Economic Terms

The amount by which consumer surplus is reduced by the imposition of an indirect tax. However, the elasticity of the demand curve affects how much of the tax is passed onto consumers.

Below is a diagram to illustrate how the imposition of an indirect tax implaces a burden on consumers. In this instance the demand curve is neither inelastic or elastic and therefore the tax burden is split evenly between the consumers and producers.

Below is a diagram to illustrate when the demand curve is inelastic and therefore the tax burden is split unevenly towards consumers ahead of producers.

Below is a diagram to illustrate when the demand curve is elastic and therefore the tax burden on consumers is small.

People who purchase and are the end users of a good or service.

In macroeconomics this is the amount of money that households spend on goods and services over a given period of time. In microeconomics this means purchasing and then using or experiencing goods or services.

Externalities that arise from the consumption of a good.

An equation that explains the relative influence of different factors on the consumption of households.

Below is an example of a consumption function in which the level of consumption is directly related to the level of disposable income. The following consumption function (C = xYd +c) has a slope equal to x, which represents the marginal propensity to consume for a consumer. There are different varieties of consumption functions some of a convex or concave shape. But the one below illustrates a linear consumption function with a constant level of MPC throughout all levels of disposable income i.e. consumers will always spend the same fraction of a new amount of disposable income regardless of their current level of income.

Is when the collapse of bank can create bank runs on other healthy banks depsite those banks not appearing to have any liquidity/solvency problems. This is caused due to the asymmetrical infromation which prevents depositors to be able to forensically analyse a bank's balance sheet and assess the risks that this bank has taken on. Therefore they determine the riskiness of their bank by looking at close substitute banks.

A contestable market is a type of market structure in which firms can enter and exit freely and costlessly, therefore making the incumbent firms vulnerable from hit-and-run entry. Due to the freedom of entry and exit there must be an insignificant level of sunk costs attached to competing in these types of market.

Below is a graphic to illustrate the main characteristics of a contestable market. For instance the firms that wish to engage in hit-and-run entry need to be classed as profit maximisers, otherwise the incentive to undercut the incumbent firms will not exist. Firms also need to have perfect information to be able to undertake successful hit-and-run entry. Finally the key factor is that firms need to be able to enter absolutely freely and exit absolutely costlessly.

 

Changes in taxation or expenditure in order to reduce demand in an economy

Below is a graph to breakdown the economic effects of a government running a contractionary fiscal policy in an AD/AS framework. This can be achieved through raising taxes, decreasing government expenditure or possibly both from the classical viewpoint. The immediate impact is that the AD curve shifts inwards creating a decelerating inflation rate.

It it important to note that the impact on economic growth depends on which sectors of the economy the fiscal policy was targeted. As a cut in spending towards productive sectors of the economy could cause the LRAS curve to inwardly shift. This is a key evaluation point to mention when dealing with fiscal policy.

A legal measure that can be used to protect most forms of written work as it either deters third parties from using and benefiting from its use or provides a legal remedy for recovering compensation from its unauthorised use.

A corporate bond is a bond issued by a firm in order to raise financing for a variety of reasons such as to finance business expansion or to finance a takeover deal. These bonds usually relate to longer-term debt instruments and therefoe have a maturity of at least a year.

Below is a flowchart to illustrate the process and details behind the issuing of bonds.