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Economic Terms

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Narrow money

A measure of money supply based on the total notes and coins in circulation i.e. cash. This is refereed to as M0 and was circa £60 billion in 2013 (circa 3% of broad money).

Nash Equilibrium

Is a strategy profile such that every player's strategy is a best response to the strategies of all the other players. In a Nash Equilibrium no player can unilaterally deviate to obtain more profits. However there are some games in which have either no Nash Equilibrium or multiple nash equilibria.

Below is a 2x2 payoff matrix and the equilibrium concept to this game. In this instance both players are playing their best response at (Defect, Defect). For more information on this game and how it's solved see the Prisoners' Dilemma Game.



National debt

The amount of money borrowed by the Government by issuing Gilt Edged Securities.

Below is a table to show the level of UK national debt that has been accumlated as the government has been running a large budget deficit.


National income or output

The total value of goods and services in an economy over a given period of time. This can measured in a number of different ways e.g. GDP, GNP , etc. There are three approaches to obtaining the value of goods and services -expenditure, income or output.

Nationalisation

Where a government acquires complete ownership of a firm or industry e.g. education, healthcare, roads.

Natural monopoly

A market where there is only room for one firm to operate due to substantial capital requirements or 100% ownership of a key resource. There are very few remaining examples in the UK due to the break up and privatisation of state monopolies since WW2. It an also be graphically represented by the minimum efficient scale being large relative to the size of the market and therefore only one firm to be able to reach the MES.

Below is a diagram to show how a natural monopoly rises in a market. In this instance only one firm is able to reach the MES point to fully exploit all the economies of scale in the market. To break up this natural monopoly, more competition needs to be added. But with that extra competition comes higher average costs, reduced average costs and as a result higher prices for consumers as the diagram shows. So in many cases a natural monopoly is often beneficial for a market from both consumers and producers point of view.

 


Natural rate of unemployment

The lowest rate of unemployment that can be sustained without increasing inflation and therefore the rate of unemployment when the labour market is in equilibrium. This type of unemployment can be calculated by adding together the level of structurally and frictionally unemployed workers in the economy at a point in time (supply-side types of unemployment).

Below is a diagram to illustrate the level of the NRU in an economy. As can be seen the NRU is the difference between those who would like a job at the current prevailing wage rate and those who are willing to take a job.


Needs

The basic requirements for survival e.g. food, shelter, warmth, protection, healthcare.

Negative consumption externalities

Costs arising from the consumption of a good or service that are experienced by third parties e.g. noise disturbance, injuries requiring treatment and animal distress associated with consumption of fireworks.

These types of externalities are produced due to the over-consumption of a demerit good.

This is because the over-consumption creates a divergence between the marginal private benefit and the marginal social benefit curves. This is because consumers do not take into account the negative effects on society of consuming this good e.g. second hand smoke when smoking a cigarette. The external cost that is released onto society is represented by the dead weight loss triangle below. 

This type of externality can be internalised via government interventions such as: indirect taxes, educational policies and product bans.


Negative expectations

When the future outlook for economic variables is negative e.g, interest rates will rise and economic growth will slow.

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