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Economic Terms

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Pareto efficient point

The best outcome that can be achieved e.g. any point on a PPF, the lowest point on an AC curve, the equilibrium point an a demand/supply graph.

Partial market failure

A market exists but too much or too little of a good or service is produced.

Partial model

A model that explains economic activity using a small number of variables.

Patent

A patent provides an inventor the exclusive right to produce a good or service for a certain period subject to full disclosure of the invention. This establishes monopoly powers for the duration of the patent.

Patents

A patent provides an inventor the exclusive right to produce a good or service for a certain period subject to full disclosure of the invention. This establishes monopoly powers for the duration of the patent.

Payoff Interdependency

Is where the payoffs acruing to each action for players' involved in a game are dependant on the actions of the other players' in the game. for example a firm deciding to set its price must take into account the price reactions of all other related firms in the market until they can analyse the profit that will result from this price change. This is why game theory is so crucial to analysing how oligopoly markets work - as these markets have a high degree of interdependency.


Payoff(s)

Is a term used in game theory to illustrate players' preferences over the outcomes available to them in the game. Payoffs normally represent the utility to consumers or profit to businesses of playing a particular action in the game. Clearly players wish to maximise this payoff to meet their objectives of profit or utility maximisation.

Below is a payoff matix to illustrate the breakdown of supermarkets payoffs corresponding to pricing decisions in terms of the profit they will receive.


Pegged Exchange Rate

When an exchange rate is fixed relative to another currency.


Pension Fund

A fund established by an employer to facilitate and organise the investment of employees' retirement funds contributed by the employer and employees. The pension fund is a common asset pool meant to generate stable growth over the long-term, and provide pensions for employees when they reach the end of their working years and start retirement. 

 


Percentage change

Is a mathematical way of measuring the difference in values expressed in percentage form. These are predominantly used to emphasise significant changes in data in a clear form. 


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