiveness of quantity demanded to a change in price.

·     Price elasticity of supply measures the responsiveness of Quantity Supplied to change in Price.

·     Price mechanism shows the interaction of demand and supply to allocate resources / use of price changes to allocate resources / how changes in demand or supply will alter price to a new equilibrium. It has three functions -  rationing, providing incentives, and signalling.

·     Producer surplus is the difference between the amount producers are willing to receive and the amount they do receive

·     Rational Consumer – a person who weighs up the costs and benefits to him or her of each additional unit of a good purchased

·     Rational Decision Making is where consumers act to maximise their utility (satisfaction) and firms act to maximise their profits. All costs and benefits are weighed up before a decision is made. 

·     Rationing (Functions of Price Mechanism)           Price helps to ration scarce resources. Resources that are scarce will have a higher price in the free market.  This reduces demand for that resource.  Resources that are more plentiful will have a lower price.  More people will demand that resource.  The price mechanism helps to ensure that there is not excess demand or supply of a resource in the market.

·     Short run is a period of time when at least one fixed factor of production

·     Signalling (Functions of Price Mechanism)           The market price sends signals to buyers and sellers that help to determine their economic behaviour.  An increase in demand (a shift) leading to a higher equilibrium price sends a signal to producers to increase the quantity supplied.  A rise in supply (a shift) leading to lower equilibrium price sends a signal to buyers to increase the quantity demanded.

·     Subsidies are government grants given to producers to encourage output and/or investment.  Subsidies    reduce the supply price and cause a downward (right) shift in the supply curve.

·     Substitutes are goods that provide similar levels of satisfaction, providing the same function. Substitute goods have a positive XED. In other words, if the price of a good rises and the demand for a related good also rises, then these goods are considered as substitutes.

·     Substitution Effect – the effect of a change in price on quantity demanded arising form the consumer switching to or from alternative (substitute) products.

·     Total revenue = price x quantity

·     Total Utility is the amount of satisfaction a person derives from the total amount of a product consumed

·     Utility refers to the level of satisfaction a consumer receives from the consumption of a product or service.

Market Failure

·     Asymmetric information exists when consumers and producers hold different amounts of knowledge. If producers hold more knowledge than consumers, then they might sell goods that consumers do not want and also sell them at a high price

·     Cost benefit analysis is a technique that evaluates current and future costs and benefits to help decide whether or not to proceed with a course of action – in particular a major investment project

·     External benefits or positive externalities are benefits placed on the third party who are not involved in the market process. This is MEB

·     External costs or negative externalities are costs placed on the third party who are not involved in the market process. This is MEC

·     Free riders are those who would consume public goods without paying for them. They mean the market will not provide such goods

·     Market failure is when the market fails to allocate resources efficiently

·     Private benefits are the benefits or utility received by the consumer. This is the demand curve (D = MpB)

·     Private costs are the costs incurred in the process of production – wages, rent, and interest. This is the supply curve (S = MpC)

·     Public goods are goods that demonstrate non-excludability (once provided it is impossible to prevent someone consuming it) and non-rivalry (if one person consumes a public good they do not deny others from consuming the good

·     Social benefits are the sum of external and private benefits -  MSB = MpB + MEB

·     Social costs are the sum of external and private costs -     MSC = MpC + MEC

·     Symmetric Information is where both parties in a transaction have the same information.

·     Valuation problem is the difficulty government have when assessing how many public goods to provide because people undervalue their utility to avoid paying for the goods through tax.

Government Intervention

·     Ad valorem indirect tax is a tax imposed as a % of the supply price.

·     Anti-Competitive Practices (or Restrictive Trade Practices) are methods to reduce competition in the market

·     Cap and trade scheme is where government set a limit or cap to the amount of pollution and provide permits for firms to buy. If a firm wishes to pollute more then they must buy more permits from firms that wish to sell some of their permits

·     Carbon offsetting is a scheme where those who produce carbon dioxide (producers and consumers) can pay for others to reduce carbon emissions elsewhere in the world

·     Collusive practices include market sharing, price fixing and agreements on the types of goods to be produced.

·     Common resource is a resource that has no private ownership. It can be used and exploited by anyone who wishes to use it

·     Competition Policies aim to promote competition, make markets work better and contribute towards increased efficiency and competitiveness of the economy. They are there to promote competition between firms to enable consumers to get as much choices as possible and to ensure consumer welfare is protected. They sometimes act as a surrogate to competition. Examples of authorities who are in charged of this are the Competition and Markets Authority (CMA) in the UK, the Antitrust Commission in the USA, and the European Competition Commission.

·     Competitive Tendering and Contracting Out is when government authorities have  to seek competitive tenders from private companies or groups formed from their own employees which is aimed to to increase the efficiency with which services are delivered.

·     Congestion charge is a tax that motorists must pay when entering a certain area

·     Deregulation is when markets are opened up and entry of new suppliers are encouraged

·     Exclusive dealing occurs when a retailer undertakes to sell only one manufacturer's product and not the product of a rival firm.

·     Government failure occurs when intervention to reduce market failure causes different allocative inefficiency that may outweigh the market failure and cause an overall net welfare loss. Government failure is caused by distortion of price signals, the existence of unintended consequences, excessive administration costs, and information gaps.

·     Indirect taxes are taxes on consumption that increase the supply price (left shift in supply).

·     Maximum price is where the government sets a price ceiling for a product (usually lower than the equilibrium price). It is illegal for firms to charge more than the set price.

·     Minimum guaranteed price is a legally imposed price floor which the normal market price cannot fall below (usually higher than the equilibrium price)

·     Ofcom is the communications regulator that regulates the TV and radio sectors, fixed line telecoms and mobiles, plus the airwaves over which wireless devices operate to ensure that people in the UK get the best from their communications services and are protected from scams and sharp practices, while ensuring that competition can thrive.

·     Office of Rail Regulator (ORR) is responsible for the licensing operators of railway assets and regulates the entire rail industry to ensure healthy competition and to ensure that consumer welfare is protected.

·     Ofgem is the Office of the Gas and Electricity Markets which protects consumer interest by promoting competition, wherever appropriate, and by regulating the monopoly companies which run the gas and electricity networks. 

·     Ofwat (The Water Services Regulation Authority) is the economic regulator of the water and sewerage sectors in England and Wales to promote consumers interests by ensuring that firms provide household and business consumers with a good quality service and value for money and to promote competition in this industry.

·     Performance Targeting is when a goal is set by a government or a regulator for firms to achieve. This is to improve consumer interests or reduce monopoly power.

·     Price capping is putting a limit to the maximum price the firm can charge for their product. In the UK, price capping is known as "RPI-X", where RPI is the rate of inflation and X is the efficiency savings. Another formula for Price Capping is RPI + K where K is the amount that the firm is allowed to increase the price of the product faster than inflation in order for firms to have sufficient funds to invest in the improvement of the quality of the product

·     Private Finance Initiative (PFI) is when private companies will put in the capital for infrastructure and the public bodies will pay for the usage of these infrastructures. i.e. Private funds are obtained for public sector projects.

·     Private property rights are rights of ownership that give owners a reason to preserve resources

·     Privatisation means the transfer of assets from the public (government) sector to the private sector.

·     Quantity discounts is where retailers receive progressively larger price discounts the more of a given manufacturer's product they sell - this gives them an incentive to push one manufacturer's products at the expense of another's in order to widen their own profit margins

·     Rate of Return Regulation (or Profit Capping) is where a price set by taking average costs and adding a % based on an agreed rate of return on capital (profit on capital). Price = ATC + % Rate of Return

·     Refusal to supply is where a retailer is forced to stock the complete range of a manufacturer's products or else he receives none at all, or where supply may be delayed to the disadvantage of a retailer

·     Regulatory Capture is when the regulator is working for the interest of the firms due to the data being attained from the firms themselves. i.e. data used by the governments to make forecasts and to set targets / caps is provided by the firm and is to the advantage of the firm.

·     Renewable energy obligation certificate is an obligation for energy producers to use renewable resources when producing some of their energy

·     Resale Price Maintenance (RPM) is where the manufacturer of the product insists that the product should be sold at a specific retail price

·     Specific indirect tax is a tax imposed per unit of consumption.

·     Subsidies are government grants given to producers to encourage output and/or investment.  Subsidies    reduce the supply price and cause a downward (right) shift in the supply curve.

·     Territorial exclusivity exists when a particular retailer is given the sole rights to sell the products of a manufacturer in a specified area

Theory of the Firm

·       Allocative efficiency is achieved when the value consumers place on a good or service (reflected in the price they are willing to pay) equals the cost of the resources used up in production. This is also known as the Marginal Cost Pricing Solution. When the P = MC or AR = MC condition is satisfied, total economic welfare is maximised.

·       Asset Stripping happens when a firm takes over another company and breaks it up in the most profitable manner to the asset stripper – keeping the profitable part or selling off certain parts at higher prices.

·       Average Cost (AC)  = Total Cost (TC) / Level of Output (Q)

·       Average Fixed Cost (AFC) = Total Fixed Cost (TFC) / Level of Output (Q)

·       Average Revenue (AR) = Price per unit = total revenue / output = TR / Q

·       Average Variable Cost (AVC) = Total Variable Cost (TVC) / Level of Output (Q)

·       Backward Integration is when the purchaser integrates with the suppliers. This enables firms to be closer to the raw materials in the supply chain, enabling them to get a reliable supply source or to cut costs.

·       Barometric Firm Price Leadership is when the price charged by a firm which does not dominate the industry will be followed by the others.

·       Barriers to Entry are anything that prevents potential competitors from entering an industry. For example, economies of scale at high levels, price cutting, high advertising, regulation / legal barriers, high capital start up costs, high sunk costs etc. High economies of scale can be a barrier to entry as small firms will not be able to exploit the economies of scale at low levels of output, disabling them from competing with bigger firms.

·       Cartel is an agreement between firms to operate together. They make agreements amongst themselves as to restrict competition and maximise their own benefit.

·       Collusive Tendering is where two or more firms secretly agree on the prices they will tender for contracts.

·       Conglomerate integration is when two firms with not common interest integrate. 

·       Contestable Market is where there is low sunk costs and low barriers to entry or exit to the market.

·       Copyrights are restrictions on copying written and recorded media

·       Cost-Plus Pricing is the technique adopted by firms of fixing a price for their products by adding a fixed percentage profit margin to the long run average cost of production.

·       Demerger is when firm splits into two or more separate parts to create two or more firms (sometimes also used to described the sale of a small part of a business to another business). Firms demerge because there is a lack of synergy, to create value, and to create more focused companies.

·       Diseconomies of Scale happens when there is a rise in the long run average cost of production as output rises. Diseconomies of scale exist because of the lack of control, co-ordination, and co-operation

·       Dominant Firm Price Leadership is when one firm has a clear dominant position in the market and the firms with lower market shares follow the pricing changes prompted by the dominant firm.

·       Dynamic Efficiency is an improvement in productive efficiency over time. This can be achieved through investments into research and development.

·       Economies of Scale happens when average long run costs fall as output increases.

·       Ethical goals are goals that are associated with the environment, health, and social equality.

·       External diseconomies of scale can occur if an industry grows too fast. If there are too many firms competing for the same resources, this may push up the price of raw materials – increasing the long run average cost.

·       External Economies of Scale arise because of the growth in the size of the industry in which the firm operates. For example, lower training costs because other firms are training workers which they can then employ, government help.

·       External Growth happens when firms integrate with other firms through merger or takeovers.

·       Financial Economies of Scale happens because large firms have a much greater choice of finance; therefore, it is likely to be cheaper.

·       First Degree Price Discrimination is when a firm charges each consumer for each unit the maximum price which that consumer is willing to pay for that unit. This is sometimes known as optimal pricing. 

·       Fixed Cost (Indirect / Overhead Cost) remains constant even though production levels change. For example, capital goods (factories, offices, machinery, plants), rent, advertising & promotion.

·       Forward Integration is when a supplier integrates with the buyer.

·       Franchise (or limited rights to production) is a right given by the government to firms which enables the firm to operate in a certain industry for a certain amount of time.

·       Heterogeneous products are similar products with minimum differentiation, but not exactly the same.

·       Hit and Run is when a firm enters the industry and takes market share away from the incumbent and then leaves the market when it is no longer possible to make any more supernormal profit.

·       Homogenous products are products which are exactly the same (identical), have an infinite number of substitutes, with no branding whatsoever.

·       Horizontal Integration is when 2 firms in the same industry at the same stage of production integrate.

·       Internal Economies of Scale arise because of the growth in the output of the firm. This is due to technical economies, managerial economies, purchasing and marketing economies, or financial economies.

·       Internal Growth (or Organic Growth) is when firms increase their output through increased investment or an increased labour force.

·       Kinked Demand Curve theory is the theory that oligopolists face a demand curve that is kinked at current price, demand being significantly more elastic above the current price than below and the effect of this is a situation of price stability.

·       Large firms (reasons why firms grow) can exploit Economies of Scale, gain more market control, and reduce risk.

·       Law of Diminishing Returns (law of diminishing marginal returns or law of increasing relative cost) states that in all productive processes, adding more of one factor of production, while holding all others constant, will at some point yield lower per-unit returns. This is why the short run AC curve is U-shaped

·       Legal Monopoly is a firm that is considered a monopoly under the legal system of a country. For example, in the UK a firm is said to have Monopoly power if it has more than 25% of market share

·       Limit Pricing is when the existing firm charges a price just below the entry level of a potential new firm to deter entry of new firms.

·       Managerial Economies of Scale happens when bigger firms have more division of labour and specialization; therefore, their workers will be more efficient and therefore, would reduce average cost.

·       Marginal Cost (MC) = Change in Total Cost (∆TC) / Change in Level of Output (∆Q)

·       Marginal Profit is the increase in profit when one more unit is sold or the difference between MR and MC

·       Marginal Revenue (MR) = the change in revenue from selling one extra unit of output = ∆TR/∆Output. The Price Elasticity of Demand of a product is Elastic when Marginal Revenue is above zero (positive) but inelastic when Marginal Revenue is below zero (negative). At the point where MR = 0, Price Elasticity of Demand is Unit Elastic.

·       Market Concentration Ratio is the proportion of market value that is owned by the leading brands or products/companies in the market. X-Firm Concentration ratio is the proportion of the market controlled by the largest X number of firms (Σ market share of n largest firms)

·       Market Share can be indicated by is the percentage of market sales controlled by a certain firm.

·       Marketing economies of scale happens because larger firms are able to lower the unit cost of advertising and promotion perhaps through access to more effective marketing media.

·       Maximax is the strategy in a game of choosing the policy which has the best possible outcome.

·       Maximin is the strategy in a game of choosing the policy whose worst possible outcome is the least bad.

·       Minimum Efficient Scale (MES) is the output level at which lowest cost of production starts.

·       Monopolistic Competition (Monopolistically Competitive Markets) is a market containing many independent producers of similar goods and services (heterogeneous) with very good knowledge held by producers and consumers, with some but no absolute barriers to entry / exit, and where firms have limited ability to make a price but price is largely taken from the market

·       Monopsony is when there is only one buyer in the market.

·       Nash Equilibrium is the position resulting from everyone making their optimal decision based on their assumptions about their rival’s decision. Nash equilibrium is achieved when after one player changes their mind, they will be worse off.

·       Nationalisation is the situation where the government takes ownership of the means of production – the land and the capital.

·       Natural Monopoly exists where long-run average costs would be lower if an industry were under monopoly than if it shared between two or more competitors

·       Niche market is a specialised part of the market e.g. luxury hand-made mobile phones.

·       Non-profit organisation are private firms for which the primary motive is not profit but for other motives such as ethical goals.

·       Normal Profit is the profit that the firm could make by using its resources in their next best use. (TC=TR, AC=AR)

·       Oligopoly is a market dominated by a few producers, each of which has control over the market. It is an industry where there is a high level of market concentration where the largest firms within the market are interdependent with each other. There are significant barriers to entry to the market and the  existence of non-price competition.

·       Overt Collusion is a spoken, open or traceable form of cooperation or collaboration (i.e. collusion) to restrict competition and maximise their own benefit.

·       Pareto Efficiency exists when P=MC in all industries – therefore, it is impossible to make anyone better off without making someone else worse off.

·       Patents are legal protection / rights of an idea or process which acts as a barrier to entry or incentive to invest. This provides the firms with property rights and could receive the rewards for a certain period of time.

·       Penetration Pricing involves the setting of lower prices in order to achieve a larger, if not dominant market share. This strategy is most often used by businesses wishing to enter a new market or build on a relatively small market share.

·       Perfect Competition (Perfectly Competitive Market) is where firms faces a high degree of competition due to the existence of many buyers and sellers, which are free to enter and exit the market, experiences perfect knowledge, and produces homogenous products. 

·       Perfectly Contestable Market is where there is free and costless entry and exit to the market. There are no sunk costs and no barriers to entry or exit.

·       Predatory Pricing is a deliberate price cut below cost to prevent entry or to remove existing firms – this means short term deliberate losses.

·       Price Discrimination is when different prices are set for the same product produced at same cost.

·       Price Takers are firms that have to take the market price. This happens in a Perfectly Competitive Market because none of the firms in this market are large enough to influence the price.

·       Prisoners’ Dilemma explains why collusion tends to break down. If firms collude, they have a tendency to cheat to gain more profits and therefore lead to the breakdown of a collusion.

·       Private sector is a sector where the assets are owned by individuals or private firms / groups.

·       Product Differentiation is the process of distinguishing a product to make it more attractive to a particular target market. This involves differentiating it from competitors' products as well as a firm's own product offerings.

·       Productive Efficiency is when production takes place at lowest cost (AC=MC)

·       Productive Efficiency is when production takes place at lowest cost. (MC=AC)

·       Profit is the difference between revenues and costs. A profit is attained when AR>AC.

·       Profit Maximisation is when Marginal Cost equals to Marginal Revenue (MC = MR).

·       Public sector is a sector where the assets are owned by the government.

·       Purchasing Economies of Scale happens because the larger the firm, the more likely it is able to buy raw materials in bulk which would push down the prices of the materials; thus, reducing the average cost.

·       Pure Monopoly is defined as a single seller of a product. i.e. 100% of market share. Other firms trying to enter the market face absolute barriers to entry.

·       Revenue maximisation means gaining the maximum possible revenue from selling a product. (MR=0)

·       Sales maximisation is to sell as many products as possible, without making a loss. (TC=TR, AC=AR)

·       Satisficing means satisfying or sufficing different stakeholders. Firms which satisfice takes into account a number of different and competing objectives, without attempting to ‘maximise’ any single one. For example, making enough profits to keep shareholders happy.

·       Shut Down Point is where AVC = AR. In the short run, firms will continue to operate as long as price is above the average variable cost of production.

·       Small firms (reasons why firms stay small) may be able to achieve economies of scale if economics of scale are achieved at very low level, may avoid diseconomies of scale, may have low barriers to entry, may be a monopolist in a niche or small market, may attain government support, or simply may stay small because of the desire to remain small (to keep the firm within a family, to reduce management issues, etc).

·       Sunk Costs are costs which are not recoverable when the firm leaves the industry

·       Supernormal Profit = Pure Profit = Economic Profit = Profit over the Normal Profit. (TR > TC, AR > AC)

·       Tacit collusion occurs where firms undertake actions that are likely to minimise a competitive response without making an agreement with each other. Co-operation is implied and unspoken.

·       Technical Economies of Scale happens due to indivisibility, which is a situation where certain things cannot be divided. Therefore, some firms are unable to make full use of their machinery unless they increase their output.

·       The Optimum Level of Production is the level of production where Productive Efficiency is said to exist.

·       Third Degree Price Discrimination is where a firm divides consumers into different groups and charges a different price to consumers in different groups, but the same price to all consumers within a group. The conditions for price discrimination to be successful is that the different groups / buys have to have different elasticities for the product, low cost of keeping the market separate, and no arbitrage.

·       Total Cost (TC) = Total Variable Cost (TVC) + Total Fixed Cost (TFC)

·       Total Revenue (TR) = Price X Quantity

·       Variable Cost (Direct / Prime Cost) varies directly with output. When production increases, variable cost increases, vice versa. For example, raw materials.

·       Vertical Integration is when 2 firms at different production stages in the same industry integrate.

·       X-Inefficiency (Organisational Slack) is when a firm operates within rather than on its average cost boundary.

Labour Markets

·       Backward Bending Supply Curve is when above a certain wage rate, as the wage rate rises, workers are actually willing to less, instead of more.

·       Bilateral Monopoly is a scenario in a labour market in which there is a monopoly supplier of labour (i.e. a trade union) and a monopsony buyer of labour. The wage rate will depend on which of the monopoly or the monopsony is stronger in terms of relative bargaining power.

·       Demand for labour is the number of workers that are demanded at any given wage rate

·       Derived demand is when the demand for a product comes from the demand of another  product. Labour demand is considered as derived demand as the demand for labour comes from the demand of the final product. Eg, the demand for toy makers comes from the demand for toys.

·       Discrimination is the different treatment of people as a result of factors such as age, gender, race, sexual orientation, ethnicity

·       Economic Rent is a payment or other benefit received above and beyond what the individual would have received in his or her next best alternative (or reservation option)

·       Gender pay gap is calculated as the difference between average hourly earnings (excluding overtime) of men and women as a proportion of average hourly earnings (excluding overtime)

·       Geographical immobility exists when labour is unable or unwilling to transfer from one region to another to undertake work

·       Geographical mobility is the ability for workers to move from one location to another location to find work

·       Gig economy usually refers to businesses that operate digital platforms/apps – which allow individuals to undertake jobs, or ‘gigs’, for end-users. For example, “gigs” through Uber and Deliveroo.

·       Human capital is a measure of individuals’ skills, knowledge, abilities, social attributes, personalities and health attributes.

·       Income effect (of labour supply) is the effect of a change in income on an individual’s supply of labour. The income effect explains the backwards bending section of the labour supply curve – above a certain wage rate, as the wage rate rises, workers can afford to work for fewer hours whilst maintaining their level of income.

·       Individual Bargaining is a negotiation between an individual employee and an employer, usually in relation to pay and working conditions.

·       Informal labour markets (or the “grey” market, shadow economy, or black economy) is the part of the economy that is not taxed or regulated by government, and therefore does not feature in the GDP statistics for that country.

·       Labour Flexibility is the speed and ability of a labour market to respond to a change in the economy. Flexibility can refer to flexibility in terms of changing occupation / skills, number of hours worked, pay arrangements and so on.

·         Marginal product (MP) is the additional (extra) output as a result of employing one more worker.

·         Marginal revenue product of labour (MRPL) is the extra revenue generated when an additional worker is employed.

MRPL = marginal product of labour X marginal revenue

·         Maximum wage is a wage that is usually set below the equilibrium wage rate. In theory, the outcome would be an excess demand for labour, or a labour shortage. The maximum wage argument has often been used for the wages of CEOs or company directors to reduce inequality.

·         Monopsony labour market is a market structure in which there is a single powerful buyer of a particular type of labour. For example, the main buyer of the labour of doctors and nurses is the NHS. In the case of the labour market, a monopsony employer will tend to pay lower wages and employ fewer people (than in a highly competitive labour market.

·       National minimum wage (since April 2016, UK called this a National Living Wage) is a legally set floor wage that workers must be paid per hour.  The wage rate per hour differs depending on the age of the worker.

·         Non-pecuniary influences on labour supply are factors other than wages or money that influences an individuals willingness and ability to work. For example, working conditions, the amount of leisure time, the facilities available at work, the sociability of the hours etc. Also known as non-monetary factors.

·       Occupational immobility exists when labour is unable to transfer from one job to another owing to a lack of required skills

·       Occupational mobility is the ability for workers to transfer from one job type to another job type. This depends on the level of transferable skills.

·         Real wage is the hourly rate of pay adjusted for inflation. Real wages take into account inflation, so show how much purchasing power a pay packet has in a way that’s comparable to previous years.

·         Replacement Ratio is the proportion of your income in your working life that you need to maintain the same level of living standards in your retirement.

·         Reservation Wage is the wage below which a worker will not work.

·         Strikes (or Industrial Actions) are actions taken by a trade union in which union members do not work, usually due to grievances or concerns over working conditions or pay.

·         Substitution Effect (of Labour Supply) is when the change in income will lead to change in the desire for substitute activities of working on an individual’s supply of labour. The substitution effect explains the upwards sloping section of the labour supply curve – as the wage rate rises, workers are willing to work more hours and substitute away from their leisure time, because the opportunity cost of leisure time rises with a higher wage rate.

·       Supply of labour is the number of people who are willing to work in a certain job at any given wage rate

·         Trade union is an organised group of employees who work together to represent and protect the rights of workers, usually by using collective bargaining techniques.

·         Unemployment Trap is A situation in which there is no incentive for someone who is unemployed to start working because the combined loss of benefits and need to pay income tax would result in them being worse off.

·         Wage differentials is described as the difference in wages between workers with different skills in the same industry, or between workers with comparable skills in different industries or localities.

·       Wage Elasticity of Labour demand measures the responsiveness of demand for labour (employment) when there is a change in the wage rate.

·         Wage Elasticity of Labour Supply is the responsiveness of the supply of labour to a change in the wage rate of labour.

·         Zero hours contracts is a work contract that do not guarantee a minimum number of working hours each week.

Macroeconomics

Macroeconomic Indicators

·       Actual economic growth is an increase in the real value of output.  That is, an increase in constant price GDP (current price GDP minus the effects of inflation).

·       Balance of Payment is a set of accounts which record transactions between the economy of one country and the rest of the world. It consists of the Current Account & the Capital and Financial Account.

·       Capital and Financial Account records all international purchases and sales of assets. This could include items such as real estate transactions, corporate stocks and bonds, government securities, and ordinary commercial bank deposits. Both private and official (government) transactions are recorded in this account.

·       Claimant Count counts the number of people claiming unemployment benefits (JSA).

·       Classical Unemployment happens when the minimum wage is too high, when there is an excess supply of labour above the equilibrium wage.

·       Competitiveness is the ability to sell goods and services abroad in the face of other sellers overseas.

·       Consumer Price Index (CPI) and Retail Price Index (RPI) are used to measure inflation. Both measures are an index that measures the change in average prices in an economy over a year where a representative basket of goods and services used by average households is recorded. Average prices are calculated through a survey of average prices is recorded and referenced to a base year. Items are weighted according to the proportion of spending on each production. The proportion of spending is based on the Family/Household/Consumer Expenditure Survey (1)

·       Controlling Interest can be defined as 10 percent of more of the ordinary shares or voting power of a firm.

·       Cost-push Inflation is caused by rising costs of production which decreases Aggregate Supply.

·       Current Account Deficit is when more money is flowing out of the country than is flowing in due to trade in goods, trade in services, flow of investment income, and flow of transfers.

·       Current Account records payments for transactions between countries in the present year (other than investments or speculation) and comprises of the trade in goods, trade in services, investment income (interest, profits, and dividends) and transfers (donations to foreign governments)

·       Current Account Surplus is when more money is flowing in of the country than is flowing out due to trade in goods, trade in services, flow of investment income, and flow of transfers.

·       Current Transfers represent the provision (or receipt) of an economic value by one party without directly receiving (or providing) a counterpart item of economic value. In plain terms a transaction representing ‘something for nothing’ or without a quid pro quo. Transfers can be in the form of money, or of goods or services provided without the expectation of payment. General government transfers include receipts, contributions and subscriptions from or to European Union (EU) institutions and other international bodies, bilateral aid and military grants.

·       Cyclical Unemployment (also known as Demand-Deficient Unemployment) is when the lack of spending in the economy (lack of demand in the economy) causes the demand for labour to be low; therefore, causing unemployment. This is usually common in a recession.

·       Deflation is a fall in general level of prices.

·       Demand led growth is when the economy grows due to increases in Aggregate Demand. This could be caused by higher consumption, investment, government spending, or net exports.

·       Demand-pull Inflation is caused by increases in Aggregate Demand.

·       Deterioration on current account is when the value of the current account falls

·       Disinflation is a fall in the rate of inflation, so prices are rising but more slowly.

·       Economic Growth is an increase in actual or potential output of an economy. This could be measured by an increase in GDP values.

·       Emigration is when people exit a country for long-term stay.

·       Exchange Rate is the amount of one currency that can be bought with a unit of another currency. I.e. it is the price of one currency expressed in terms of another. For example, in 2007, £1 would have bought €1.41.

·       Foreign Direct Investment (FDI) is flows of money to purchase a controlling interest in a foreign firm.

·       Frictional Unemployment is where people are between jobs.

·       GDP per capita (per head) is total GDP divided by the population.

·       Gross Domestic Product (GDP) is the total value of goods and services produced within a country in a given time period.

·       ILO measure of unemployment calculates the rate of unemployment through the Labour Force Survey (LFS), which is survey asking a sample of people aged 16-65 whether they have been of work over the last 4 weeks and are ready to start within 2 weeks.

·       Immigration is where people enter a country for long-term stay.

·       Improvement on current account is when the value of the current account rises

·       Income Transfers are the income from factors of production abroad and the income paid out to foreign owned factors of production in the country

·       Index Number is a number shown relative to another number. The actual figures are removed and just the relative difference is shown. A base year is the point of comparison between price levels in different time periods and the base year is always given the value of 100.

·       Inflation is a persistent rise the general price level.

·       Inflation Target is the rate of inflation that policymakers believe is a stable and healthy level of inflation in an economy. In the UK, the inflation target is 2%±1 CPI and it is the remit of the Monetary Policy Committee (MPC) of the Bank of England (BoE) to ensure that this target is met.and the European Central Bank (ECB) aims at inflation rates of below, but close to, 2% over the medium term.

·       Job Seeker’s Allowance (JSA) is a payment made to people who are willing and able to work but are not currently in employment.

·       Labour force participation rate is the percentage of the labour force that is either employed or unemployed but is actively seeking work

·       Negative Output Gap happens when the actual level of output is lower than the potential level of output.

·       Nominal values means that inflation has not been taken into account. Nominal values are sometimes referred to as “current prices”.

·       Non-Price Competitiveness is the ability to sell goods and services abroad due to factors that makes a product desirable besides price factors such as quality and after sales services.

·       Other Investment is investment other than direct and portfolio investment. It includes trade credit, loans, purchases of currency and bank deposits.

·       Output gap is the difference between the actual level of output and the potential level of output.

·       Portfolio Investment includes flows of money to purchase foreign shares of less than 10% of the company.

·       Positive Output Gap is an inflationary gap. It indicates excessively high demand and that businesses and employees must work beyond their maximum efficiency level to meet the level of demand.

·       Potential economic growth is an increase in the maximum level of output.  It can be shown by an increase in the full employment level of income as the AS curve shifts to the right.

·       Price Competitiveness is the ability to sell goods and services abroad due to lower prices. This could be caused by lower per unit cost of production, lower inflation rates, or lower exchange rates.

·       Purchasing Power Parity (PPP) exists when a given amount of currency in one country, converted into another currency at the current market exchange rate, will buy the same bundle of goods in both countries.

·       Real values means that inflation has been taken into account. Real values are sometimes referred to as “constant prices”.

·       Recession is when an economy has two consecutive quarters of negative economic growth.

·       Relative export prices are the export prices of a country’s goods and services compared to the export prices of her main trading partners.

·       Seasonal Unemployment is where people are out of work for some periods of the year, or example ski instructors in the summer.

·       Short-term Speculative Flows (Hot Money) are flows of capital where speculators invest abroad in order to obtain the highest return in the short run. It is very risky to the recipient country as speculators may quickly sell shares and other financial assets if a short-term profit has been made leading to the collapse of the economy.

·       Standard of living is a measure of the quality of life. The measure can include physical assets and consumption, and less easily measured variables such as happiness, lack of stress, length of hours worked, lack of pollution, capacity of houses etc.

·       Structural Unemployment is where unemployment exists due to the decline of certain industries and workers skills does not match the demand in the economy. This happens due to the occupational immobility of the labour force.

·       Supply led growth is when the economy grows due to increases in Long Run Aggregate Supply. This could be caused by higher quantities or qualities of factors of production and/or an improvement in levels of technology.

·       Trade Balance is the difference between Imports and Exports, of both visible (goods) and invisible (services) products.

·       Trade Deficit is when Imports is more than Exports

·       Trade Surplus is when Exports are more than Imports.

·       Underemployment is when people have jobs but work less hours than they would like to or work in jobs that require skills that are lower than their skill and qualification levels.

·       Unemployment is a situation where people are looking for work but unable to find it.

·       Unit Labour Costs is the cost of labour per unit of output

Macroeconomic Equilibrium

·     Aggregate Demand (AD) is the total amount of goods and services demanded in the economy at a given time and price level. It is the sum of consumption, investment, government expenditure, and net exports. AD = C + I + G + (X – M)

·     Aggregate Supply is the total planned output of goods and services in an economy at a given time and price level.

·     Animal Spirits is the state of confidence or pessimism held by consumers and businesses.

·     Asset is an accumulation of wealth; factors which can be used to provide income in the future.

·     Circular Flow of Income shows the flow of money around an economy from households to firms and vice versa and also the injections and leakages into and from an economy.

·     Consumption (C) is spending by households on goods and services. This is the main component of UK’s Aggregate Demand (about 65%).

·     Corporation Tax is a tax on profits that firms make.

·     Government Bureaucracy (or Red Tape) is the level of government regulation and paperwork that is required to make any business decisions.

·     Government Spending (G) is expenditure by the government of various goods and services.

·     Income is a flow of money, eg. Wages.

·     Income Tax is a tax on incomes that workers make.

·     Injections are the inflow of money into an economy. These comprises of Investments, Government Spending, and Exports.

·     Interest Rate is the cost of borrowing or the reward for saving.

·     Investment (I) is an increase in capital stock.

·     Leakages, also known as Withdrawals are the outflow of money from an economy. These comprise of savings, taxation, and the money spent on imports.

·     Long Run Aggregate Supply depends on the quantity and quality of factors of production, and the level of technology available.

·     Marginal Propensity of Import (MPM) is the change of imports by economic actors in the economy due to a change in income. 

·     Marginal Propensity to Consume (MPC) is the change of spending by economic actors in the economy due to a change in income.

·     Marginal Propensity to Save (MPS) is the change of savings by economic actors in the economy due to a change in income.

·     Marginal Propensity to Tax (MPT) (or sometimes known as Marginal Tax Rates) is the change in tax payments due to a change in income. MPT = Change in Taxes / Change in Income

·     Marginal Propensity to Withdraw (MPW) is the change of withdrawals by economic actors in the economy due to a change in income. It is the total of the Marginal Propensity to Save, Marginal Propensity to Tax, and Marginal Propensity to Import.

·     Multiplier is when an injection into an economy leads to a more than proportionate increase in the national income. This is because an injection leads to multiple rounds of spending. The size of the multiplier depends on the economy’s Marginal Propensity to Consume or the Marginal Propensity to Withdraw.

·     National Income = National Expenditure = National Output

·     Net Exports (X-M = Xn) is the value of exports minus the value of imports of a country.

·     Short Run Aggregate Supply depends on the costs of production.

·     Spare Capacity (Negative Output Gap) is where there are unemployment resources in an economy.

·     Wealth Effect is the effect on spending when asset prices changes.

·     Wealth is a stock of assets e.g factors or land.

Macroeconomic Policies

·     Austerity measures are when the government cuts government spending and increase taxes to reduce the budget deficit and national debt.

·     Automatic Stabilisers (non-discretionary fiscal policy) are changes in government spending or in tax revenue which occur automatically, without deliberate action by the government.

·     Budget deficit (sometimes called a fiscal deficit or a public sector deficit) is when the level of government spending is greater than the level of taxation. If G>T then the government must borrow.

·     Budget Surplus (sometimes called a fiscal surplus or a public sector surplus) is when the level of government spending is greater than the level of taxation. If G>T then the government must borrow.

·     Cash hoarding is when asset purchases have improved the liquidity of banks and pension funds but banks have been happy to ‘sit on the cash’ rather than lending to businesses and consumers.

·     Crowding out of private sector investment happens if the government borrows too much, causing fewer funds remaining for the private sector borrow which may lead to less investment

·     Deleveraging is when commercial banks are using the extra money they have received to reduce the amount of existing debt before starting to lend out again.

·     Demand side policy is economic policy to manipulate the level of aggregate demand to achieve one or more of the macroeconomic objectives. 

·     Demand-side policies are policies take by the government to shift the aggregate demand curve of the economy. The two types of demand-side policies are fiscal policy and monetary policy.

·     Deregulation is when markets are opened up and entry of new suppliers are encouraged

·     Direct tax: Tax taken from income or wealth

·     Fiscal Drag: when inflation and earnings growth may push more tax payers into higher tax brackets

·     Fiscal policy is policy concerned with the government’s budget.  It involves the level and types of government spending and the level and types of taxation. An increase in G and/or a cut in T will increase the AD.  A cut in G and/or and increase in T will reduce the AD.

·     Fiscal policy transmission mechanisms are the processes by which a change in government spending (G) and/or taxation (T) affect the equilibrium level of national income.  Fiscal policy transmission mechanisms work through the multiplier effect.

·     Fiscal stimulus are measures where the government increases government spending and cuts taxes to stimulate spending in the economy.

·     Improving infrastructure i.e. capital assets of the economy such as motorways and internet connection could also improve the economy’s productivity and thus its aggregate supply.

·     Indirect tax: A tax on expenditure

·     Keynesian Approach is the view that there can be equilibrium unemployment and governments can take action to stimulate Aggregate Demand to achieve long-term growth and employment.

·     Monetary policy is the manipulation of monetary instruments to affect the supply of money in the economy such as changing the base interest rates or quantitative easing.

·     Monetary transmission mechanisms are the processes by which interest rate changes affect the level of aggregate demand. 

·     National Debt is the accumulated amount of money that a government has borrowed and has to be paid back.

·     Neo-Classical Approach is the view that markets work best if left to itself and would work best without government intervention.

·     Privatisation means the transfer of assets from the public (government) sector to the private sector.

·     Progressive tax (progressivity) : As income rises, the proportion of income paid in tax will increase. Ie. an increased income will lead to an increase in  average rate of tax. This must mean a rising marginal tax rates.

·     Providing incentives can make resources more productive; thus shifting the Aggregate Supply. For example, cutting corporation taxes, reducing income taxes, providing subsidies etc.

·     Quantitative easing (QE) is an unconventional monetary policy used by central banks to stimulate the national economy by injecting liquidity into the economy when standard monetary policy has become ineffective. A central bank implements quantitative easing by buying financial assets from commercial banks and other private institutions.

·     Regressive tax (regressivity): As income increases a lower percentage of income paid in tax

·     Supply side policies are designed to increase incentives in labour and product markets to increase productivity and productive capacity.  The long run aggregate supply will then shift to the right.

·     Supply-side Policies involve any attempt by the government to shift the Long Run Aggregate Supply (LRAS) to the right.

·     Tax free allowance: Amount of income that can be earned before income tax becomes payable.

·     Tax thresholds/tax bands: The levels of income at which the marginal rates of tax change.

International Economics

·       Administration and technical barriers are when deliberate attempts are made to increase costs involved to foreigner exporters through various bureaucratic or procedural measures. In other words, increasing red tape for imports.

·       Appreciation of a currency is when the value of a currency rises due to market forces.

·       Common External Tariff (CET) is when countries within a trading bloc have the same tariff to non-members of the bloc. This is also known as “tax harmonisation”

·       Common Market constitutes of a Customs Union plus free movement of capital and labour.

·       Comparative Cost Advantage (CCA) is when a country can produce a good/service at a lower opportunity cost than another country.

·       Customs Union constitutes of a Free Trade Agreement plus a common external tariff i.e. member countries agree to reduce tariff barriers amongst themselves and they have a Common External Tariff (CET).

·       Depreciation of a currency is when the value of a currency falls due to market forces.

·       Devaluation of a currency is when the value of a currency is deliberately reduced by the government to favour exports and disfavour imports.

·       Dumping is selling goods internationally below domestic costs (inter predatory pricing).

·       European Union is a type of a Common Market which currently consists of 27 member countries. Members states of the European Union enjoys free mobility of goods, capital, and labour, and are bounded by certain European Union-wide laws.

·       Eurozone is a type of Monetary Union which currently consists of 17 member countries which uses the Euro currency and whose monetary policy is controlled by the European Central Bank (ECB).

·       Exchange rate manipulation is when the government manipulates the value of the domestic currency through a devaluation to favour exports and disfavour imports.

·       Exchange Rates is the price of once currency in terms of another.

·       Fixed Exchange Rate System where there is a chosen maximum and minimum price / exchange rate and intervention takes place to maintain that rate.

·       Floating Exchange Rate system involves allowing the rate of exchange to be determined by market forces with no intervention by government and monetary authorities.

·       Free Trade Area (FTA) is where member countries agree to reduce tariff barriers (and at times abandon tariffs completely) amongst themselves.

·       Globalisation can be defined as the increased flow of goods, services, capital and labour between a growing numbers of countries.

·       Infant Industries are young and new industries that might still be inefficient and therefore might require protection from the government.

·       J-Curve Effect is when a devaluation of a currency will lead to an initial deterioration of the trade balance before an improvement due to contracts having to be fulfilled and the inability to find substitutes in the short run.

·       Marshall-Lerner Condition states that a devaluation will result in an improvement on current account only if the combined elasticities of demand for exports and imports are greater than 1.

·       Monetary Union constitutes of a Common Market plus a common currency, common monetary policies, and some common institutions.

·       Most Favoured Nation (MFN) clause is that countries should extend lowest agreed tariff with one country to all other countries under WTO membership rules.

·       Offshoring refers to companies transferring manufacturing to a different country.

·       Outsourcing refers to companies using another company to operate or complete part of their production process.

·       Protectionism is when policies are implemented to reduce the value of imports (or possibly increase the value of exports)

·       Public Procurement is when the government of a certain country diverts spending towards domestically produced goods. 

·       Quota is a physical limit on the amount or volume of a specific import

·       Retaliation is when protectionist policies imposed by one country is responded with protectionist policies by another country.

·       Revaluation of a currency is when the value of a currency is deliberately increased by the government.

·       Sunset Industries are dying industries whose collapse might lead to rapid industrial decline and unemployment.

·       Tariffs are taxes on imports to increase supply price and reduce the quantity and value of imports.

·       Terms of Trade measures the price of a country’s exports relative to the price of its imports.

·       Trade Creation is a movement away from high cost imports to low cost imports.

·       Trade Diversion is a movement away from low cost imports to high cost imports

·       Trading Bloc is a group of nations who have made bilateral or multilateral agreement regarding at least, trade. 

·       Transfer Pricing refers to the price that has been charged by one part of company for products and services it provides to another part of the same company. This system enables TNCs to declare profits in the country in which corporation tax is lowest.

Inequality and Poverty

·       Absolute Poverty occurs when human beings are not able to consume sufficient necessities to maintain life such as food, shelter, and clothing. The World Bank’s Absolute Poverty Threshold is $1.25 at PPP.

·       GINI Coefficient shows the level of inequality in the society. The higher the GINI coefficient, the more unequal the distribution of income is. If every person has equal income, the GINI coefficient is 0. If the GINI coefficient is 1, then one person has all the income whilst everyone else has no income.

·       Income is a flow of factor incomes to households such as wages and earnings from work; rent from the ownership of land and interest & dividends from savings and the ownership of shares

·       Line of Perfect Equality is a 45 degrees line that shows a perfectly equal society.

·       Lorenz Curve is the curve that shows the distribution of income between the various proportions of the society. The further the Lorenz curve lies below the line of equality, the more unequal is the distribution of income.

·       Relative Poverty is when people are at the bottom end of the income scale. They are considered in poverty as compared to the rest of the society.

·       Wealth is a stock of financial and real assets such as property, savings in bank and building society accounts, ownership of land and rights to private pensions, equities, bonds etc.

Development Economics

·       Ageing population is when the median age of the population is rising due to rising life expectancy and/or low birth rates.

·       Aid is when help in the form of grant, soft loans, or tied aid is given by richer nations to underdeveloped nations to facilitate growth.

·       Buffer stock scheme is when there is intervention by a government or a similar agency to buy or sell a commodity to reduce price fluctuations.

·       Capital Flight is when assets and/or money rapidly flow out of a country,

·       Commodity or primary commodity is a good that is produced mostly during the first stage of production.  Examples may include oil, agricultures such as wheat, barley and cotton as well as metals such as gold and copper.

·       Corruption is when the rule of law is weak and where economic activity is mostly conducted through bribes.

·       Cronyism is when government positions and benefits are given to friends or supporters of leaders.

·       Debt relief is the partial or total forgiveness of debt, or the slowing or stopping of debt growth, owed by individuals, corporations, or nations.

·       Dependency Model looks as underdevelopment as the result of unequal relationships between rich developed capitalist countries and poor developing ones. In this model the responsibility for lack of development within LDCs rests with the DCs. Advocates of the dependency theory argue that only substantial reform of the world capitalist system and a redistribution of assets will 'free' LDCs from poverty cycles and enable development to occur.

·       Economic Development is the process of improving standards both in material (measured through income) and non-material aspects (such as education, healthcare, environmental standards etc).

·       Economic Growth is the percentage change in the level of real output of an economy. In other words, an change in GDP.

·       Export-Led Growth is where economic growth is stimulated by increasing exports.

·       Fair Trade Scheme is a scheme that tries to ensure that producers should receive a fair price – which would guarantee farmers a specific price and therefore a higher and more stable income, fair working conditions – for example, no child labour, and protection of the environment – sustainable production without much environmental degradation

·       Foreign Currency Gap is when a country has no export earnings to garner enough foreign currency. This will disable the economy to import enough capital goods and services which could stimulate economic growth.  

·       Grants are where a sum of money is given to Third World countries without them having to pay it back. It could also be in the form of technical expertise, scholarships, or humanitarian aid.

·       Guaranteed minimum price for farmers is the minimum that they will receive for their output. Market supply is manipulated using buffer stocks so that the equilibrium price is the guaranteed price

·       Harrod-Domar Model suggests that the economy's rate of growth depends on the level of saving and the productivity of investment i.e. the capital output ratio. Therefore, to encourage growth, savings needs to be increased so that investments into capital productivity can increase as well.

·       Human Development Index (HDI) is a composite measure of economic development which measures progress in the three basic dimensions—health, knowledge and income. The measurements used to create this index are: Dollar GNI (GNI) per head at purchasing power parity rates (PPP) (Not GDP); Expected Years of Schooling for a School-Age Child and the Mean Years of Prior School for adults aged 25 and older; Life span (Expectancy)

·       International Monetary Fund (IMF) has the objective of ensuring greater world liquidity to maintain national economies and allow for free trade. They do this by providing conditional loans to countries facing liquidity problems.

·       Lack of Human Capital is when an economy lacks the stock of competences, knowledge and personality attributes embodied in the ability to perform productive labour.

·       Lewis Model of Structural Change is a model in which the economy is split into a rural agricultural sector and an urban industrial sector. Development is promoted by the transfer of surplus labour away from the agricultural sector, attracted by the higher wages in manufacturing industry. This will then lead to higher incomes, higher savings, and therefore higher investments.

·       Marshall Plan, officially the European Recovery Program, was the large-scale economic American program of cash grants to Europe (with no repayment).

·       Microfinance schemes provides financial services to micro-entrepreneurs and small businesses, which lack access to banking and related services due to the high transaction costs associated with serving these client categories.

·       Millennium Development Goals form a blueprint agreed to by all the world’s countries and all the world’s leading development institutions. This United Nations led effort brings together governments, civil society and other partners to ensure development all around the world. The eight goals are: eradicate extreme poverty and hunger; achieve universal primary education; promote gender equality and empower women; reduce child mortality; improve maternal health; combat HIV/AIDS, malaria, and other diseases; ensure environmental sustainability; and to develop a global partnership for development.

·       National Debt is the accumulated amount of money that a government has borrowed and has to be paid back. Debt Service is the interest payable on the debt.

·       Neo classical theory sees underdevelopment as the result of the government's inefficient utilisation of resources and state intervention in markets through regulation of prices. The neo classical lobby argue that government control inhibits growth because it encourages corruption, inefficiency and offers no profit motive for entrepreneurship. Only when governments adopt policies that aim to free up markets and improve the supply side, will the economy grow and development occur.

·       Nepotism is when government positions and benefits are given to relatives of leaders.

·       Poor Governance and Civil Wars is when there are domestic occurrences of violence which destroys not only the physical infrastructure but also the social infrastructure.

·       Poor Infrastructure is when there is a lack of infrastructure to facilitate growth. This includes Physical Infrastructure (Roads, Rails, Telecommunication Lines etc), Financial Infrastructure (Banks, Stock Markets etc), and Legal Infrastructure (Property Rights, Credible Courts etc)

·       Prebisch-Singer Hypothesis states that the terms of trade of developing countries producing primary products will fall relative to those of developed countries who produces manufactured products as the demand for manufactured products are income elastic while the demand for primary products are income inelastic.

·       Primary Product Dependency is when economies rely on the production and sales of raw materials to generate growth and income.

• Privatisation is a supply side approach to bringing about increases in economic growth. Supply side economics is the application of microeconomic policies intended to increase the overall supply of goods and services. By increasing the efficiency of the factor inputs in the production process output should increase.

·       Rostow’s 5 Stages of Growth are Stage 1 Traditional Society, Stage 2 Transitional Stage (the preconditions for takeoff), Stage 3 Take Off , Stage 4 Drive to Maturity , Stage 5 High Mass Consumption.

·       Soft Loans is where money is borrowed to third world countries either at commercial interest rates or maybe a lower rate of interest than the commercial rate.

·       Sustainable Development Goals is an extension of the Millennium Development Goals which urgently call for action by all countries - developed and developing - in a global partnership to ensure sustainable development. They recognize that ending poverty and other deprivations must go hand-in-hand with strategies that improve health and education, reduce inequality, and spur economic growth – all while tackling climate change and working to preserve our oceans and forests.

·       Tied Aid is where grants or loans are given with conditions that the recipient country is prepared to fulfil certain conditions such as to use the aid to purchase goods and services from the donor country or if they agree to reform the government or economy. For example, during the 1980s the UK government devoted some of its aid budget to backing British exports.

·       Tourism could be used to stimulate growth as it has a relatively high income elasticity of demand, valuable earner of foreign currency, labour intensive, and low technology

·       World Bank (International Bank for Reconstruction and Development) has the role of helping the development of, mostly, low income countries.  They provide and facilitate loans and may give economic advice to these countries.

·       Young population is when the median age of the population is low most probably due to high birth rates.

The Financial Sector

·     Bond Markets (or sometimes known as the debt market, fixed-income market, or credit market) is the collective name given to all trades and issues of debt securities. Governments typically issue bonds in order to raise capital to pay down debts or fund infrastructural improvements. Private companies may also issue bonds when they need to finance business expansion projects or maintain ongoing operations.

·     Capital markets such as the stock market and bond markets enable individuals and institutions to trade financial securities such as shares in limited companies or government and private bonds. This is used to gain long-term finance

·     Central Bank is a financial institution in charged of the implementation of monetary policy and regulation of the financial industry. It is also the banker to the government, and banker to the banks as a lender of last resort.

·     Commercial Banks are financial institutions that provide financial services to consumers and firms such accepting deposits/savings, offering current (or checking) account services, and providing loans.  

·     Commodity Markets is a market for buying, selling, and trading raw or primary products.  Commodities include gold, oil, rubber, corn, wheat, coffee, sugar, soybeans, and pork.

·     Currency Markets (or Foreign Exchange Markets – FOREX) is the market in which currencies are traded.

·     Derivatives are financial instruments such as futures contracts whose price depends on the value of the underlying assets.

·     Financial sector covers any marketplace where buyers and sellers participate in the trade of assets such as equities, bonds, currencies, and derivations. Therefore, the financial sector provides the means of channelling funds to households, firms, and governments. The role of the financial sector includes to facilitate saving, to lend to businesses and individuals, to facilitate the exchange of goods and services, to provide forward markets in currencies and commodities, to provide a market for equities.

·     Market failure in the financial sector is due to asymmetric information, externalities, moral hazard, speculation and market bubbles, and market rigging

·     Market Rigging is when economic actors manipulate the market through collusion and insider dealings.

·     Money markets are markets for short-term loans such as treasury bills and certificates.

·     Moral Hazard is a situation where a person or business is more willing to take risks to benefit themselves because any negative costs or consequences which result from a course of action will be borne by someone else (e.g a government bailout where the government has to spend money to rescue failed banks)

·     Stock Markets (Equity Markets) are markets in which shares are issued and traded. It gives companies access to capital and investors a slice of ownership in a company with the potential to realize gains based on its future performance.