Economic Terms

Is a nominal monetary unit of measure or currency used to value the cost of goods, services, assets, liabilities, income and expenses. This is one of the three functions of an efficient and successful monetary system, alongside a store of value and a medium of exchange.

The proportionate change in quantity is equal to the proportionate change in price. it will represent a single point on most demand curves (the midpoint of demand curves) or if the demand curve is a rectangular hyperbola (like below) the elasticity value at every point on the curve will represent a Price elasticity of demand value equal to 1.

A financial institution that offers the full range of financial services to customers. These types of bank's offer both the services of a traditonal commerical bank (deposit and lending taking activities) and an investment bank (underwriting of new securities).

Below is the simple breakdown of a universal bank i.e. its two main functions are to carry out commerical and investment banking activities.

A period of great market instability which is initiated by a supply side shock. The instability continues for some time as the cobweb diverges due to demand that is more inelastic than supply. It may require government intervention to re-establish a stable equilibrium position.

A good harvest in period 1 means supply rises to Q₁, so that prices fall to P₁. If producers plan their period 2 production under the expectation that this low price will continue, then the period 2 supply will be higher, at Q₂. Prices therefore fall to P₂ when they try to sell all their output. As this process repeats itself, oscillating between periods of low supply with high prices and then high supply with low prices, the price and quantity trace out a spiral. This all occurs because the slope of the supply curve is less than the absolute value of the slope of the demand curve, then the fluctuations increase in magnitude with each cycle, so that prices and quantities spiral outwards. This is called the unstable or divergent case.

 

The usefulness of or satisfaction with a product i.e. the degree to which a good or service satisfies a consumer's wants or needs. The price consumers are prepared to pay for a good is taken to represent the financial value of utility.

An industry that supplies services to an entire economy. The goods or services are usually homogenous in nature and used by most citizens on a daily basis e.g. water, gas, electricity, sewerage etc

The value-added measure of GDP adds together the value of output produced by each of the productive sectors in the economy.  Therefore it is the increase in the value of goods or services as a result of the production process

Value added = value of production - value of intermediate goods

Below is an example of how value added works in the production of food that eventually gets sold in supermarkets. The farm produces the food with a value of £100. The food then gets sent to the meat processor which adds another £100 on to the value taking it to £200. This processed meat then gets sent to the food manufacturers who package and brand the product adding another £200 to the value taking it to £400. Finally the supermarket buys the food from the food manufacturer and tsocks it on their shelves and this takes the final value to £800.

A statement that reflects someone’s opinion and is not supported by factual evidence.

Costs that are linked to the level of output. An example might be the components needed to make a good, fuel for a delivery vehicle or the electricity used by a piece of machinery. The magnitude of these costs will depend on usage which will be closely linked to output. Costs will increase as output rises and will equally fall as output reduces.

Below is a graphic that highlights the main variable costs that a firm has to occur.

VAT is a tax that's charged on most business transactions in the UK. Businesses add VAT to the price they charge when they provide goods and services. The tax added is either 5% or 20%.