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# Economic Terms

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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.

### Value judgement

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

### Variable costs

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

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%.

### Veblen good

A good that enjoys “snob appeal” i.e. the goods become more attractive as price rises because few people can afford to buy the goods e.g. designer goods. This only applies to small high net worth (HNW) market segments with branded goods and is unlikely to be found in a perfectly competitive market.

Below is a diagram to illustrate the good's demand curve. In this instance the curve has a positive slope and therefore is upward sloping due to the positive relationship between the two variables: price and quantity demanded. It is extremely rare for a good to have this positive relationship between price and quantity demanded and in most cases is just an empirical theory rather than a form of reality. But an example of this type of good in the real world is basic food staples in times of economic crises. The idea is that if an individual/family is struggling financially and the price of the basic food essentials increase, these individuals end up purchasing more of this essential food item as they can't afford more expensive food items in its place despite the price of the essential good.

### Vertical Integration

This is where firms decide to merge when they are both operating at different stages of the production processes. This most commonly occurs when a company merges with an important supplier.

Below is a diagram to show this type of integration occurs when firms from different sectors such as the primary,secondary or tertiary sector merge with another to have one firm that has a complete production process of a good. However, there are two different forms of this type of integration. Vertical Forward Integration involves a supplier merging with one of its buyers such as a newspaper buying up a newsagents. Vertical Backward Integration involves a purchaser buying one of its suppliers such as a car manufacturer buying up a tyre company.

Trade in goods i.e. tangible and therefore visible items.

### Volume economies

Increasing the dimensions of any structure will lead to a proportionately larger increase in capacity. e.g. a increasing the size of a box from 2m sides to 4m sides will increase the surface area by a factor of 4 (material cost) while the capacity increases by a factor of 8.

### Voluntary unemployment

Workers who have decided not to work, usually because the prevailing wage rate does not incentivise them to work.

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