Economics Terms Series Part 3 – GDP, Factors of Production, Market, Contrary Miscellaneous

APPRECIATION (in the value of a currency) 

A rise in the rate at which a national currency can be exchanged for another currency or currencies, i.e. a rise in the market price of one currency in terms of other currencies.

DEPRECIATION 

A fall in the value of a floating exchange rate of a currency against another foreign currency.

BARTER 

The exchange of goods and services without using money.

BRAND LOYALTY 

The extent of the faithfulness of consumers to the product or products of a particular firm, expressed through their repeat purchases and irrespective of changes in the prices and promotions of competing products from rival firms.

CETERIS PARIBUS 

A term meaning ‘all other factors being unchanged’.  

COLLATERAL 

Security taken by a lender against a loan, such as a valuable asset owned by the borrower that the lender could sell to recover the value of the loan if the borrower is unable to repay it.

DUMPING 

A form of international predatory pricing and unfair competition used by overseas producers to flood another country with cheap products to force its firms out of business.

CROWDING OUT 

The displacement of private sector borrowing and therefore expenditure by increased public sector borrowing and spending. This happens because the interest rate increases as government borrowing rises.

GROSS DOMESTIC PRODUCT (GDP) 

The total market value of all final goods and services produced within an economy by its factors of production in a given period of time. It can also be measured by total expenditure on domestically produced goods and services or total factor income.

GROSS DOMESTIC PRODUCT (GDP) PER CAPITA

Average income per head.  

NOMINAL GDP 

The total market or monetary value of the GDP of an economy.

REAL GDP 

The value of the total output or income of an economy after adjusting for changes in price inflation over time. It is a measure of economic growth in the GDP of an economy assuming prices have remained constant over time.

GROSS EARNINGS 

The total pay received by an employee for his or her labour per week or month, including a basic wage or salary and any overtime, piece rate or other performance-related payments.

NET EARNINGS

Gross earnings after any personal income and payroll taxes have been deducted, often referred to as take-home pay.

VALUE ADDED

The increase in the ‘value’ of resources used up in production to make goods and services consumers are willing and able to buy.

GROSS VALUE ADDED (GVA) 

The difference between the market value of an output and the cost of non-labour inputs used to produce it. GVA is therefore broadly equal to total profits plus total wages.

INDEX BASE YEAR 

The year used as the reference point or starting point for a consumer or retail prices index in which the weighted average price of the ‘typical’ basket of products is given the number 100.

INDEXATION 

The automatic adjustment of a monetary variable, such as wages, taxes, welfare or pension benefits, by the increase in the consumer or retail prices index, so that its value rises at the same rate as inflation, i.e. so that the real value of the variable is kept constant.

FIRMS 

Organizations in which resources are combined to produce goods and services.

INDUSTRY 

A group of firms specializing in similar goods and services, or using similar production processes. For example, the electricity industry will consist of all generators and suppliers of electricity. Similarly, the manufacturing industry consists of all firms in all industries involved in the production of finished and semi-finished goods.

CAPITAL INTENSIVE 

A production process that employs a significant amount of capital equipment relative to labour.  

LABOUR INTENSIVE 

A production process that uses a large amount of labour input relative to capital.

LABOUR FORCE 

The total supply of labour or economically active population in an economy.

FACTORS OF PRODUCTION 

Scarce resources (Land, Labour, Capital, Entrepreneur) used in the production of goods and services to satisfy consumer needs and wants.

FACTOR SUBSTITUTION 

Replacing one factor of production with another in a production process, for example, to make production more capital intensive.

LAND 

Natural resources used in the production of goods and services.

LABOUR 

Human effort used in the production of goods and services.

CAPITAL 

Money invested in or tied up in productive assets in a firm that enable it to produce goods and services and generate revenues.  

ENTREPRENEUR 

A person with enterprise and the willingness to take the risks and decisions necessary to organize scarce resources into firms to produce goods and services.

MICROECONOMICS 

The study of market structure and the behaviour of individual producers and consumers and therefore what determines market outcomes in terms of product prices, qualities and quantities traded.

MACROECONOMICS 

The study of how a national economy works. It involves understanding interactions between total or aggregate demand and output and national income, employment and the general level of prices.

MARKET 

Any set of arrangements that allows producers and consumers to exchange goods and services.

MARKET STRUCTURE 

The characteristics of a market, usually on the supply side, including how many firms compete for the market, the degree of competition or collusion between them, the extent of their product differentiation, and the ease with which new firms can enter the market to compete with them.

MARKET  SHARE 

The proportion of  the total sales of a product attributable to a firm supplying that market.

MARKET PRICE 

The equilibrium price for a product in a market, determined where market demand exactly matches market supply.

MARKET CAPITALIZATION 

The total value of a company measured by multiplying the number of shares it has issued by their current market price per share.

MARKET DISEQUILIBRIUM 

A market outcome, in terms of price and total quantity traded, which is unstable and liable to change because market demand and market supply are not in balance, i.e. there is excess demand or excess supply.

MARKET FAILURE 

These occur when market outcomes are inefficient because the decisions of producers or consumers fail to allocate resources to the production of goods and services that are worthwhile or result in wasteful or harmful activities.

MARKET ECONOMIC SYSTEM 

An economic system in which decisions about how resources are used, what goods and services they produce and how they are allocated, are taken by private sector firms and consumers.

PLANNED ECONOMIC SYSTEM 

An economic system in which the government determines what goods and services to produce, their prices and how they are allocated.

MIXED ECONOMIC SYSTEM

An economic system that combines a market economy with government planning and the public sector ownership of resources and provision of goods and services.

NATIONALIZATION 

Bringing a private sector industry under government ownership and control.

PRIVATIZATION 

The sale or transfer of public sector activities to private sector firms who, because they have a profit motive, may be able to provide them more efficiently than public sector organizations.

MULTINATIONAL

A business organization with plant and operations in more than one country.

PREDATORY PRICING 

A pricing strategy involving deep cuts to prices that is often used by an established and dominant firm in a market to deter or destroy new competition. 

PENETRATION PRICING 

A price strategy adopted by a firm seeking to gain market entry and expand sales.

PUBLIC EXPENDITURE 

The amount of money spent in total by government organizations. It includes spending on recurrent costs such as public sector wages and capital items, including investments in public infrastructure such as roads.

PRIVATE EXPENDITURE 

Money spent by private individuals and firms on consumer and capital goods and services.

CONSUMER EXPENDITURE

Spending on goods and services for final consumption by consumers.

PUBLIC LIMITED COMPANY 

A business organization able to raise permanent capital from the sale of shares to the general public through a stock exchange.

PRIVATE LIMITED COMPANY 

A business organization able to raise permanent capital from the issue and sale of shares to private individuals. Shares cannot be transferred without the consent of other shareholders, and cannot be offered to the general public.

LIMITED LIABILITY

When the financial obligation of a firm’s owners in the event it fails is no more than the amount of capital they invested in the enterprise.

UNLIMITED LIABILITY

Total liability of a business owner or owners to repay all the debts of their business in the event it fails.

PRODUCERS 

People – workers and entrepreneurs – involved in productive activities.

CONSUMERS 

People and organizations that are willing and able to buy goods and services to satisfy their needs and wants.

PRODUCTION

Using scarce resources to make and sell goods and services that satisfy the needs and wants of consumers.

CONSUMPTION

The using up of goods and services to satisfy human needs and wants.

COMPENSATING DIFFERENTIALS 

Higher rates of pay compared with those for other occupations and required to attract labour to unpleasant, unsociable or dangerous jobs, i.e. the positive wage differential is designed to compensate workers for these unattractive features.

WAGE DIFFERENTIALS 

Differences in rates of pay between different occupations, industries, locations and group of workers.

MONEY MARKET

The market for short-term loans and liquid financial assets, such as bank deposits, that can be converted easily to cash. The market consists of all those people or organizations willing and able to supply or loan money and all those willing and able to borrow it.

LABOUR MARKET 

Any set of arrangements that brings together all those people willing and able to supply their labour with organizations that want to hire labour.

HORIZONTAL INTEGRATION

This occurs when two or more firms producing similar goods or services at the same stage of production combine to form a larger enterprise.

VERTICAL INTEGRATION

A merger between two or more firms at different stages of production of the same product, such as between a farm and a food processing company.

LATERAL INTEGRATION 

Also known as conglomerate merger, this is the combining of two or more firms in different industries into a single enterprise.