| A | B |
|---|
| Relative scarcity | The basic economic problem due to wants being greater than resources |
| Factors of production | Natural resources, labour resources, capital resources |
| Opportunity cost | Benefit forgone by a decision not to direct productive resources to their next best alternative use |
| Production possibility curve | Depicts the production combination for a nation given the full utilisation of resources |
| Macroeconomics | Branch of economics which emphasises the role played by aggregate demand |
| Microeconomics | Studies the smaller fragments or units making up the whole economy |
| Market mechanism | Prices are set by the free forces of supply and demand |
| Price elasticity of demand | Responsivness of demand to a change in price |
| Contraction/Expansion of demand or supply | Only can be caused by a change in price |
| Increase/Decrease of demand or supply | Only can be caused by changes in factors |
| Equilibrium | Demand = supply |
| Market failure | Where outcomes produced are inefficient or undesirable |
| Economic activity | Production of goods and services by individuals, firms and governments |
| Business cycle | Phase that typically includes expansion, contraction, peaks and troughs |
| Lagging indicator | Measures level of economic activity which occurred some time ago |
| Coincident indicator | Measurements moving very closely with actual changes in the level of economic activity |
| Leading indicator | Predict in advance where the economy is heading |
| AD | Total annual spending on locally made goods and services |
| Aggregate supply | Total annual quantity of all finished goods and services produced by every business in the Australian economy |
| Price stability | A slow annual rise of consumer prices of between 2 -3 % per annum |
| Consumer Price Index | Measures quarterly changes in the retail prices of locally made and foreign goods and services |
| Regimen | The range of goods and services that are included in the basket whose prices are to be measured |
| Inflation | A situation where the average prices are rising |
| Underlying inflation | The removal of volatile items from the regimen when calculating the extent that prices have risen. |
| Demand inflation | Rising prices caused by spending running ahead of production. When GNE is greater than GDP |
| Cost inflation | Where rising costs of production cause prices to increase. |
| Consumer confidence | The psychological state of individuals about their income and employment. It is a demand factor. |
| Disposable income | Income available for spending after the deduction of progressive taxes and the receipts of welfare benefits. |
| Consumer sovereignty | Where the consumer in a competitive market economy has the ability to allocate resources by virtue of their demand. |
| Business confidence | Where there is optimistic predictions regarding output and profit levels. |
| Productive capacity | The economy's physical limit or potential to produce goods and services when all resources are used to maximum efficiency. |
| Productivity | A measure of output per unit of input of resources |
| RULC | Real Unit Labour Costs: average wages relative to average value of output per worker over time |
| Sustainable economic growth | Where the volume of goods and services increases annually by approximately 4%. It is also where price stability, external stability are maintained and negative externalities minimised. |
| GDP | Gross Domestic Product,it is an indicator of the value of a nation's output. |
| Real GDP | Also known as GDP at constant prices. The value of final output of a nation's goods and services, adjusted for the effects of inflation. |
| Full employment | A situation where everyone willing and able can find employment. Cyclical unemployment does not exist and a minimal amount of natural unemployment is tolerated, usually 5%. |
| Labour force | Individuals aged over 15 who are: employed or unemployed but willing and able to work. |
| Participation rate | The percentage of the labour force who are working or actively seeking employment. |
| NAIRU | Non Accelerating Inflation Rate of Unemployment. The lowest possible rate of unemployment without affecting other objectives, especially price stability. |
| Merit goods | A good with socially desirable effects such as the provision of education.s |
| Demerit good | A good that is socially unacceptable, eg: tobacco or drugs |
| Public good | Also known as a collective good. Goods and services provided by the government for general community use, such as parks, hospitals, schools. |
| Externality | A good or bad side effect of production which affects people who are not directly involved in the production process. Positive externality: education. Negative externality: pollution. |
| External stability | A situation where a country can pay its way in its international financial obligations. |
| CAD | Current Account Deficit: Total value of payments (debits) for goods, services, incomes and transfers exceeds receipts (credits). |
| NFD | All money owed by residents (Australians) to people and institutions overseas. |
| Exchange rate | The rate at which one nation's currency is exchanged or swapped for that of another. |
| Appreciating AUD | Australian dollar is increasing in value compared to the value of our major trading partner's currency |
| Depreciating AUD | Australian dollar is decreasing in value compared to the value of our major trading partner's currency |
| TWI | Trade Weighted Index: An index indicating the movements in the value of the Australian dollar compared with the currencies of our major trading partners. |
| Balance of Payments | An annual financial summary of transactions between a country (Australia) and the rest of the world. |
| Capital deepening | The ratio of capital to population or the labour force is rising. |
| Capital widening | The ratio of capital to population or the labour force is falling. |
| Direct investment | Foreign capital inflow used to establish or expand business operations. |
| Portfolio investment | Investment involving the purchase of shares listed on the stock exchange. |
| Net goods | Difference in the value between exports (credits) and imports (debits) |
| Net services | Difference in the value between exports of services (credits) and imports of services (debits) |
| Net incomes | Third account in Current Account. Records income credits and debits plus the interest repayment on foreign loans. Main reason Australia continues to have a large CAD. |
| Current transfers | A minor account in Current Account. Records items such as pensions from overseas governments and foreign aid. |
| Terms of Trade | A comparison of the price of exports against those for imports |
| Bottlenecks to production | Factors that restrict the increase in the national supply of goods and services. |
| Resource allocation | How scarce resources are to be used. |
| Efficiency of resource allocation | When productive inputs maximises the satisfaction of wants at the lowest cost. When resources are allocated efficiently it is not possible to lift national output further by changing the way resources are used. |
| Allocative efficiency | Resources are used for producing the types of goods and services that best satisfy society's needs and wants. More likely to occur in highly competitive markets. |
| Technical/Productive efficiency | Firms producing goods and services using the least-cost method and minimising resource use. |
| Dynamic efficiency | Firms being adaptive and creative in response to changing economic circumstances. |
| Intertemporal efficiency | A balance between resources being allocated for current use and for future use. |
| Labour productivity | A measurement of efficiency. It measures the annual value of goods and services produced divided by the total number of hours worked by all workers |
| Multifactor productivity | A measurement of efficiency. It measures the annual value of goods and services produced divided by total costs of all inputs. |
| Structural change | Involves businesses altering the way they organise, produce or distribute goods and services. |
| Tariff | Tax on an import. Tariffs in Australia have been decreasing. |
| Free trade | A movement aiming to abolish all restrictions to trade, eg: tariffs. |
| Subsidy | A cash payment by the government designed to help producers compete by selling their product at a lower price than would otherwise occur. |
| Equitable distribution of income | Where everyone has access to basic goods and services. Narrowing the gap between lower and higher income earners. |
| Lorenz curve | Measures income inequality. The further away the lorenz curve is from the line of absolute equality, the less equal is the income distribution. |
| Gini coefficient | Measures income inequality. A number between 0 and 1. The closer the gini coefficient is towards 0 the more equitable is the distribution of income. |
| Gross income | Total income received before tax |
| Direct taxes | Revenue measures levied directly on income recipients as a proportion of their income eg: PAYG, company tax |
| Indirect taxes | Taxes levied on the buyers of goods and services, rather than directly on incomes, eg: GST, tariffs |
| Government capital spending | G2, government purchases of investment goods used to help produce other goods and services for collective use. eg: new buildings |
| Government consumption spending | G1, government expenditure on the purchase of goods and services for immedicate use, eg: wages of public servants. |
| Social wage | Income received after the deduction of progressive taxes, the receipts of means tested welfare benefits and the provision of non-cash benefits (eg education, housing, health) |
| Compatible relationship | When the achievement of one economic objective helps in the achievement of another |
| Conflicting relationship | When the achievement of one economic objective undermines the achievement of another. |
