Important economic terms to know
Basic economic terms and definitions
The crisis brought an end to a then widespread belief that there was a distinct "Asian way" of capitalism that might prove just as successful as capitalism in America or Europe. One answer is a market system. Supply and Demand The market system is driven by supply and demand. In the banking system alone, corporate loans equivalent to around half of one year's GDP went bad - a destruction of savings on a scale more usually associated with a full-scale war. Embed Code. This may be a constant problem for those responsible for setting the interest rate for the euro given the big differences--and different potential exposures to shocks--among the economies within the euro zone. Consumer — The consumer is the individual who will use the goods or services. Microeconomics on the other hand is the study of small economic units. They have long been a feature of the sale of art and antiques in the rooms of firms such as Sotheby's and Christie's.
GDP expenditure-based : Equals the total expenditures of the four sectors of the economy individual residents, individual non-residents, businesses, and governments. They also criticised the traditional method of identifying a monopoly, which was based on looking at what percentage of a market was served by the biggest firm or firms, using a measure known as the herfindahl-hirschman index.
Business and economics words
You should also compare the latest numbers with the same month the previous year to avoid getting confused by seasonal differences. Hayek correctly predicted the failure of Soviet-style central planning. They have to make choices due to scarce resources. If the price of an asset happens to diverge from what the theory says it should be, arbitrage by investors should bring it back into line. It sounds negative, and it is one of the reasons economics is referred to as the dismal science , but it simply means that choices have to be made. It might even be worth discussing at parties if you have particularly nerdy friends. Going back to beer: If demand is high, the breweries of the world will hire more employees to make more beer, but only if the price of beer and the sales volume justify the additional costs to the payroll and the materials needed to brew more. Capitalism — Capitalism is the economic system many are already familiar with. Mixed economies feature some elements of the ideals of capitalism and private ownership of the means of production along with elements of the ideals of socialism with the public governmental ownership of the means of production. Ideally, insurance premiums should be set according to the risk of a randomly selected person in the insured slice of the population year-old male smokers, say. GDP expenditure-based : Equals the total expenditures of the four sectors of the economy individual residents, individual non-residents, businesses, and governments. Indeed, in a competitive auction the successful bidder may end up offering more than what is being auctioned is actually worth. Often the assets being arbitraged will be identical in a more complicated way, for example, they will be different sorts of financial securities that are each exposed to identical risks. Some people want bread; some people want cereal; some people want beer, and so on.
If the price of an asset happens to diverge from what the theory says it should be, arbitrage by investors should bring it back into line. However, economics has an impact on every moment of our lives because, at its heart, it is a study of choices and why and how we make them.
In the long run, the market reaches an equilibrium price where supply equals demand.
Therefore, if the Bank of Canada raises its key lending rate from 5 per cent to 5. But this can be costly, too. You should keep that in mind when interpreting changes in the rate, since some drops could mean lots of jobless people have just stopped trying.
Take beer again. The world is wide with choices, and so the field of economics is wide with theories, laws and concepts that explore those choices. On a basic level, supply and demand helps explain why last year's hit product is half the price the following year.
In a Dutch auction, the auctioneer calls out a high price then keeps lowering it until there is a buyer.
List of basic economic terms and definitions pdf
Rather, they are a recognition of the patterns that emerge from hundreds, thousands, millions and billions of individuals making choices with the information they are given. Opportunity costs describe the value of the next best alternatives that are given up during this process in order to get something else. While knowing these concepts may not allow you to fundamentally change the world, it will help explain a lot. Both absolute and comparative advantage may change significantly over time. One answer is a market system. The first, used in the United States during the s and in the UK before it joined the European Union, is to top up farmers' incomes if they fall below a level deemed acceptable. Developing Economy — A developing economy is one in which there may be hunger issues but not what you would find in an underdeveloped economy , and where you may find a wide variety of progress being made on the development spectrum. But in recent years they have played a growing role in other parts of the economy, ranging from the allocation of government -controlled broadcasting bandwidth to the awarding of work to subcontractors by governments and big firms using competitive tendering, and even more recently the sale of goods over the Internet. Developed — Developed nations are those which meet certain criteria of economic measurement including gross domestic product GDP per capita, industrialization, etc. An English auction is the most familiar. They tend to rise or fall ahead of the general economy. A common version in macroeconomic modelling defines output as a function of capital, labour, and productivity. You first have to know who counts as being unemployed. It might even be worth discussing at parties if you have particularly nerdy friends.
You first have to know who counts as being unemployed. Even though the two branches cover different areas of economics for the most part, they are highly interrelated.
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