Economic Terms

Is a statement on an economic issue that is supported by factual evidence.

This is the level of competition that could develop in a contestable market if firms decide to engage in hit-and-run entry.

When individuals in work do not perceive any benefit in a wage rise as the increase in taxes and loss of welfare benefits this triggers may mean that they are no better off.

A convex curve that joins all possible combinations of output when all resources are fully engaged in production.

The diagram below shows the basic shape of a country's PPF, illustrating the the distribution and allocation of resources towards producing goods to help the economy achieve the full employment level of output. Any point on the PPF is a point that is pareto optimal, productively and allocatively efficient due to the utilisation of all the factors of prodcution in the economy.

Is when a firm decides to set a price below the marginal cost curve for a short period of time to induce the exit of a financially inferior rival out of the market. The incumbent firm engaging in this behaviour makes a short-term loss but as long as this can be recouperated with higher supernormal profits immediately after the rival's exit the firm will be willing to engage in this strategy.

Below is a graphic to show the logical chain of reasoning behind the process of a predator pricing strategy by an incumbent firm.

The physical location used by a productive process e.g. office, factory or shop.

Is a term to describe a bond that is being sold and traded above its par value and hence at a premium. This can happen for a variety of reasons but the most common reason is when interest rates being to fall. A bond will then trade at a premium as it will offer a higher coupon rate compared to the interest earned on similar risk-related assets i.e. the excess demand for bonds will force the bond to trade at a premium, but investors will be happy to purchase this as they want a bond that offers them a higher yield over similar risk assets.

Aims to curb excessive risk-taking, and has tended to focus on capital adequacy requirements with assets such as BASLE and ensure that banks are kept on a going concern basis.

The financial value that consumers place on the utility they derive from consuming a good or service.

When prices rise rapidly over a period of time (weeks or months) and then drop within a very short period (days). These cycles are often initiated by a supply side shock and perpetuated by subsequent speculation encouraged by the opportunity to profit from rising prices.