Economic Terms

The quantity of goods and services produced by a productive process.

 

The difference between actual GDP growth and the trend rate of GDP growth for an economy. The gap can be positive or negative.

Below is a set of diagrams to show how a positive and negative output gap emerges in an economy in a AD-AS framework.

When the market produces more than the market requires leading to excess supply.

This is a period of economic activity when AD exceeds the productive capacity of an economy and is characterised by high levels of growth and accelerating inflation without any sustainable extension in real output.

This is a type of collusion in which formal and explicit co-operation and agreements take place between rival firms. This type of collusion normally leads to a cartel forming amongst firms.

The diagram below shows the individual and market outcome of this form of collusion. In this instance, if all firms charge a price of P, ths leads to all firms producing a fixed quota of goods making a level of supernormal profit equal to the red shaded box below. Therefore, this ensures that industry profits are maximised.

 

A phrase used to describe a property that is occupied by the person that owns it.

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.

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

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

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.