Economics Glossary Master File 2

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Glossary 1

GLOSSARY

Accounting Cost is the actual outlay on inputs into the production process.Accounting Profits

refer to revenue less cost. The level of accounting profit will be above economic profitbecause opportunity costs are excluded from the calculation.Affirmative Action means disadvantaged groups benefit from greater opportunity.Aggregate Demand Curve shows real national output demanded at different price levels.Aggregate Demand refers to AD = C + I + G + (X – M).Aggregate Supply Curve shows the quantity of national output that firms are willing to supply at eachprice level.Allocative Efficiency is when all resources are allocated to their most efficient use, all markets are inequilibrium, and the economy is operating on its production possibility curve. It is impossible to changethe allocation of resources in such a way as to make someone better off without making someone elseworse off. It implies all of the following: MSC = MSB, the sum of consumer and producer surplus ismaximised and P = MC, and no externalities exist.Appreciation refers to an increase in the value of one currency relative to another currency. Appreciationoccurs when, because of a change in exchange rates, a unit of one currency buys more units of anothercurrency than it did previously.Assets Demand refers to the demand for money for precautionary and speculative purposes.Average Cost (AC) or (ATC) refers to the cost per unit. AC = AVC + AFC or TC

Q.Average Cost Pricing refers to when the price is regulated to P = AC to ensure that normal profits areearned.Average Fixed Cost (AFC) refers to AFC = TRF

Q.Average Revenue (AR) refers to the average contribution to total revenue to each unit sold. AR = TR

Q.Average Variable Cost (AVC) refers to AFC = VC

Q.Balance of Payments is a statement that records the value of New Zealand’s transactions with the rest of the world. It is divided into three parts: the Current Account, the Capital Account and the FinancialAccount. The Balance of Payments is made up of a number of balances (not one) and items must becorrectly recorded in the appropriate balance. The last major revision occurred in June 2001.Balance of Goods (or Merchandise Trade Balance) refers to all transactions involving goodsbetween residents and non-residents.Balance of Income refers to earning from the use of factors of production (land, labour andfinancial capital). It includes investment income derived from ownership of international financialassets, e.g. dividends, interest earned/paid on foreign loans.Balance of Services refers to all transactions involving services between residents and non-residents, e.g. transport services (shipping, land, aircraft), travel, communication, royalties andlicence fees.Balance on Current Transfers refers to when resources are provided with no exchange of goods orservices, e.g. foreign aid, benefits and pensions.Balance on Invisibles (BOP) is made up of the balance of services, the balance on net investmentincome and net transfers.

Glossary 2Balance on Merchandise Trade (BOT) refers to export receipts less import payments.Capital Account refers to all transactions that involve the receipt or payment of capital transfers andthe acquisition and disposal of non-produced non-financial assets, e.g. debt forgiveness, migranttransfers.Current Account measures all transaction (other than those involving financial assets or liabilities)between residents and non-residents.Financial Summary Account refers to transactions associated with a change in ownership ininternational financial assets and liabilities, e.g. direct investment, portfolio investment, reserveassets.Barriers to Entry refers to the ability to exclude potential competitors from entering an industry.Examples include control of inputs, capital requirements, scale economies, cost advantage, and high set-up costs.Benefit refers to a payment as defined under Part I of the Social Security Act 1964 (e.g. Unemployment,Sickness Benefit, New Zealand Superannuation, Veteran’s Benefit, Accommodation Supplement,Disability Allowance).Breakeven Point refers to where a firm is covering all its costs of production. TR = TC.Budget Deficit refers to the amount each year by which government spending is greater than governmentincome. Expansionary fiscal policy where G > T.Budget Surplus means a contractionary fiscal policy where T > G.Business Cycle refers to patterns of booms and recessions in the level of economic activity.Capital Account records the capital flows into and out of a country (e.g. New Zealand) for the public andthe private sector.Capital Goods refer to producer (human-made) goods used in the production of other goods and services.They include goods that are still in the production process and also finished goods waiting to be sold.Income to owners of capital good is interest.Capital Utilisation is the percentage of the economy’s total plant and equipment that is currently inproduction.Cartel refers to any combination of firms or other groups (e.g. countries) whose objective is to limit thelevel of competition within a particular market. OPEC is an example.Census counts a person as being unemployed if they say they are out of work and actively seeking it,whether full-time or part-time.Central Bank the principal monetary authority of a nation (e.g. Reserve Bank of New Zealand). Centralbanks perform several key functions, including issuing currency and regulating the supply of credit in theeconomy. In New Zealand, the Reserve Bank also administers monetary policy as prescribe by the PolicyTargets Agreement.Ceteris Paribus (CP) indicates that all the other factors remain constant, so that the relationship betweenkey variables can be investigated.

is an assumption used in the most economic models.Change in Demand refers to a shift in the demand curve due to a change in one or more of thedeterminants of the demand curve, not including the price of the commodity. This shift causes a differentquantity to be demanded at every price (i.e. either greater or less than previously demanded at every price.Change in Quantity Demanded refers to a movement along a stable demand curve due to a change in theprice of a commodity.

Glossary 3Change in Quantity Supplied refers to a movement along a stable supply curve due to the change in theprice of a commodity.Change in Supply refers to a shift in the supply curve, due to a change in one or more of the determinantsof the supply curve, resulting in a different quantity supplied at every price. The price of the commodityis not one of the determinants of the shift of the supply curve.

Child refers to an unmarried person under the age of 18 years, other than a person who is aged 16 years or17 years and financially independent.Circular Flow Diagram is an economic model that helps illustrate the money flows between the differentsectors in the economy.Collective Goods are provided free of charge and are paid for collectively, through the tax system.Collusion refers to a secret, explicit agreement to set prices.Commerce Commission is a Government agency that maintains competition in the market.Commodity refers to a good, service or resource produced to satisfy needs and wants. Commodities canbe traded in a market.Comparative Advantage is the principle that nations should specialise in the goods they produce mostefficiently, compared to other nations. Even if a nation is technically efficient in the production of allgoods it can gain from trade by specialising in the good that it makes relatively better (i.e. with leastopportunity cost).Complementary Good is one that that can be used in conjunction with another good (e.g. cars and petrol),or goods that must be used together in order to fulfil one function (e.g. pen and ink).Constant Costs are the opportunity cost of producing more of one good, in terms of another good, staysthe same. PPC is shown as a straight line.Constant Returns means that as additional units of a variable are added to a fixed input, the marginalproduct remains unchanged.Consumer Equilibrium occurs when the marginal unit per dollar is equal for all goods.Consumer Price Index (CPI) is a weighted index of consumer goods and services used as a measure of theprice level and inflation.Consumer Sovereignty assumes that consumers are the best judge of their own well-being.Consumer Surplus represents the monetary value to a consumer of buying a commodity over and abovethe expenditure necessary to make the purchase. It is the area below the demand curve but above theprice line.Consumption of Fixed Capital is capital used up in the production process, equivalent to depreciation.Contractionary Fiscal Policy is a policy to increase governmental spending and/or a reduction in taxes.Corporatisation is the conversion of government departments that have significant trading activity intoSate Owned Enterprises (SOEs).Cost Push Inflation occurs when production costs increase and are able to be passed onto consumers inthe form of higher prices.Costs of Production include the resources costs, cost of finance and services and political and legalfactors.CPIX means the Consumer Price Index excluding credit services.

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