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Economic Terms

All   0-9   A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Positive externalities

Are positive costs and benefits arising from the process of production and consumption that are incurred or experienced by third parties.

Positive externality

Are positive costs and benefits arising from the process of production and consumption that are incurred or experienced by third parties.

Positive output gap

When actual GDP is greater than the value of GDP if it had grown consistently in line with the trend rate of GDP growth. Normally characterised by rising real output and inflation.


Positive production externalities

Benefits arising from the production of a good or service that are experienced by third parties e.g. the benefits of innovation spillover especially after the expiry of patents.

Below is a diagram to show a positive production externality that is being imposed on third parties. This caused because of the divergence between the marginal private cost and marginal social cost. Because individual producers do not realise the positive externality they are releasing onto society they produce a level of output below the socially optimal level, creating a dead weight loss triangle and market failure.

Positive statement

Is a statement on an economic issue that is supported by factual evidence.

Potential Competition

This is the level of competition that could develop in a contestable market if firms decide to engage in hit-and-run entry.

Poverty or earnings trap

When individuals in work do not perceive any benefit in a wage rise as the increase in taxes and loss of welfare benefits this triggers may mean that they are no better off.


A convex curve that joins all possible combinations of output when all resources are fully engaged in production.

The diagram below shows the basic shape of a country's PPF, illustrating the the distribution and allocation of resources towards producing goods to help the economy achieve the full employment level of output. Any point on the PPF is a point that is pareto optimal, productively and allocatively efficient due to the utilisation of all the factors of prodcution in the economy.

Predatory Pricing

Is when a firm decides to set a price below the marginal cost curve for a short period of time to induce the exit of a financially inferior rival out of the market. The incumbent firm engaging in this behaviour makes a short-term loss but as long as this can be recouperated with higher supernormal profits immediately after the rival's exit the firm will be willing to engage in this strategy.

Below is a graphic to show the logical chain of reasoning behind the process of a predator pricing strategy by an incumbent firm.


The physical location used by a productive process e.g. office, factory or shop.

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