Economic Terms

Are negative costs and benefits that are incurred or experienced by third parties.

A negative cost or benefits that are incurred or experienced by third parties.

When actual GDP is less than the value of GDP if it had grown consistently in line with the trend rate of growth. Normally characterised by falling real output and slowing inflation.

Below is a diagram to illustrate when real output falls below the full employment level and therefore the economy has a high level of spare capacity.

Costs arising from the production of a good or service that are imposed onto third parties e.g. the pollution associated with oil extraction.

Below is a diagram to show a negative production externality that is being imposed on third parties. This is created because of a divergence between the marginal private cost and marginal social cost curves i.e. individual producers do not realise the negative externality they are releasing onto society and therefore they over-produce the good. This leads to the level of output produced to be above the socially optimal level and ultimately this leads to market failure. The deadweight loss triangle represents the size of the externality in the market.

When evaluating policies that governments could implement on the market to correct this type of market failure, it is important to consider the size of the externality. The larger the externality in the market, the more incentive there will be for governments to intervene in the market, as the larger externality the greater the impact on society's welfare. However, for governments to correct the market failure, they need to calculate how large the production externality may be. It is almost impossible for governments to accurately quantify the size of the externality in the market and therefore this means government intervention can be an imperfect measure to internalise the externality and as a result government failure could arise. 

A measure of economic activity that has not been adjusted for inflation.

Below is a chart to show the level of nominal GDP for the UK and how it has evolved over time. The problem with this measure compared to real GDP is that it does not give a true reflection of economic activity as it includes price rises as well as output changes. Therefore it will often overstate the value of a country's economy. 

The money value of a variable without adjustment for inflation.

These are typically goods that have the feel of public goods but do not completely satisfy the definition of a public good. They are largely non-rival (apart from during peak/times and periods) and although it is possible to exclude third parties from the benefits the costs associated with this mean that this is rarely enforced. e.g. roads and NHS.

Below is a digram to illustrate that for a public good to be classed as non-pure there must be one characteristic of a public good that does not hold. Below are examples of two goods toll roads and a popular beach. A toll road is non-rival as there is plenty of room for cars on these types of roads consumptin of this type of good has little or no effect on the amount left for others to consume. But of course this good is excludable because unless a person wishes to pay the toll to use the road they cannot enojy the good i.e. this is not a good that people can free-ride off. On the other hand a popular beach is non-excludable as it is free to use a beach, but is a rivalled good as the more people that use the beach the less space there is for the next consumer on that beach.

These are typically goods that have the feel of pur public goods but do not completely satisfy the definition. They are largely non-rival (apart from during peak/times and periods) and although it is possible to exclude third parties from the benefits the costs associated with this mean that this is rarely enforced. e.g. roads and NHS.

Below is a digram to illustrate that for a public good to be classed as non-pure there must be one characteristic of a public good that does not hold. Below are examples of two goods toll roads and a popular beach. A toll road is non-rival as there is plenty of room for cars on these types of roads consumptin of this type of good has little or no effect on the amount left for others to consume. But of course this good is excludable because unless a person wishes to pay the toll to use the road they cannot enojy the good i.e. this is not a good that people can free-ride off. On the other hand a popular beach is non-excludable as it is free to use a beach, but is a rivalled good as the more people that use the beach the less space there is for the next consumer on that beach.

A resource that cannot be replaced after it has been used e.g. oil and gold.

Goods that can only be consumed on a single occasion and cannot be repeatedly used e.g. food or drink.