Economic Terms

A form of government policy when existing regulations are loosened or removed to encourage supply or demand of a good or service.

When the demand for one good or service results in the demand for another good or service that is a necessary part of the production process.

Below is a set of diagrams to illustrate derived demand in a demand and supply framework. If there is an increase in demand for cars, then ultimately more cars need to be produced to meet the extra demand. However, more cars can only be made if more steel is made. So therefore similtaneously an increase in demand for cars will lead to an increase in demand for steel, as steel has demand derived from cars.

The factors that will determine the level of demand at a given price e.g. population.

Below is a list of factors that will cause the demand of a given product to change. If the price of substitute goods change this will change the demand for a product as consumers will always switch to the cheapest versions of a product. If the price of complementary goods change this will affect the demand for a product as consumers will always consume both complimentary goods together. Changes in real income will affect the demand of a good because the more income that consumers have available to them the mre goods they are likely to demand and consume. The persuasion of advetising and marketing campaigns can sway consumers towards purchasing goods. Finally a change in fashion, tastes and preferences can also affect demand for products, this often happens in the clothing industry when certain clothing items come back into fashion .

A factor that will determine the level of supply at a given price.

Below is a list of factors that will cause the supply of a given product to change. If the costs of production change this will change the supply because it will ultimately affect the cost at which firms can produce products at and therefore their profit margins will be affected. New technology being introduced can increase the producitvity and efficiency of the production process and this can lead to an increase in supply at a given price. Goevernment taxes and subsidies can affect the overall cost of producing a good. For instance if a subsidy is granted to a firm it will encourage them to produce more as it is now cheaper to produce. Finally external factors such as the change in climate can affect the amount of goods that can be produced particuarly in the agricultural market (primary sector).

 

An essential element of both a normal good and a private good. It means the consumption of a good or service by one consumer will diminish the amount available to another.

Taxes on income and wealth that diminish the amount of money available to buy goods and service e.g. income tax

Is a term that describes when a bond is being sold and traded at a discount price. When a bond is being traded at a discount (below par), its current yield is higher than the fixed coupon rate. This can happen for a variety of reasons but the most common is a rise in the interest rate which causes investors to switch to similar risk-related assets offering a greater return i.e. the excess supply of bonds forces the price to below par.

Unemployed workers that decide not to pursue re-employment. Sometimes referred to as workers that are marginally attached to the workforce i.e. of working age but not actively looking for a job.

Small adjustments to fiscal policy that are more likely to change the structure rater than the size of the economy. This is more likely to be motivated by political rather than economic factors.

A process which causes average costs to increase as output rises. It will occur when output rises above the level at which capacity is exceeded.

Below is a diagram to illustrate that as the size and scale of a firm and their output increases beyond an optimal point the firm inadvertently causes its own costs to rise. This is highlighted by the SRAC curves shifting up the LRAC as the scale of the firm increases. This shows that all firms have a capacity in which no more cost advantages are available i.e. increasing the scale and size of the firm has no beneficial effect on the firm e.g. a barber's shop in a small town.