Sunday, June 29, 2008

Economic Jargons

Marginal Propensity

The proportion of your excess money or excess income that you spend

Marginal Revenue Product

The revenue that an additional unit of labour would bring into the firm

Real wage rate

Quantity of good and services that an hours work can buy

Stagflation

It’s a combination of recession and inflation i.e a contradictory phase where both unemployment and inflation are high

Okun gap

The amount by which potential GDP exceeds real GDP is called the Okun gap. Its also called the recessionary gap

External Economies

Factors that are beyond the control of a firm that lowers the firms cost as the industry output increases

External Diseconomies

Factors that are beyond the control of a firm that raises the firms cost as the industry output increases

Markup

Amount by which price exceeds marginal cost. In perfect competition, the price is always equal to marginal cost but in monopolistic competition, the buyers will always pay a price more than the marginal cost

Signal

Action taken by an informed person to pass on the information / message to an uninformed person

Derived demand

When the demand of a product or service is derived from demand for other goods and services then its said to be derived demand

Substitution effect

Higher the wage a person is offered, the more a person is willing to work.

Income effect

Higher a person’s income, the more, will the person be inclined for leisure and the more he is inclined to forgo work for leisure.

Backward bending supply of labour curve

When the wage rates raises, the substitution effect brings in an increase in the quantity of labour supplied while the income effect decreases the quantity of work supplied. At low wage rates, the substitution effect is larger than the income effect so pple tend to supply more labour. But as the wage rates keeps raising, the income effect eventually becomes larger than substitution effect and thus decreases the labour supplied. This brings in a backward bending curve in the labour supplied.

Types of Demand

Elastic demand

When an increase in price of a product brings about a greater decrease in the demand of the product, then its termed as an elastic demand.

E.g: Fancy pens, fancy items. Electronic goods.

Inelastic demand

When an increase in price brings in a slight or no change in demand of a product, then its termed as inelastic demand.

E.g: Cigarettes, Oil, essential commodities.

Perfectly elastic demand

An increase / decrease in the price of a product brings about an equal increase / decrease in demand of that product

Perfectly inelastic demand

When an increase in the price of a product does not bring about a decrease in the demand of the product then its said to be perfectly inelastic demand

1 comment:

Anonymous said...

Good brief and this mail helped me alot in my college assignement. Thanks you as your information.