TERMS
SCHUMPETER), in which a superior new
1. Absolute advantage - If one person, firm or
country can produce more of something with
the same amount of effort and resources,
they have an absolute advantage over other
producers. Being the best at something does
not mean that doing that thing is the best
way to use your scarce economic resources.
2. Black economy - If you pay your cleaner or
builder in cash, or for some reason neglect
to tell the taxman that you were paid for a
service rendered, you participate in the black
or underground economy. Such transactions
do not normally show up in the figures for
GDP, so the black economy may mean that
a country is much richer than the official
data suggest.
3. Budget - An annual procedure to decide
how much public spending there should be
in the year ahead and what mix of taxation,
charging for services and borrowing should
finance it.
4. Bull - An investor who expects the price of
a particular security to rise; the opposite of a
bear.
5. Buyer's market - A market in which supply
seems plentiful and prices seem low; the
opposite of a seller's market.
6. Cannibalise - Eating people is wrong.
Eating your own business may not be.
FIRMS used to be reluctant to launch new
products and SERVICES that competed
with what they were already doing, as the
new thing would eat into (cannibalise) their
existing business. In today's innovative,
technology-intensive economy, however, a
willingness to cannibalise is more often seen
as a good thing. This is because
INNOVATION often takes the form of what
economists call creative destruction (see
product destroys the market for existing
products. In this environment, the best
course of action for successful firms that
want to avoid losing their market to a rival
with an innovation may be to carry out the
creative destruction themselves.
7. Capital controls - government-imposed
restrictions on the ability of CAPITAL to
move in or out of a country. Examples
include limits on foreign INVESTMENT in
a country's FINANCIAL MARKETS, on
direct investment by foreigners in businesses
or property, and on domestic residents'
investments abroad.
CONCEPTS
1. Scarcity - our wants and needs are virtually
unlimited, but our resources to satisfy those
desires are limited. Thus, we must choose
which desires to satisfy. To use resources
sustainably, our goal is to use them
effectively and efficiently. This means that
we want to achieve our goal while
minimizing the amount of resources needed
to achieve our goal. For example, if you
want to bake a cake, your ingredients will
have been used effectively if you finish with
a cake and not a disastrous mess in the oven.
If you bake the cake correctly on your first
try, then you'll have used your ingredients
efficiently since nothing was wasted.
2. Opportunity Cost - This concept goes hand
in hand with scarcity. Commonly known as
the basic relationship between scarcity and
choice, opportunity cost is a benefit
someone gives up in order to gain something
else. For example, if you have $10 to spend
but you must choose between spending it on
food and spending it on a book, you must
give up one to attain the other. The
 opportunity cost of buying food is the book,
since you no longer reap the benefits of
owning the book. On the contrary, the
opportunity cost of purchasing the book
would be your inability to satisfy your
hunger.

3. Supply and Demand - Markets are driven

by supply and demand; it's what causes
fluctuations in prices and the exchange rate.
Demand is defined as how much of a good
or service is desired by consumers. Supply,
which is how much the market offers.

4. Incentives - People respond to incentives.

Governments offer them because they can
motivate individuals to act a certain way,
which can be a good thing. For example, if a
government offers subsidies to firms who
reduce their pollution to a specified amount,
firms will want to minimize their pollution
so they can take advantage of the subsidy.
Here's another example: if your boss offers
you recognition for a project you worked
hard on, you'll be motivated to work just as
hard next time — if not, even harder — so
you can receive the same recognition again.

5. Purchasing Power - f you have a dollar one

year, it's still worth the same as a dollar in
the future, isn't it? Wrong. While it may still
be defined as a single dollar, inflation has
caused it to be worth less than it was before.
Let me explain: say that your dollar can buy
you a candy bar. One year later, you go back
to the convenience store to purchase that
same candy bar, but you notice the price has
now risen to $1.10. Inflation pushed the
price up, indicating that you need more than
a dollar to purchase the same candy bar.
Thus, your purchasing power has declined.