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SECTION 1: MICROECONOMICS
1
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Substitutes: alternative products that satisfy the similar wants or needs
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Supply: the quantities of a product that suppliers are willing and able to sell at various prices, ceteris paribus
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7) Joint supply: goods that are produced jointly with the same resources
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9) Specific tax: tax levied as a fixed amount per unit sold, irrespective of the price
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11) Subsidy: payment made by the government to producers to encourage the production of certain goods, but not in
exchange of any goods or services
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13) Producer surplus: the difference between the revenue the producers receive from the sale of a unit of a good and
the price at which the producers are willing to make that unit of the good available for sale
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2 Elasticity

14) Price Elasticity of Demand: the measure of the responsiveness of the quantity demanded of a good or services to
changes in its price
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16) Income Elasticity of Demand: the responsiveness of demand of a good to a change in income
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18) Primary products: raw materials obtained from the land which include agricultural commodities, minerals, forestry
products and fishing products
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3 Government Intervention

19) Price controls: the setting of legal minimum of maximum prices by the government so that prices are unable to
adjust to their equilibrium level determined by market demand and supply
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21) Price Floor: the setting of legal minimum prices by the government so that prices are unable to adjust to their
equilibrium level determined by market demand and supply
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4 Market Failure

22) Market failure: the inability of the market to achieve efficiency in the allocation of society’s resources, resulting in an
over-allocation or under-allocation of resources in the absence of government intervention
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24) Allocative efficiency: firms produce the particular combination and quantities of goods and services that consumers
most desire
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26) External benefits: benefits from production of consumption experience by people other than the producer of
consumer
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28) Tradable permits: rights that issued by the government that limits the pollution produced by the firm which can be
sold or bought in its market
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30) Merit goods: goods or services that are deemed socially desirable due to their positive externalities
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32) Public goods: goods that would not be provided at all in a free market
33) Non-excludability: impossible or extremely costly to exclude any individual from the benefit of the good
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35) Common access resources: typically natural resources such as fishing grounds, forests and pastures for which is free
for anyone to use
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37) Asymmetric information: one party in an economic transaction has access to more or better information than the
other party
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39) Supplier-induced demand: demand created by the producer which would not have arisen should the producer and
the consumer has equal access to information
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5 Theory of the Firms

40) Profit: excess of the sales revenue over the cost incurred by a business
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42) Short-run: a given time period where the firm is unable to vary all of its factor of production
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44) Privatization: sale of state-owned assets to the private sector
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1 Level of Overall Economic Activity

1) National income: a measure of the value of the output of the goods and services produced by an economy in a given
time period, usually a year
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3) Withdrawals: part of income that is not passed within the circular flow of income
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5) Investments: spending by firms on capital goods such as buildings, machinery and equipment
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7) Gross National Product: market value of all final goods and service produced over a period of time by productive
factors owned by resident of the country irrespective of whether these factors are located within the geographical
boundary of the country or abroad before depreciation
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9) Nominal National Income: national income using current prices in the prevailing ear before adjusting for inflation
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11) Net property income from abroad: the difference between property incomes flowing into the country and out of the
country
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13) Non-material welfare: the quality of life and is influenced by environmental factors such as degree of urban
crowding, crime rates, security of the country as well as socio-economic factors such as life expectancy, infant
mortality rates, availability of healthcare, accessibility to education and quantity of leisure
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15) Business cycle: the periodic but irregular up-and-down movements in economic activity, measured by fluctuation in
real GDP and other macroeconomic variables that usually goes from peak, recession, depression and then recovery
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17) Purchasing power parity: the rates of currency conversion that equalize the purchasing power of different currencies
by eliminating the differences in domestic price levels between countries
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2 Aggregate Demand and Aggregate Supply

18) Aggregate demand: the total expenditure on domestically produced final goods and services in an economy over a
period of time
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20) Disposable income: income that people have available for spending and/or saving i
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after deduction from income
tax, national insurance and addition from transfer payments
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22) Investments: expenditure by firms on plants and machinery as well as inventory stocks of war materials, goods in
the process of production and unsold goods
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24) Aggregate supply: the total amount of goods and services produced in an economy at different price levels over a
period of time
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26) Actual output: national output produced
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28) Deflationary gap: exists when the actual output is below the full employment national income
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2
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31) Unemployed: people in the working age population who are able and willing to work but unable to find work
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33) Labor force: number of people in the working age including the employed and the unemployed
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35) Standardized unemployment rate: captures people of working age who are without work, available to start work
within two weeks and actively seeking employment or waiting to take up an appointment
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37) Natural rate of unemployment: unemployment that exists when the economy is producing at full-employment level
of output
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39) Seasonal unemployment: unemployment that arises because the demand for certain types of labour fluctuates on a
seasonal basis because variations in need
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41) Cyclical unemployment: unemployment where the number of workers who are able and willing to find work at the
prevailing wage rate is greater than the number of job vacancies available, usually during recession
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43) Deflation: a decrease in general price level in a country
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45) Consumer price index: measure the changes in the prices of a basket of goods and services consumed by an average
household
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47) Demand-pull inflation: occurs when aggregate demand persistently exceeds aggregate supply when the economy is
near or at full-employment, causing upward pressure on prices
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49) Wage push: cost-push inflation due to a rise in wage rate
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51) Tax-push: cost-push inflation due to a rise in indirect tax
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53) Economic growth: increase in real GDP over a period of time
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55) Potential growth: percentage increase in the economy’s capacity to producer, represented by increase in potential
output
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57) Foreign-direct investment: long-term investment by multinational corporations in another country
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59) Lorenz curve: graphical representation of the proportion of national income earned by any given percentage of the
population in the economy
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61) Poverty: inability to satisfy minimal consumption needs
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63) Relative poverty: the case where people live below the prevailing standards of living that are typical in a society
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65) Direct tax: tax that is imposed directly on the individual, household or corporation and paid directly to the tax
authorities
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67) Property tax: tax levied on a percentage of the annual value of residential and commercial property
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69) Average tax rate: total taxes paid by a person divided by his total income
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71) Progressive tax: tax for which high income tax payers pay a larger fraction of their income than do low income tax
payers
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73) Regressive tax: tax for which low income tax payers pay a larger fraction of their income than do high income tax
payers
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2
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76) Government budget: an estimate of government revenue and expenditure for the coming year
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78) Crowding out effect: a reduction in private consumption or investment that occurs because of an increase in
government spending, if the increase in government spending is financed through borrowing from banks and other
financial institutions which have a stock of financial capital thus increasing the interest rate in the country
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5 Monetary Policy

79) Monetary policy: refers to conscious attempts by the central bank to influence the level of economic activity by
changing the money supply or interest rate
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6 Supply-Side Policies

80) Supply-side policies: focus on affecting the production and the supply side of the economy and specifically on
factors aimed at increasing the potential output and achieve long-term economic growth
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82) Market-based policies: advocate policies to “free-up” the market and minimize government intervention
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84) Deregulation: involves the elimination or reduction of government regulation of private sector activities and is based
on the argument that government regulation stifles competition and increases inefficiency
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1 International Trade

1) Free trade: international exchange of goods and services between countries that takes place without any trade
barriers
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3) Comparative advantage: a country can produce a particular good at a lower opportunity cost than another country
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5) Tariff: tax imposed on imports
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7) Ad-valorem tariff: tax that is expressed as a percentage of the value of the commodity
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9) Subsidy: grant provided by the government to firms aiming at lowering cost of production and increasing output
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12) Red Tape: a number of customs procedures involving inspections, valuations and others that imported goods must
go through
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14) Import license: issued by government as an authorization of the importation of certain goods into its country
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16) Dumping: the practice of selling a good in the international market at a price that is below the cost of producing it
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18) Economic diversification: increasing the variety of goods and services produced
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3
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21) Freely floating exchange rate: exchange rate systems that is determined by the market demand and supply of the
currency
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3
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24) Current account: the sum of inflows and outflows of goods and services, net income inflows and net current
transfers
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26) Financial account: composed of inflows minus outflows of funds for capital transfers and transactions in financial
assets
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28) Reserve assets: foreign currency reserves that the central bank of a country can buy or sell to influence the value of
the country’s current
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4 Economic Integration

29) Preferential Trade Agreement: an agreement that gives preferential access to certain products from certain
countries by reducing or eliminating tariffs, or by other agreement relating to trade
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31) Customs union: a group of countries that remove trade barriers between themselves and adopt common external
tariffs and quotas with non-member countries
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33) Trade creation: a trading bloc fosters greater specialization according to the comparative advantage, thereby causes
a shift in production from higher cost domestic producers to lower cost sources within the trading bloc, the goods
can now be obtained more cheaply from other members of the trading bloc
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35) Monetary union: a common market with a common currency and a common central bank
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5 Terms of Trade

36) Terms of Trade: an index that shows the value of a country’s average export prices relative to their average import
prices
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2) Capital deepening: increase in the amount of capital per worker
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4) Microcredit: the use of very small loans to those in poverty designed to spur entrepreneurship
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6) Foreign aid: the help a country receives from the government of a donor country
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8) Emergency aid: granting emergency supplies appropriate to the emergency such as temporary shelter, clothing, fuel,
heating, and lighting
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10) Food aid: the provision of food or money to buy food and often money to transport, storage and distribution of
food
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12) Grants: non-repayable funds disbursed by one party which is given usually to fund a specific project and require
some level of compliance and reporting
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14) Tied aid: grant or loans that are given on condition that funds are used to buy goods and services from the donor
country
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16) Technical assistance aid: sometimes part of project aid and is either focused on raising the level of technology in the
less economically developed country by bringing in foreign technology and technicians to instruct them in the use of
this/ raise the quality of human capital by giving training and expert guidance or scholarship to the locals
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18) Non-governmental organizations: a group that is not part of any government and not founded by states
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20) Odious debts: debts borrowed by dictators and corrupt regimes on behalf of the government for personal interest
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22) Debt rescheduling: formal deferment of debt-service payments or extension of repayment periods such as new
loans at more favorable terms
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24) Debt relief: cancellation of debt






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