Economic Terms

The reward for providing land.

An alternative to acquiring a property where tenants pay rent to acquire the right to occupy a property for a specific period of time. Payment of rent does not acquire any ownership rights

People rely on this hueristic to make judgments, they are likely to judge wrongly because the fact that something is more representative does not actually make it more likely. For instance if a con had been flipped six times and the outcomes were as follows: HTHTHT. Many individuals would see that this does not represent a fair coin as the pattern is oredered too neatly and therefore make an incorrect judgement on the fairness of the coin.

R&D often requires a minimum scale and the costs are relatively fixed while the benefits vary with output. This can achieve economies of scale for firms as they grow larger e.g. Apple.

Below is a diagram to show the level of R&D expenditure into UK businesses from the period 2009-13. This diagram shows that the pharmaceuticals industry appears to be the biggest recipient of R&D due to its heavy research into new drugs for medical use.

Is the legally prescribed percentage of deposits that banks need to hold in reserve to meet losses stemming from liquidity problems. The more reserves that the bank is legally required to hold the smaller the rate at which they can create new money.

 

When the number of available options is removed and this leads to better and more efficient decision making as a result. For instance an opt-in pension scheme removes many of the internal complicated sub-decisions that have to be made which can often be frightening for decision makers and not lead to socially optimal outcomes such as the types of assets should they invest in and the risk level.

 

Provides banking services to the household sector such as deposit-taking and lending activities.

When banks provide services directly to consumers and not to firms and other banks.

A measure of inflation that reflects housing costs as well as the other goods and services measured by the CPI. It is used by the UK Government to index welfare benefits and is the longest standing inflation measure in the UK (since 1947).

Below is a diagram to show the historical change in RPI from the period 1989-2014 for the UK.

Any profit that is not paid to shareholders in the form of dividends. It may either be re-invested in the business or retained as savings.