Economic Terms

A tax per unit of consumption that does not vary with the value of consumption. The fuel duty on unleaded petrol is currently 58p/litre (n.b. also subject to VAT which is an ad valorem tax).

The following table and diagram detail a specific tax of £2.00:

Investing when there is an expectation that prices will rise and produce a profit.

The decision to buy a good is based on the expectation that the prices are expected to rise rather than for the purpose of consuming the good itself. The goods are typically held for a short period and the sold to make a gain. This activity is common in commodity markets.

An outcome of economic activity that effects firms and individuals that are not directly involved in an activity e.g. externalities.

The immediate exchange of one currency for another using the current exchange rate, which has been determined by demand and supply for those respective currencies in the foreign exchange market.

Below is a diagram to show that this type of contract takes the exchange rate that prevails in the market for that particular currency i.e. where demand and supply for that currency intersect.

Government intervention designed to manipulate markets to prevent excessive price fluctuations

A term used to describe an economy that is experiencing anaemic growth, rising inflation and high levels of unemployment.   

Below is a series of diagrams to show how to represent the economic impacts of stagflation for both the economy and the labour market.

Stagflation is created as a result of an inward shift in the SRAS curve, as shown in the AD-AS diagram above. This inward shift is an example of a supply side shock as is normally instigated because of an increase in production costs such as commodity prices or wage costs. Another term that could be used to describe stagflation is cost push inflation. 

Because the stagflation has created lower output (as a result of firms curtailing production). This means value of labour for firms is reduced and therefore this causes an inwards shift in the demand for labour curve in the labour market. Assuming ceteris paribus, this results in reduced employment and creates rising unemployment in the economy. 

 

All relevant parties who have a vested interest in the operation and results of the business.

Below is an example of some of the economic agents who have a clare interest in the economy. Shareholders are concerned with the profit performance of the company. The management team are concerned with the organisation of the company to ensure the most efficiency, as well as internal goals to elevate their reputation. Staff are interested in personal performance to ensure a bonus or promotion. The government are interested, as the more susccessful the company is the more competitive the economy becomes on an international stage. Customers and the local community provide the demand and factors of production for the production process so are crucial to both the consumption and creation of products.

Services provided by central government and paid for from tax revenues e.g. flood defences, policing, education and health services

A situation where resources are allocated efficiently at a specific point in time. An example of this would be to question whether a firm could produce 2 million cars a year more cheaply by using more labour and less capital.