300+ Definitions of Important Economics Terms (PDF)

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This mega post is all about the definitions of the basic economics terms for students.

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You can even download a PDF copy of these definitions of key economics concepts.

But before you see all your definitions in Economics (just a couple of steps below), I want to show you how questions about the definitions of economics terms are set.

These Economics questions are particularly useful for Senior High School students or WASSCE candidates.

Simply click on any of the economics terms in the list below to view its definition within seconds.

Contents

Likely questions on Economics terms

Give one definition of economics and explain it.

Define elasticity of supply.

Explain, with an illustration, what is meant by a decrease in supply.

What is a minimum wage?

With the aid of a diagram explain the meaning of the term “equilibrium of the firm”

What are natural resources?

Explain the law of demand through the income and substitution effects.

What is development planning?

Explain the concept of scale of preference.

How is price elasticity of demand measured?

What is economic growth?

What do you understand by a change in demand?

What is meant by the stability of the internal value of a currency?

Explain the term, mobility of labour.

Define : i) Net National Product

              ii) Net National Income

What is pure capitalism?

Explain the time periods in a market situation.

 Describe the vicious cycle of poverty.

 What is meant by the following?       i)economic growth

                                                ii)economic development.

Define economics and explain your definition.

What is an economic system?

What is demand – pull inflation?

 What is foreign investment?

Explain the term economic development.

What is price system?

Define income elasticity of demand and show how it is measured.

Define the term money supply.

What is economic growth?

Explain the following terms  i)utility ii)price iii)value.

What is price mechanism?

What is the value of money?

Define economics.

What is inflation?

What are indirect taxes?

Define Gross Domestic Product ( GDP)

Explain the term demand for a commodity.

Define the following :  i)Net National Product

                                     ii)National Income.

Define the following: i)unemployment

                                    ii)underemployment.

What is balance of payments?

Explain the following population terms: i)growing population

                                                       ii)ageing population.

What is a monopoly?

What is development planning?

With examples, explain the following types of tax:

         i)value added tax

         ii)capital gains tax

         iii)ad valorem tax

         iv)excise duty.

What is land?

What is subsistence farming?

What is a Consumers’ Co – operative Society?

What is incidence of taxes?

Explain the meaning of net migration.

What is a mixed economy?

 What is  i)total utility?

                ii)diminishing marginal utility?

Explain the following types of unemployment :

                i)disguised unemployment

                ii)seasonal unemployment

                iii)voluntary unemployment

                iv)frictional unemployment

                v)structural unemployment.

            52. What is:  i)legal tender?

                                 ii)commodity money?

                                 iii)token money?

What is a tax?

Who is a wholesaler?

What is a money market?

What is   i)devaluation?

               ii)depreciation of  currency?

Define the term, utility.

What is unemployment?

Briefly explain any four of the following :

              i)absolute cost advantage

              ii)comparative cost advantage

              iii)balance of trade

              iv)balance of payments

              v)terms of trade

 What is economic integration?

What is land as a factor of production?

What is a population census?

What is money?

Define demand for a commodity.

Explain the principles of taxation.

What is Gross National Product (GDP) at factor cost?

What is international trade?

Explain each type of price elasticity of demand and state its numerical value.

What is meant by the equilibrium of the firm?

Explain the term population census.

Define economic growth.

What is government recurrent revenue?

Define cross elasticity of demand.

Define production.

Explain opportunity cost.

What is a consumers’ co – operative society?

What is monopoly?

What is maximum price legislation?

Define price discrimination.

What is optimum population?

Explain the term location of a firm.

Define government budget.

What is demand – pull inflation?

Who is a middleman in the chain of distribution?

What is meant by open market operation?

Explain the term effective demand.

Define specialization.

What are external economies of scale?

What are co-operative societies?

State the law of demand. Explain any three exceptions to the law.

Define the terms :  i)location of industry

                               ii)localization of industry.

What is  i) peasant farming?

              ii)commercial farming?

Briefly explain :    i)budget surplus

                               ii)budget deficit.

Explain the following terms:

                    i)tariffs           ii)import quotas.

           Describe the following components of balance of payments:

                                      i)current account

                                      ii)capital account.

What are wages?

Explain the following terms :

                      i)balance of trade

                      ii)balance of payments

What is under – population?

What is a market?

Explain the following terms :

                        i)budget surplus

                        ii)deficit financing.

What is a development plan?

What is an economic system?

Define money.

What is price elasticity of demand?

Define capital.

Explain the following :

                          i)fixed capital

                          ii)circulating capital

                          iii)social capital

Explain the following :

                          i)preference shares

                          ii)ordinary shares.

All Definitions

Following are the definitions of key economics terms.

You may download the PDF version of this post. It will help you to easily check any one of the economics terms, its definition and importance whenever you need to.

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ECONOMICS

DEFINITION: Economics is a science which studies human behavior as a relationship between ends and scarce means which have alternative uses.

ENDS/WANTS

MEANING: Ends are wants or desires that individual consumers, firms or businesses and government are constantly using their scarce resources to satisfy. They are in the form of goods and services, goals or circumstances that mankind desires.

******** CHARACTERISTICS OF ENDS/WANTS

  1. Human wants are unlimited.
  2. They differ among individuals and over time.
  3. As soon as they are satisfied, they tend to create other ends. This explains why they are unlimited.
  4. They have value and command price.
  5. Ends compete for the same scarce resources.

MEANS

MEANING: Means are the same as resources. They are the goods and services used to produce other goods and services to satisfy human wants. Personal income and time are part of what are classified as means. Other terms used for means are factors of production, resources and inputs.

******** CHARACTERISTICS OF MEANS

  1. They are limited in supply.
  2. They have value and command price.
  3. They have alternative uses.
  4. They can be combined in many different ways when they are being used to produce goods and services.

SCALE OF PREFERENCE

MEANING: Scale of preference is the arrangement of wants in order of importance with the most urgent want topping the list. This arrangement could be written or mental.

************ IMPORTANCE OF SCALE OF PREFERENCE TO THE INDIVIDUAL

  1. It helps the individual to make rational or wise choices.
  2. It helps the individual to be prudent in the use of scarce resources.
  3. It helps the individual to maximize satisfaction by choosing the most urgent want.

************ IMPORTANCE OF SCALE OF PREFERENCE TO THE FIRM OR PRODUCER

  1. It helps the firm to make rational or wise choices as to what to produce given the scarce resources.
  2. It helps the firm to make rational or wise choices as to how to produce. That is, to choose the most efficient method of production in the face of limited resources.
  3. It helps the firm to make the best decision regarding the allocation of the scarce resources in order to produce at minimum cost and minimum price for the consumer.

************ IMPORTANCE OF SCALE OF PREFERENCE TO GOVERNMENT

  1. It helps government to make rational choices regarding the projects to be provided for the society.
  2. It helps government to maximize social welfare by being prudent in its use of scarce resources.
  3. It helps government to make rational choices in the allocation of resources to the various sectors of the economy and to the various segments of society.

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OPPORTUNITY COST

MEANING: Opportunity cost is the sacrificed next most desired item or items whose value equals or is  almost the same as that of the chosen item or items. Other terms used to refer to opportunity cost are: real cost, alternative cost, alternative forgone, true cost, sacrificed alternative.

MONEY COST

MEANING: Money cost is the actual amount of money that is paid in order to obtain the commodity to satisfy the chosen want. Other terms used to refer to money cost are: accounting cost, nominal cost and historical cost

************ IMPORTANCE OF THE CONCEPT OF OPPORTUNITY COST TO THE INDIVIDUAL

  1. It helps the individual consumer to make the right choice among the competing wants in order to maximize satisfaction.
  2. It helps the individual to be prudent in his use of his time and energy to maximize his satisfaction.

************ IMPORTANCE OF THE CONCEPT OF OPPORTUNITY COST TO THE FIRM

  1. It helps the producer to make rational choices as to what to produce in order to maximize profits.
  2. It enables the firm to make the right choices regarding the most efficient method of production among competing methods.
  3. It helps the firm to minimize cost of production in terms of alternatives to be forgone.

************ IMPORTANCE OF THE CONCEPT OF OPPORTUNITY COST TO GOVERNMENT.

  1. It helps the government to make rational choices as to what projects to provide and what to forgo.
  2. It helps government to make the best decision concerning what type of commodities to import given the scarcity of foreign exchange.

            SOCIAL COSTS

            MEANING: Social costs are the inconveniencing experiences resulting from production activity that the entire society has to endure. e.g. polluted water bodies or general environmental degradation and their adverse effects as a result of the activities of a mining company in an area.

PRIVATE COSTS

MEANING: Private costs are the expenses incurred by the firm or producer in the course of production. Private cost could be explicit cost or implicit cost.

EXPLICIT COSTS

MEANING: Explicit costs are the ordinary expenses which accountants record as the firm’s cost of production such as wages and salaries, payments for raw materials, fuel, etc. They are usually measured in monetary terms.

IMPLICIT COSTS

MEANING: Implicit costs are the costs of personal resources used by the owner for the good of the business. e.g.  a proprietor’s own labour or time or other personal assets that he freely puts at the disposal of the business. Implicit costs cannot be easily calculated in monetary terms since they are hidden and sometimes intangible and are therefore usually omitted by accountants when calculating the firm’s costs. To the economist however, implicit costs are important since the owner incurs some opportunity cost by making his personally – owned resources freely available to the firm.

FIXED COSTS (FC)

MEANING: Fixed Costs are a form of short-run costs that the firm incurs by using fixed inputs or factors of production and which do not change or vary (increase or decrease) as level of output changes or varies (increases or decreases). Fixed costs are the costs of the fixed factors of production such as rent on land or factory building, salaries of administrative staff (other than direct labour), interest paid on loans, depreciation of machinery, property tax etc. Other terms used for fixed costs are overhead costs, sunk costs, supplementary costs and indirect costs.

PLEASE NOTE: When output is zero, FC will still be incurred so will be equal to Total Cost (TC).

 *** TFC = TC – TVC.

VARIABLE COSTS (VC)

MEANING: They are a form of short – run costs that the firm incurs by using variable inputs or factors of production and which change or vary (increase or decrease) as level of output changes or varies (increases or decreases). Variable costs are the costs of the variable factors of production such as electricity, water, fuel, raw materials and direct labour. Other terms used to refer to Variable Costs are direct costs and prime costs.

PLEASE NOTE: When output is zero, TVC will also be zero.

*** TVC = TC – TFC.

TOTAL COSTS

MEANING: Total costs are the sum total of all the costs incurred by the firm by using both fixed and variable factors of production.

PLEASE NOTE: When output is zero, TC will be equal to TFC.

*** TC = TFC + TVC.

AVERAGE COST (AC)

MEANING: Average cost is cost per unit of output. It is also called unit cost.

*** TAC = TC ÷ Q.             Or:       *** TAC = AFC + AVC.  

* AFC = TFC ÷ Q.  

* AVC = TVC ÷ Q.  

PLEASE NOTE: *AC tends to be high at a lower level of output since in this situation FC will be spread over just a small number of units of output.

                             *On the other hand, AC tends to be low at a higher level of output since FC can now be spread over a higher number of units of output.

BEHAVIOUR OF AVERAGE COST DURING PRODUCTION IN THE SHORT RUN

  • Falls initially due to increasing returns to the variable factor of production as more and more units are employed.
  • Reaches its minimum when the firm reaches its optimum level of output and experiences constant returns to the variable factor of production.
  • Begins to rise finally due to diminishing returns to the variable factor of production.
  • SHAPE OF THE AC CURVE is therefore U – SHAPED.

MARGINAL COST (MC)

MEANING: Marginal cost is the additional cost incurred when an additional unit of output is produced. In other words, it is the change in TC when one more unit is produced by using an additional variable input.

*** MC = new or current TC – previous or original TC.

 i.e. To calculate or obtain MC, you subtract the original or previous TC ( TOTAL COST zero, or one, or two etc. as the case may be) from the new or latest TC ( TOTAL COST one, or two etc. as the case may be).

OR:

*** MC = new or current VC – previous or original VC.

i.e. To calculate or obtain MC, you subtract the original or previous VC ( VARIABLE COST zero, or one, or two etc. as the case may be) from the new or latest VC ( VARIABLE COST one, or two etc. as the case may be).

 PLEASE NOTE: The Variable Cost approach is possible due to the fact that even though TOTAL COST of production is made of only two components, FC and VC, FIXED COSTS by definition never change whatever the level of output therefore MARGINAL COSTS would just be the same as ADDITIONAL VARIABLE COSTS incurred by producing  additional units.

BEHAVIOUR OF MARGINAL COST DURING PRODUCTION IN THE SHORT RUN

  • Falls initially due to increasing returns to the variable factor of production as more and more units are employed.
  • Reaches its minimum when the firm reaches its optimum level of output and experiences constant returns to the variable factor of production.
  • Begins to rise finally due to diminishing returns to the variable factor of production.
  • SHAPE OF THE MC CURVE is therefore U – SHAPED.

PRODUCTION

MEANING: Production is the creation of goods and provision of services to satisfy human wants.

DISTRIBUTION

MEANING: Distribution is the economic activity which involves changing of positions of goods and services by conveying them from producers to consumers. DISTRIBUTION IS AN IMPORTANT ASPECT OF PRODUCTION SINCE PRODUCTION IS NOT COMPLETE UNTIL GOODS ARE IN THE HANDS (not mouths or stomachs) OF THE FINAL CONSUMER.

***This means that production ends with distribution. (NOT CONSUMPTION)

EXCHANGE

MEANING: Exchange is the economic activity whereby producers transfer the title of ownership of goods from one producer to the other for their mutual benefit. Exchange is what happens in international trade, for example. Exchange has resulted in specialization.

NOTE: DISTRIBUTION and EXCHANGE are often used together or interchangeably as if to imply that they refer to exactly the same activity. However the definitions above should make it easy for you to know the slight difference between them in spite of their similarity.

CONSUMPTION

MEANING: Consumption is the economic activity which involves the using up of goods and services to satisfy human wants.e.g. eating of food, watching an English Premier League match, wearing of clothes, making a phone call, listening to music, receiving manicure and pedicure services from a beautician etc.

Without consumption, production and distribution or exchange on a large scale may not be possible.

This is because it is consumption that creates demand for goods and services to be produced and distributed.

*** PLEASE NOTE: It is clear from the above that CONSUMPTION is a DISTINCT economic activity on its own and IS NOT PART OF PRODUCTION.

MICROECONOMICS

MEANING: Microeconomics is the branch of economics that deals with the economic behavior of individual units such as consumers, firms and resource owners. It describes their activities in terms of the market forces of demand and supply and prices. It is also called price theory.

MACROECONOMICS

MEANING: It is the branch of economics which concerns itself with economic aggregates such as Gross National Product, the level of employment, inflation, population, taxation and national debt. Macroeconomists look at how the entire economy of a country functions rather than how individual business enterprises produce goods.

ECONOMIC SYSTEM

DEFINITION

An economic system is an arrangement for managing the relatively scarce resources in a particular place or country at a particular period of time.

TRADITIONAL ECONOMIC SYSTEM

DEFINITION: The traditional economic system is the system in which people go about their economic activities the way they have always done; using the same old tools and methods used by their predecessors.

THE CAPITALIST SYSTEM

DEFINITION

A capitalist system is the economic system which allows choices to be made by the free interplay of market forces of demand and supply. Resources are allocated by the price mechanism and the individual is at the centre of economic activity.  e.g. USA and Japan.

THE SOCIALIST SYSTEM

DEFINITION

The socialist system is the one in which choices are made by the government through a Central Planning Agency (CPA) and factors of production are owned by the government rather than by private individuals and business enterprises.e.g. North Korea, China.

MIXED ECONOMIC SYSTEM

DEFINITION

The mixed economic system is the one which blends elements of all the other systems namely traditional, capitalist and socialist economic systems. It is what is practiced in most economies of the world e.g. UK, Ghana, Brazil and Nigeria.

PRODUCTION – MORE DETAILED DEFINITION

DEFINITION: Production is the creation of utility or an activity which results in the creation of goods and services which are capable of satisfying human wants and the distribution of these goods to final consumers. The last stage of production is therefore distribution.

LAND

DEFINITION: Land, also referred to as natural resources, is the free gifts of nature which are used for the production of goods and services. Examples include forests, seas, lakes, rivers, mineral deposits, sunshine, rain, wind, soil and land surface.

RENEWABLE RESOURCES

DEFINITION: Renewable resources are natural resources that can be replaced after they have been used up or exploited. e.g. trees, fish, other animals.

LABOUR

DEFINITION

Labour is the actual effort, physical or mental, skilled or unskilled, made by human beings for the production of goods and services for a reward or payment such as wages and salaries.

LABOUR FORCE (THE WORKING POPULATION)

DEFINITION.

Labour force is the economically active population who are available for work at a given wage or market rate.

ECONOMICALLY ACTIVE POPULATION

They are those who fall within the legal working age bracket, for example 18 to 60 years, who can work, who want to work, who   are working and who are looking for work. They are both the employed and the involuntarily unemployed.

THE QUANTITY OF LABOUR

It is the size of a country’s labour force.

SUPPLY OF LABOUR

DEFINITION: Supply of labour is the total amount of efforts in terms of man working hours that labour is willing and able to offer for production at a given wage rate per a period of time.

EFFICIENCY OF LABOUR

DEFINITION

Efficiency of labour is the productivity per unit of labour employed, given a certain amount of resources and period of time.

PRODUCTIVITY OF LABOUR

Productivity of labour is the quantity of a commodity produced by each worker in a given period of time such as an hour, a day or a month. It is output per worker. As an average concept, it is obtained by dividing total output by the total number of workers that produced the particular commodity.

MOBILITY OF LABOUR

DEFINITION

Mobility of labour is the ease with which labour can move from one type of occupation to another (occupational mobility) and from one area to another (geographical mobility).

WAGES

DEFINITION: Wages are the reward or payments made to labour for the services they render in production.

DIVISION OF LABOUR

DEFINITION: Division of labour is the breaking down of the production process into a number of distinct operations, each operation undertaken by a worker or a group of workers.

SPECIALIZATION

DEFINITION: Specialization is a situation where an individual, a firm or a country focuses on a particular line of production where it has the greatest comparative advantage.

CAPITAL

DEFINITION: Capital refers to all man – made aids to further production. It is all goods and productive resources (wealth) that contribute to the production, marketing and distribution of goods and services. e.g. factory buildings, inventories, equipment, machinery, raw materials, semi – finished goods, vehicles etc.

WEALTH

DEFINITION: Wealth is the stock of money and physical assets which have money or market value which may be used for either consumption or production to benefit the individual, the firm or the state that owns it.

CAPITAL FORMATION/ CAPITAL CREATION/CAPITAL ACCUMULATION

DEFINITION: Capital formation is the process of making available more capital or producer goods like tools, machines, irrigation dams, communication systems etc.by consuming less goods now than the total quantity of goods produced. It involves the diversion of some factors of production from the production of consumer goods to the production of producer or capital goods.

CAPITAL CONSUMPTION

DEFINITION

Capital consumption is the failure to replace worn – out (depreciating) capital or the using up of stocks within a given period of time. When a country fails to maintain its stock of capital goods it is said to be living on its capital.

MONEY CAPITAL

MEANING: Money capital is cash set aside for business or investment purposes. It is spent on acquiring other capital goods such as equipment, buildings, etc. or on business expenses as rent, wages, transport, electricity, repairs, etc. Money capital is also called liquid capital or seed money.

REAL CAPITAL

MEANING: Real capital is all the actual capital goods or assets that money capital is used to acquire. Fixed capital, circulating capital, social and private capital are all types of real capital.

FIXED CAPITAL

MEANING: Fixed capital is capital that is durable and does not change its form in the process of production but requires renewal only after a long period of time as it undergoes wear and tear and has to be renewed after a long period of usage. e.g. factory buildings, office premises, classroom blocks, machinery and equipment etc.

CIRCULATING CAPITAL

MEANING: Circulating capital is the type of capital that constantly changes its form during the production process. The producer requires them for the day – to – day running of the business. It is circulating because money is used to purchase it, then it is used for further production, the goods and services are then sold for money which is again used to purchase it and the cycle is repeated. It is also called working capital. e.g. raw materials, semi – finished or intermediate goods, unsold stock of goods.

SOCIAL CAPITAL

MEANING: Social capital is capital that is owned by society as a whole. e.g. state or publicly – owned property such as schools, roads, bridges, dams, hospitals, other public buildings etc.

PRIVATE CAPITAL

MEANING: Private capital is capital which is owned by private individuals. e.g. machines, buildings, vehicles, office equipment, stocks of goods in shops, computers etc.

CAPITAL FLIGHT

Capital flight is a large-scale exodus of financial assets and capital from a nation or region due to events such as political or economic instability, currency devaluation or imposition of capital controls.

CONSUMER GOODS

MEANING: Consumer (or consumers’) goods are goods that are demanded by the final consumer for their own sake or for direct consumption. e.g. a cup of rice, a loaf of bread, a TV set, mobile phone, a personal computer etc.

PRODUCER GOODS

MEANING: Producer (or producers’) goods are all capital goods that are used for further production of either consumer goods or semi – finished producer goods (intermediate).e.g. machinery, equipment, raw materials, stock of unsold goods, buildings, etc.

INTERMEDIATE GOODS

MEANING: Intermediate goods are goods which are purchased for resale or for further processing/manufacturing/production during the year.

ENTREPRENEURSHIP

DEFINITION

Entrepreneurship is the combination of the other factors of production in the production of goods and services and the acceptance of the risks of production which arise through uncertainty.

ENTREPRENEUR

DEFINITION

The entrepreneur is the person or group of persons who, propelled by the profit motive, takes the initiative to start a business enterprise, makes the decision as to what to produce, how to produce, where to produce, how much to produce, combines the other factors to produce what has been decided on and bears the risks of production arising through uncertainty. e.g. farmer, trader, shareholder, dressmaker, beautician etc.

SOLE PROPRIETORSHIP/ ONE-PERSON BUSINESS /SOLE TRADER

DEFINITION

A sole-proprietorship is a business which is owned and controlled by one person who provides the capital and bears the risks of production arising out of uncertainty. The owner of a café, a bakery, a retail shop, a farm, a private school, a tailoring shop, a clinic etc. is often a sole – proprietor.

 PARTNERSHIP

DEFINITION

A partnership is the relation which subsists between two or more, but not more than twenty, persons who carry on a business in common by sharing responsibility and control for the purpose of making and sharing profits.

PARTNERSHIP DEED (OR AGREEMENT)/ARTICLES OF PARTNERSHIP

DEFINITION

A partnership deed or agreement is a document drawn up to clarify the respective positions of the partners in a business. It specifies the rights, duties and responsibilities of each of the partners involved.

PROMOTERS OF A JOINT-STOCK COMPANY

DEFINITION: Promoters of a company are the people who usually carry out the preliminaries or ground work leading to the formation of the company such as settling on the name of the company, its premises and drafting the necessary documents to be filed with the Registrar of Companies.

MEMORANDUM OF ASSOCIATION

DEFINITION: A Memorandum of Association is a document by which a company is governed in its relation with the outside world.

ARTICLE OF ASSOCIATION

DEFINITION: Article of Association is a document by which a company’s relations with its members as a body are governed. In other words, it sets out the rules governing the company’s internal affairs.

THE PROSPECTUS OF A PUBLIC LIMITED COMPANY

DEFINITION: A prospectus is the document by which a public limited company invites members of the public to subscribe for its shares or debentures. It must be dated and signed by every director named in it and registered with the Registrar of Companies before it is issued to the public.

CO-OPERATIVE SOCIETY

DEFINITION: A Co – operative Society is a voluntary association of persons who pool their resources together to undertake the production or distribution of goods to satisfy their common needs and interests. It may be formed by farmers, traders, consumers or workers.

CONSUMERS’ CO-OPERATIVE SOCIETY

DEFINITION: A consumers’ co-operative society is a business organization that buys goods especially food, household supplies and other necessities for its members.

PRODUCERS’ CO-OPERATIVE SOCIETY

DEFINITION: A producers’ co-operative society is a business organization that is owned by workers who select some of their members to manage it. Profits are shared among the members. e.g. pepper growers, poultry farmers, maize producers shea-nut farmers, rice farmers etc.

PRODUCE MARKETING CO-OPERATIVE SOCIETY

DEFINITION: A produce marketing co-operative society is a co-operative society that is formed by a group of farmers who come together to obtain higher prices for their products.

PUBLIC ENTERPRISE

DEFINITION: Public enterprises are economic activities set up, or taken over by government from private operators i.e. nationalized, financed and controlled by the government.

They are also referred to as public utilities because they usually supply essential goods and services to the public. e.g. water, electricity, broadcasting, banking and finance, education, air transport, rail transport, postal and telecommunication services, mining, housing, petroleum, sea, river, lake and road transport.  

STATUTORY CORPORATION/PUBLIC CORPORATION/ PUBLIC UTILITY CORPORATION

DEFINITION: A public corporation is a public organization used for the management and operation of public enterprises. It is sometimes called a Board or Authority. e.g. Ghana Broadcasting Corporation, Volta River Authority, Ghana Cocoa Marketing Board, Ghana Ports and Harbours Authority, Ghana National Petroleum Corporation.

PRODUCE MARKETING BOARD

DEFINITION: Produce marketing boards are trading agencies set up by the government to buy and sell agricultural produce and to promote economic development with the reserves which they   accumulate. e.g. Cocoa, timber and cotton marketing boards.

PREFERENCE SHARES

DEFINITION: Preference shares are shares which attract a fixed rate(fixed percentage) of dividend.

  • Holders of preference shares receive their dividends before ordinary shareholders receive theirs.
  • They face the least risk
  • They do not have voting rights at the company’s Annual General Meeting (AGM)
  • In the event of collapse or insolvency of the business, they receive their invested capital first before others are considered.

 ORDINARY SHARES

           DEFINITION: Ordinary shares are shares which do not attract a fixed rate of dividend.    They are also known as equity shares.

  • Holders of ordinary shares are entitled to only the residue of profits after all other payments have been made.
  • They bear the main risk of the business.
  • They have voting rights at the Annual General Meeting i.e. they have a greater say in the affairs of the business.
  • In the event of collapse of the business, they are the last to receive back their invested capital.

POPULATION

DEFINITION:

Population refers to the total number of people living in a geographical area or country in a given period of time. Therefore, the inhabitants of a designated territory e.g. village, town, city or country at any given time or period constitute the population of that area.

AGEING/OR DECLINING POPULATION

DEFINITION

An ageing (also, aging) or declining population means an increasing proportion of old people in the population while the proportion of young and working population is decreasing. This is usually the situation in the advanced and affluent countries like France, Great Britain, Germany and the United States of America (USA) where married people tend to have fewer children as they are less dependent on their children for financial security in their old age

GROWING POPULATION

MEANING: A growing population refers to an increase in the number of people living in a particular geographical area (e.g. country) as a result of increase in birth rate, decrease in death rate net migration. The proportion of the young and active is greater than that of the aged.

AGE DISTRIBUTION OF POPULATION

MEANING: Age distribution of a population is the number of people in different age groups, such as the following

Children: 0 – 17 years (dependent population)

Labour force: 18 – 60 years (working population)

Old people: 61 and above (dependent population)

THE AGE DISTRIBUTION OF THE POPULATION OF WEST AFRICAN COUNTRIES IS ROUGHLY AS FOLLOWS.

Children: 45% (dependent population)

Labour force: 35% (working population)

Old people: 20% (dependent population)

GEOGRAPHICAL DISTRIBUTION OF POPULATION

DEFINITION

Geographical distribution of population refers to the spread or distribution of people over different areas in a country at a given time.

In every country, the number of people found in the various parts is not even or equal.

One region or area may be densely populated while other areas may be sparsely populated.

By measuring the land area of each civil division (area occupied by a group of people), it is possible to compute densities, i.e. population by square mile or kilometer.

POPULATION DENSITY

DEFINITION

Population density refers to the total number of inhabitants per unit area of land, e.g. per square mile or kilometer. An area which has many people per square mile or kilometer  is considered to have  high population density (i.e. such an area is densely or thickly populated).

NET MIGRATION

MEANING: Net migration is the difference between the movement of persons into the country (immigration) on the one hand, and the movement of persons out of the country (emigration) on the other.

***** NET MIGRATION = IMMIGRATION – EMIGRATION.  

RURAL-URBAN MIGRATION (RURAL-URBAN DRIFT)

DEFINITION

Rural – Urban migration or rural – urban drift is the migration or movement of people, especially young school – leavers, from rural areas to settle in the urban centres for reasons such as the desire for modern, urban sector jobs and higher education

UNDER-POPULATION

DEFINITION

Under-Population refers to the situation where the population in a country falls short of the available resources and existing technology. A country is said to be under-populated if a larger population would lead to an increase in output per person (or per head)

In other words, an increase in the size of the population will lead to an increase in the output per head or a higher standard of living. Thus under – population may exist even in a well populated country if there is insufficient labour to make the best use of other resources

OVER-POPULATION

DEFINITION

Over-population is the situation where there are more people than can make the best use of the available resources so that a decrease in size of the population (particularly the size of the labour force) will lead to a higher output per person.

A country which is poor in natural resources and lacking capital might be economically over – populated although, in respect of numbers, its population may be small yet, relatively, too big for the existing resources

OPTIMUM POPULATION

DEFINITION

Optimum population is the size of population (i.e. the quantity of labour) which, combined with the other resources such as land, capital and existing technology, yields the highest output of goods and  services per head (or per worker) of the population.

In other words, optimum population is reached when real output per capita is maximized at a particular population size.

Optimum population is not fixed, for, over a period of time, conditions are liable to change and what was formerly the optimum population may cease to be so under changed conditions of production

POPULATION CENSUS

DEFINITION

Population census is the systematic official counting of all the people in a country at regular periods of time, usually every ten years.

Population census is a head count which also involves collecting data on sex and age structure of the population, the size of families as well as geographical and occupational distribution of the population. For example, Ghana has had population censuses over the years. The one in 1984 gave Ghana’s population as 12.3 million and that of 2000 as 18.4 million.

You can find out more about the current trends in the populations of individual countries in Africa and the rest of the world.

TRADE UNION

DEFINITION: A trade union is an association of workers in a particular firm or industry aimed at promoting the interests or welfare of its members in such areas as better wages, better conditions of work (e.g. working hours).

EMPLOYERS’ ASSOCIATION

DEFINITION

An employers’ association is a voluntary association of employers in a particular firm or industry to represent the interest of members in areas such as wages, labour markets, government polices on employment and settlement of trade disputes. Employers’ associations are also called trade associations. Examples of employers’ associations are manufacturers’ association, Private Medical Practitioners’ associations, Bar Association (i.e. association of lawyers, e.g. Ghana Bar Association), and Private Schools Proprietors’ Association

UNEMPLOYMENT

DEFINITION

Unemployment refers to a situation whereby people who are within the working age and are able and willing to work at the going wage rate are unable to find work and therefore remain idle or unutilized

Unemployed workers are, therefore, those who are willing and able to work and are looking for work but do no have jobs

CYCLICAL UNEMPLOYMENT

DEFINITION: Cyclical unemployment is associated with the deflationary phase of a business cycle when nearly all forms of production are adversely affected. It is caused by a general decline or deficiency in the effective aggregate demand for goods and services resulting in the laying off of workers. This situation, in turn, further reduces purchasing power thereby worsening the general deficiency in demand and then deepening the deflationary situation to cause further laying off of more workers.

It is a type of cycle hence the name cyclical unemployment.

Cyclical unemployment is more a feature of advanced economies which occasionally experience severe economic recession or depression.

STRUCTURAL UNEMPLOYMENT

DEFINITION:  Structural unemployment is unemployment which arises from changes in demand conditions for goods and services or changes in technology.

In the event of changes in a country’s industrial structure leading to firms switching from one kind of production to another, labour, being immobile becomes unemployed as it cannot quickly supply the new skills being demanded by the emerging system of production.

An example is untrained teachers becoming unemployed as demand has shifted to trained teachers.

Another example is a fall in demand for the services of copy typists making them unemployed due to the emergence of computers and a shift to the demand of computer services instead.

FRICTIONAL UNEMPLOYMENT

DEFINITION: Frictional unemployment is the type of unemployment that occurs as workers temporarily become jobless as they take steps to search for jobs of their choice having decided to change jobs, or having just completed training or school, or having completed an existing job (e.g. painters, masons, carpenters, electricians etc.).

It is also called ‘search unemployment’.

Frictional unemployment results from the ‘friction’ which reduces the speed at which supply of labour can adjust to meet demand for labour.

SEASONAL UNEMPLOYMENT

DEFINITION: Seasonal unemployment is unemployment caused by a fall in demand for labour at certain times of the year.

Examples of seasonal unemployment are outdoor construction workers becoming temporarily jobless during the rainy season, farmers during the dry season, vendors of certain goods and services associated with only festive occasions becoming temporarily unemployed in the off – festive season or period etc.

RESIDUAL UNEMPLOYMENT

DEFINITION: It is unemployment suffered by persons who are considered unemployable due to the fact that they are physically or mentally challenged.

DISGUISED UNEMPLOYMENT OR UNDER-EMPLOYMENT

DEFINITION: Disguised unemployment is a situation where labour or any other factor of production, though considered to be employed, is so under – utilized that the absence of some units of labour from the production process will not have any effect on the level of production. In other words, the marginal productivity of labour is zero.

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URBAN UNEMPLOYMENT

DEFINITION: Urban unemployment is unemployment that results from rapid urbanization as a result of the movement of people, especially young school-leavers, from the rural areas to urban centres (rural-urban migration) in search of non-existent modern, formal sector jobs.

Such jobs are often largely non-existent. And in many cases, the job seekers hardly have the required training or skills. These and other factors help to create unemployment in cities and large towns.

VOLUNTARY UNEMPLOYMENT

DEFINITION: Voluntary unemployment is unemployment resulting from a deliberate choice, on the part of persons who are qualified and able to work, not to work.e.g. workers on strike.

THE PRICE MECHANISM/THE PRICE SYSTEM

DEFINITION

The price mechanism or the price system refers to the free interaction between buyers (demand) and sellers (supply) to determine what is bought and sold.

The price system operates or functions in the market economy where prices serve as means by which resources and goods or services are distributed or allocated by a central planning committee.

PRICE

DEFINITION: Price is the amount of money given or asked for when goods or services are bought or sold.

DEMAND

DEFINITION: Demand is the amount or quantity of a commodity or services which consumers are willing and able to buy at various prices per time period, all other things being equal or held constant.

DEMAND SCHEDULE

MEANING: Demand schedule is a table which shows the quantities of a commodity bought at different or various prices over a period of time, say, daily, weekly, monthly or yearly.

INDIVIDUAL DEMAND

MEANING: Individual demand is the quantity of a commodity that an individual or household purchases at various prices per time period.

MARKET DEMAND

DEFINITION: Market Demand is the sum of the individual demands of all households (i.e. consumers) in the market at various prices per time period.

DEMAND CURVE

DEFINITION: A demand curve is a line or curve that shows the relationship between prices and the quantities bought of a commodity by an individual consumer per time period.

DEMAND FUNCTION

DEFINITION: Demand function is a mathematical representation of quantity demanded of a commodity over a particular range of prices per unit of time.

Simply put, demand function is a mathematical equation that shows the relationship between the quantities demanded of a commodity and a particular range of prices per time unit

Example of Demand Function

  1. Qdx = 40 – 3px
  2. Qdx = 40 – Px

In each of the two demand functions above,

Qdx = Quantity demanded of commodity x

Px = Price of commodity x

CHANGE IN QUANTITY DEMANDED ( PRICE INDUCED DEMAND)

MEANING: A change in quantity demanded means an increase or a decrease in quantity demanded of a particular commodity by consumers as a result of a change in the price of that commodity.

A change in quantity demanded is also referred to as price-induced demand.

This is because a change in quantity demanded is caused solely by a change in the price of the commodity, while other factors that affect demand remain unchanged.

  • An increase in Quantity Demanded, i.e. expansion/Extension in Demand.
  • A Decrease in Quantity Demanded, i.e. Contraction in Demand
  • A change in Quantity Demanded results in a Movement along the same Demand Curve

CHANGE IN DEMAND (A SHIFT IN DEMAND)

MEANING: A change in demand refers to an increase or decrease in the number of units of a particular commodity that can be purchased while price remains constant.

A change in demand is due to changes in the conditions of demand (i.e. the factors determining demand, except price, of the commodity).

A change in demand results in a:

  1. New demand schedule
  2. New demand curve, i.e. shift in the demand curve either to the right (increase in demand) or to the left (decrease in demand).

AN INCREASE IN DEMAND

DEFINITION: An increase in demand refers to a situation where there is a greater quantity of a commodity demanded by consumers at each price of the commodity per time period as a result of favourable or positive changes in any of the conditions of demand (i.e. the determinants of demand except price of the commodity) e.g. taste and fashion, disposable income, whether conditions, etc.

A DECREASE IN DEMAND

DEFINITION: A decrease in demand refers to a situation where there is a smaller quantity of a commodity demanded by consumers at each price of the commodity per time period. This is the result of unfavourable or negative changes in any of the conditions of demand (i.e. the determinants of demand except price of the commodity) e.g. taste and fashion, disposable, income, whether conditions etc.

DERIVED DEMAND

MEANING: Derived demand is the demand for a commodity not for direct consumption or for its own sake but for the production of another commodity or other commodities

***** In general, the demand for all raw materials or all factors of production (i.e.  land, labour, capital and entrepreneurship) is a derived demand for finished or final goods. For example, the demand for cassava for the purpose of producing “gari” or starch is derived demand. Cassava, here, is not demanded for direct consumption, it is demanded for the purpose of making “gari” or starch. That is, the demand for “gari” or starch calls for the demand for the cassava.  Therefore the demand for cassava is derived from the demand for “gari” or starch.

*****Generally, a change in demand for a commodity will lead to a change in the demand for the raw material or factors of production used in producing that good and, hence, a change in the price of the raw material or those factors of production.

COMPETITIVE DEMAND

MEANING: Competitive demand is the demand for two or more goods which satisfy the same want and for which reason one of them can be used to replace the other or others.

Such goods are called substitutes and may be either perfect substitutes such as Milo and Bournvita, beef (cow meat) and mutton (sheep meat), meat and fish, etc or imperfect substitutes such as hydro-electric power and lantern as hydro – electric power performs more functions than just provision of light. Since such goods can serve the same purpose, they are said to be competing for consumer’s income or money. In general, a change in the price of one good e.g. Bournvita, leads to a change in the demand for its substitute, say, Milo and, as a result, a change in the price of that substitute (e.g. Milo).

JOINT OR COMPLEMENTARY DEMAND

MEANING: Joint or complementary demand is the demand for two or more commodities which are used or consumed together to obtain a given level of satisfaction.

Such goods are called complements and they may be either perfect complements (such as cars and fuel, lantern and Kerosene, torchlight and batteries in which case the consumer cannot use one of the commodities without the other) or imperfect complements such as radio and battery or kenkey and fish.

A consumer can do without one as there are substitutes or alternatives.

For example, a consumer can use electric power for his radio instead of batteries whereas kenkey can be eaten with meat or sugar instead of fish.

Generally, however, emphasis is on perfect complements for examination purposes. In general, a change in the price of one affects the equilibrium price and quantity supplied or demanded of the other.

COMPOSITE DEMAND

MEANING: Composite demand is the total demand for a commodity for more than one purpose or use. For instance individual buyers of cassava may demand the commodity for various purposes such as fufu, gari, starch, etc. The total (the sum) of all individual demands for a commodity for the various uses or purposes that commodity serves is the composite demand for that commodity.

Generally, a change in demand for a commodity for one purpose will have an effect on the total (or composite) demand for that commodity and hence, on the price of that commodity.

For example, shortage of starch for export will cause an increase in demand for cassava for making starch. This will have an effect of increasing the total demand (i.e. the composite demand) for cassava and, hence, an increase in the equilibrium price of cassava.

As the price of cassava increases, producers of cassava will eventually increase the supply of cassava to meet the increased demand for cassava since, at a higher price, more of a commodity is supplied.

ELASTICITY OF DEMAND

DEFINITION: Elasticity of demand refers to the degree of responsiveness of quantity demanded to changes in the price of a commodity or income of the consumer or the price of a related (or another) commodity be it a substitute or a complement

PRICE ELASTICITY OF DEMAND

DEFINITION: Price Elasticity of Demand is the degree (or extent) of responsiveness of quantity demanded to a change in the price of a commodity.

POINT ELASTICITY OF DEMAND.

DEFINITION: Point elasticity of demand measures the percentage or proportionate change in quantity demanded as a result of a very small proportionate or percentage change in price.

ARC OR MIDPOINT ELASTICITY OF DEMAND.

DEFINITION: Arc elasticity of demand measures the average elasticity of a range of points or a portion or an arc on a demand curve.

CROSS ELASTICITY OF DEMAND

MEANING: Cross elasticity of demand is the degree or extent of responsiveness of quantity demanded of one commodity to a change in the price of another (related) commodity, be it a substitute or a complement.

SUPPLY

DEFINITION: Supply is the quantity of goods or services that producers are willing and able to offer for sale at various prices over a period of time; all other things being equal. This is known as Effective Supply.

SUPPLY SCHEDULE

MEANING: Supply Schedule is a table which shows the quantities of a commodity offered for sale at various prices over a period of time. The supply schedule would be for an individual production unit called a firm or could be for an industry i.e. market supply schedule

A FIRM’S SUPPLY:

MEANING: This is the quantity of a commodity that an individual production unit (a firm) is willing and able to offer for sale at various prices per time period.

A FIRM’S SUPPLY SCHEDULE

MEANING: A supply schedule of a firm is a table showing the quantities of a commodity offered for sale at different prices over a time period by the firm.

MARKET SUPPLY/ INDUSTRY SUPPLY

MEANING: The market supply of a commodity is the sum of the quantities of a commodity that all individual production units or firms in an industry are willing and able to offer for sale in the market at various prices per time period.

MARKET SUPPLY SCHEDULE/INDUSTRY SUPPLY SCHEDULE

MEANING: A market supply schedule is a table showing the total or sum of all the supply schedules of all individual production units in the market.

In other words, a market (or industry) supply schedule is a table which shows the quantities of a commodity offered for sale at various prices in the market.

When all individual supply schedules are added together, we have a market supply schedule, which shows for more units of a commodity offered for sale at the same Prices as in the individual supply schedules.

SUPPLY CURVE

MEANING: The supply curve is a line or curve which shows the relationship between various prices and the quantities of a product offered for sale per period of time.

In other words, the supply curve is a graph which shows the relationship between various prices and quantities of a product offered for sale per time period.

INDIVIDUAL SUPPLY CURVE/ A FIRM’S SUPPLY CURVE/ A SINGLE PRODUCER’S SUPPLY CURVE

MEANING: An individual supply curve or a firm’s supply curve is a curve or a line which shows the relationship between various prices and the quantity of a commodity offered for sale by an individual production unit/ a firm/ a single producer per time period.

MARKET SUPPLY CURVE/ INDUSTRY SUPPLY CURVE

MEANING: A Market Supply curve is the sum of the individual supply curves of all individual production units/ firms/ single producers in the market/ industry at various prices per time period.

SUPPLY FUNCTION

MEANING: Supply function is a mathematical representation of quantity supplied of a commodity over a particular range of prices per unit of time.

In other words, supply function is a mathematical equation that shows the relationship between the quantity supplied of a commodity and a particular range of prices per time unit.

EXCEPTIONAL/ABNORMAL SUPPLY CURVE

MEANING: An exceptional supply curve is the supply curve which does not slope upwards from left to right since such a supply curve does not follow the normal law of supply.

***** EXAMPLE OF EXCEPTIONAL/ ABNORMAL SUPPLY CURVE

  • BACKWARD – SLOPING SUPPLY CURVE

A backward- sloping supply curve is the type of  supply curve which initially slopes positively upwards from left to right as  price rises but then slopes negatively as price rises beyond a certain point.

CHANGE IN QUANTITY SUPPLIED/ PRICE-INDUCED CHANGE IN SUPPLY

MEANING:  A change in quantity supplied means an increase or decrease in the quantity supplied of a particular commodity by producers as a result of a change in the price of that commodity. A change in quantity supplied is also referred to as a price – induced change in supply as the change in quantity supplied is caused solely by a change in the price of the commodity, while other determinants of supply remain unchanged.

CHANGE IN SUPPLY/ SHIFTS IN THE SUPPLY CURVE.

MEANING:  A change in supply, or shifts in the supply curve, also referred to as autonomous change in supply, refers to an increase or decrease in the supply of a commodity at the same price, level due to changes  in any of the conditions of supply (i.e. the factors determining supply except price of the commodity)

INCREASE IN SUPPLY

MEANING: An increase in supply refers to a greater quantity of a commodity supplied at the same old price, due to a favourable or positive change in the factors affecting supply except price of that commodity

DECREASE IN SUPPLY

MEANING: A decrease in supply refers to smaller quantity of a commodity supplied, at the same old price, due to an unfavourable or negative change in the factors affecting  supply except price of that commodity.

PRICE ELASTICITY OF SUPPLY

MEANING: Price elasticity of supply is the degree of responsiveness of quantity supplied of a commodity to a small change in the price of the commodity

*****PRICE IS DEFINED AS the amount of money given or asked for when goods or services are bought or sold.

OR:  PRICE is the value of goods and services in terms of money.

EQUILIBRIUM PRICE

DEFINITION: Equilibrium price is the price determined by the free market forces of demand and supply. It is the price at which the quantity supplied equals the quantity demanded; that is, the price at which the demand curve intersects (crosses) the supply curve.

MARKET PRICE:

DEFINITION: The market price is the short run equilibrium price when supply is often fixed. In this situation, changes in demand are the predominant influence on price.

NORMAL PRICE:

DEFINITION:The normal price is the long-run equilibrium price when supply has had time to adjust itself. In the long run, price must cover cost of production.

PRICE CONTROL

MEANING: Price control refers to government intervention in the interaction of demand and supply forces to determine the price of goods and services by fixing the price of a particular good or service either above the equilibrium price (minimum price or price floor) or below the equilibrium price (maximum price or  price ceiling).

Price control is thus a public policy measure by which the government legally fixes the price of a commodity or service either above or below the equilibrium price.

MINIMUM PRICE/PRICE FLOOR

MEANING: A minimum price is the price fixed by the government above the equilibrium market price which, by law, should be the lowest price below which the commodity or service should not be sold or bought.

The seller can, however, sell the commodity or service above the minimum price. Price floor is the other term used for minimum price control at it suggests the lowest price level at which a particular good or services must be sold.

MINIMUM WAGE LEGISLATION

MEANING: A Minimum wage is the lowest possible wage fixed by the government above the equilibrium wage which, by law, employers should pay employees or workers.

MAXIMUM PRICE/PRICE CEILING

MEANING: A maximum price control is the price fixed by the government below the equilibrium price which by law should be the highest price above which the commodity or service should not be sold or bought. Sellers can however sell the commodity or services below the maximum price.

Price ceiling is the other term used for maximum price control as it suggest the highest price level at which a particular commodity must be sold. The fixing of prices of essential goods and the fixing of transport fares by the government as well as rent control are examples of maximum price or price ceiling legislation.

UTILITY

MEANING: Utility is the satisfaction that a consumer derives from consuming a commodity at a time.

The cardinalists believed that utility was measurable in a cardinal sense, that is, numbers could be assigned to the amount of utility or satisfaction one obtains from consuming a commodity or service.

The unit of measurement of satisfaction (i.e. utility) used by the cardinarlists is the util.

VALUE

MEANING: Unlike utility, the value of a commodity is the worth of that commodity which depends on its physical qualities.

TOTAL UTILITY (TU)

MEANING: Total Utility is the total amount of satisfaction a person derives from consuming a given number of units of a product or service.

AVERAGE UTILITY (AU)

MEANING: Average Utility is the utility per unit of commodity consumed.

To calculate Average Utility, divide the total utility by the quantity of the commodity consumed.

MARGINAL UTILITY (MU)  

MEANING: Marginal Utility is the additional satisfaction derived from consuming an additional unit of a commodity, when the levels of consumption of all other commodities are held constant.

INDIFFERENCE CURVE

MEANING An indifference curve is the locus of points representing market baskets of goods and services given the same level of satisfaction among which the consumer is indifferent.

*****ASSUMPTIONS OF THE INDIFFERENCE CURVE OR THE ORDINALIST APPROACH

  1. Consumer Rationality
  2. a. Two commodities only

b. Predetermined and constant prices

c. Commodities are divisible and homogeneous

  • Constant tastes, habits and income of the consumer
  • All income of the consumers is spent on the two commodities.
  • Arrangement of combinations of the commodities on a scale of preference
  • Consumer’s preferences are transitive

THE MARGINAL RATE OF SUBSTITUTION (MRS)

 MEANING: The marginal rate of substitution (MRS) is the rate at which a consumer will exchange successive units of one commodity for another.

In other words, the MRS is the number of units of good Y( e.g. fish) that must be given up if the consumer, after receiving an extra units of good X (e.g. meat) is to maintain a constant level of satisfaction

AN INDIFFERENCE MAP

MEANING: An Indifference map is a series of indifference curves each of which shows a combination of baskets with more goods and services and thus pertains to a higher level of satisfaction or utility, the further away it is from the origin

THE BUDGET LINE

MEANING: The budget line is the locus of combinations of goods and services that yield the same expenditure or budget, given the income of the consumer and the market prices of goods and services.

The budget line is also referred to in various terms such as the following:

  • Consumption possibility line
  • Budget constraint
  • Budget limit
  • Price Line
  • Price – opportunity line

PRICE–CONSUMPTION CURVE (PCC)

MEANING: The price-consumption curve (PCC) shows how the consumption of a commodity changes when its price changes with the consumer’s income remaining unchanged.

 PRODUCTION FUNCTION

MEANING: The production function for any commodity is the relationship between the quantities of various inputs used and the maximum quantity of the commodity that can be produced per period of time

RETURN TO SCALE

DEFINITION: Return to scale is defined as the relationship between changes in scale of production and changes in output.

INTERNAL ECONOMIES OF SCALE  

DEFINITION: Internal economies of scale are advantages which  a single firm enjoys as its scale of production expands. These advantages accrue to the firm independently of the actions of other firms. Internal economics generally lead to a reduction in average costs.

INTERNAL DISECONOMIES OF SCALE  

DEFINITION: Internal diseconomies of scale are the disadvantages of large scale production suffered by a single firm beyond a certain point which cause the average cost of production to rise.

EXTERNAL ECONOMIES OF SCALE

DEFINITION. External economies are advantages enjoyed by firms in an industry as the industry grows larger. In other words, external economies result from the simultaneous growth of a number of firms in the same or related industries.

EXTERNAL DISECONOMIES OF SCALE

(DISADVANTAGES OF OVER CONCENTRATION OF AN INDUSTRY IN AN AREA)

DEFINITION: External diseconomies of scale are the disadvantages that arise as a result of over concentration of an industry in an area or as a result of the growth of an industry beyond the optimum size, thereby causing the average cost of firms within the industry to arise.

LOCATION OF INDUSTRY

DEFINITION: The location of industry is the siting of an industry/firm or a business at a particular place. Entrepreneurs are careful in choosing the location or sites for their industries because they have to consider efficiency and cost of production in order to make maximum profits.

LOCALIZATION OF INDUSTRY

DEFINITION: Localization of industry is the concentration of firms, usually producing similar products, at one particular area.

 DIVISION OF LABOUR

DEFINITION: Division of labour is the breaking down of production into a series of processes with each worker carrying out only a small part of the entire production process.

LABOUR-INTENSIVE METHOD OF PRODUCTION

MEANING: The labour-intensive method or technique of production is the method by which a large quantity of labour (a large number of workers) and only a few simple machines (small quantity of capital) are employed in the production of a commodity

CAPITAL-INTENSIVE METHOD OF PRODUCTION

MEANING: The capital-intensive technique or method of production is the method by which a large quantity of highly automated machines ( a large quantity of capital) and only a very small number of workers (a small quantity of labour) are employed in the production of a commodity.

THE LEAST-COST COMBINATION OF FACTORS/THE OPTIMUM FACTOR COMBINATION.

DEFINITION: The least-cost combination of factors is the combination of factors or inputs which minimizes the cost of producing any given output.

*****THE ANALYSIS OF THE BEHAVIOR OF THE ENTREPRENEUR IS BASED ON THE FOLLOWING ASSUMPTIONS.

  1. The entrepreneur employs two inputs, namely capital and labour
  2. The prices of any of these two inputs is given: i.e. predetermined for him by market conditions
  3. The inputs are subject to the law of variable proportions
  4. The level of technology is given
  5. The entrepreneur is rational; i.e. his aim is to maximize profit by minimizing cost.

MARKET

MEANING: In economics, “market” means the organization whereby all persons and institutions concerned in the exchange of a commodity are kept in touch or contact.

This contact between sellers and buyers of a commodity can be established either by correspondence (i.e. letter writing), or by the use of the telephone or by those engaged in the buying and selling of a product meeting at a fixed place.

PERFECTLY COMPETITIVE MARKET

DEFINITION: The perfectly competitive market is a market in which the forces of demand and supply operate unimpeded. The perfectly competitive firm is such a small part of the total industry in which it operates that it cannot affect the price of the product in question

FIRM

MEANING: A firm is a business or production unit which brings together different factors of production such as capital, land and labour in order to produce a good or service that can be sold for a profit. A firm includes all forms of business organization from the sole proprietorship to government departments.

*****The actual place where a firm organizes production is called a plant, e.g. a factory, a quarry or mime, a farm or store. A typical firm usually has the following organizational structure: entrepreneur, manager and workers. The manager and workers are paid salaries or wages. The entrepreneur, however, makes profits, if possible, for profit in economics can only accrue to those who are willing to take a risk.

PROFIT

MEANING: The term “profit” has a very special meaning in economics. It is the money that entrepreneurs make over and above their own opportunity cost plus the cost of capital they have invested in their business.

INDUSTRY

MEANING: An industry consists of all the firms producing broadly similar commodities for the same market. For example, we have the petroleum industry which is made up of all firms dealing in petroleum products e.g. Texaco, Mobil Elf, Goil, Shell, African Petroleum e.t.c. other industries are wool industry, the cotton industry, the mining industry, etc

EQUILIBRIUM OF A FIRM

DEFINITION: The equilibrium of a firm refers to a situation in which the firm (either a perfectly competitive form or a monopoly) is seen as maximizing profit such that it would not increase quantity produced and sold, other things being equal.

SHORT-RUN EQUILIBRIUM OF THE FIRM IN PERFECT COMPETITION WITH A SURPLUS(ABNORMAL/SUPERNORMAL PROFIT)

DEFINITION: Abnormal or supernormal profit is extra profit over and above the normal profit. It is also called excess or surplus profit.

***** ABNORMAL PROFIT is possible and earned when:

  • The firm’s price exceeds or is greater than its average cost at the equilibrium output level.
  • The firm is more efficient and adopts the least cost method of production in the short – run.

*****WHY A PERFECTLY COMPETITIVE FIRM CANNOT EARN ABNORMAL PROFIT IN THE LONG RUN.

  1. There are too many firms in the industry.
  2. Product is homogeneous
  3. Buyers and sellers have perfect knowledge about market conditions
  4. Free entry and exit

BREAK-EVEN OR NORMAL PROFIT.

DEFINITION: Normal profit is the minimum level of profit which the owners of the firm require just to stay in the industry or to continue production; such a firm is in a break-even position where there is no profit but no loss either.

SUB-NORMAL PROFIT

(LOSS MINIMIZATION POSITION OF A PERFECTLY COMPETITIVE FIRM IN EQUILIBRIUM).

DEFINITION: The subnormal profit or loss minimization position is the situation where the form is unable to cover average cost (AC) and is covering only variable costs.

LONG-RUN EQUILIBRIUM OF THE INDUSTRY

MEANING: Equilibrium of the industry refers to a state of balance in the number of firms making up the industry; that is a state in which firms are neither entering nor leaving the industry. The individual firm therefore, only achieves long run equilibrium when this state is reached by the industry at the same time.

LONG-RUN EQUILIBRIUM OF THE FIRM

MEANING: In the long run, the equilibrium position of the firm will be the one where the firm is just covering total costs i.e. where it is earning normal profit.

MONOPOLY

MEANING: Monopoly is a market structure in which there is a single or sole seller or supplier of a commodity which has no close substitute.

MONOPOLISTIC COMPETITION (IMPERFECT COMPETITION)

DEFINITION: Monopolistic competition is a market structure in which there is a relatively large number of producers offering similar but differentiated products. It has the elements of both monopoly and perfect competition. It is the most realistic of all the market structures.

PRICE DISCRIMINATION

DEFINITION: Price discrimination is the charging of different prices to different groups of consumers for a similar commodity or service which usually has the same unit cost of production. This is practiced in imperfect markets such as the monopoly or monopolistic competition.

CHANNELS OF DISTRIBUTION

DEFINITION: Channels of distribution are the various ways or processes by which goods get to final consumers. They are also called marketing channels,

  1. Producer/manufacturer – wholesaler – Retailer – Consumer
  2. Producer/Manufacturer – Retailer – consumer
  3. Producer/ Manufacturer – consumer

MIDDLEMEN

DEFINITION: The term “Middleman” refers to the wholesaler since he is the one who comes between the producer and the retailer. However, the term also applies to both the wholesaler and the retailer since they come between the producer and the consumer. For our purpose, we will use the term middlemen to imply both the wholesaler and the retailer

WHOLESALE TRADE OR WHOLESALING

DEFINITION: Wholesale trade or wholesaling involves the buying of goods in large quantities (i.e. bulk purchasing of goods) from producers and reselling them in small quantities to retailers.

THE WHOLESALER

DEFINITION: The Wholesaler is the trader who buys in large quantities from the producer or manufacturer and sells in smaller quantities to retailers. The wholesaler thus forms a link between the producer or manufacturer and the retailer.

RETAILER

DEFINITION: The retailer is the trader who sells goods in units to the final consumers. Retailers form the last link between the wholesaler and the final consumer in the normal chain of distribution.

*****Where the retailer has a large capital to operate on a very large scale, he buys goods direct from producers in which case he forms a link between the producer and the final consumer. The retailer’s services are directed to three main groups of people, namely producer, wholesalers and final consumers.

NATIONAL INCOME

DEFINITION: National income is the money value of all goods and services produced by normal residents of a country during a period of time, usually one year.(OUTPUT/PRODUCT – BASED DEFINITION)

***National income can also be defined as the sum of rewards paid to all the factors of production which create the flow of output (in form of rents and royalties wages and salaries, interests, dividends and profits) in a time period of a year. (INCOME – BASED DEFINITION)

*** National income can also be defined as the total expenditure on consumption and investment made by individuals, firms and government during the year. (EXPENDITURE – BASED DEFINITION)

MEASUREMENT OF NATIONAL INCOME (THE OUTPUT APPROACH)

DEFINITION: The output approach records and measures the money value or market value of all goods and services produced in the country in a particular year.

HOW IT IS DONE

  • Add the sum of value added(in order to avoid double counting) at each stage of production OR final value of all commodities produced by individuals, firms and government OR by all  factors of production within the country to obtain GROSS DOMESTIC PRODUCT (GDP).
  • Add the value of exports and subtract value of imports.

***** TOTAL OUTPUT will be made up of both consumer goods and capital/producer goods.

***** Total output of CAPITAL GOODS is called Gross Investment.

***** NET INVESTMENT = Gross Investment – Depreciation.

***** DEPRECIATION OR CAPITAL CONSUMPTION is the money value of output required to replace obsolete or worn out capital.

***** NET PROPERTY/FACTOR INCOME FROM ABROAD (P) is the difference between the flow of property income of foreigners (living in the said country) out of the country on the one hand, and the flow of property income of nationals of the said country (living abroad) back into the country.

In other words, VALUE OF OUTPUT/EXPENDITURE/INCOME OF NATIONALS ABROAD minus/less VALUE OF OUTPUT/EXPENDITURE/INCOME OF FOREIGNERS WITHIN THE COUNTRY equals NET PROPERTY/FACTOR INCOME FROM ABROAD (P)

  • Subtract the value of DEPRECIATION from the GDP to obtain Net Domestic Product.

( i.e. NDP = GDP – Depreciation)

  • Add NET PROPERTY/FACTOR INCOME FROM ABROAD to NDP to obtain Net National Product at market prices (NNPmp) i.e. NNPmp = NDP + P.
  • Subtract INDIRECT TAXES and add SUBSIDIES to obtain NET NATIONAL PRODUCT AT FACTOR COST.
  • i.e NNPmp – Indirect Taxes + Subsidies = NNPfc.

***** It is NNPfc that is really known as the NATIONAL INCOME.

***** Real GNP or NNP  is measured at factor cost rather than at market prices so ‘AT MARKET PRICES’ must be converted to ‘AT FACTOR COST’ by subtracting INDIRECT TAXES( which tend to inflate prices or actual values of output) and adding SUBSIDIES (which tend to reduce the actual values of output)

MEASUREMENT OF NATIONAL INCOME (THE INCOME APPROACH)

DEFINITION: The income approach measures the incomes or earnings of all factors of production used to produce the national output in a particular period of time, usually a year.

HOW IT IS DONE

  • Add all rents and royalties ( incomes of owners of land or natural resources)
  • Add all wages and salaries ( incomes of labour)
  • Add all interests and dividends ( incomes of capital)
  • Add all profits (incomes of entrepreneurs)
  • Subtract all transfer payments to ensure a ‘quid pro quo’.

***** QUID PRO QUO: Money paid and received as income should be against the exchange of (in return for) a good or service.

***** TRANSFER PAYMENTS: Monies received without the exchange of any good or service. e.g. social security payments such as unemployment allowance and old age pension, relief payments such as gifts, remittances, house – keeping money and compensatory payments.

  • Add all personal incomes i.e. factor incomes of individuals
  • Add undistributed profits of private firms to personal incomes to obtain total private income.
  • Add undistributed profits of government/state – owned enterprises to total private incomes to obtain GROSS DOMESTIC INCOME at factor cost. (GDIfc)
  • Add Net Factor Income From Abroad to obtain GROSS NATIONAL INCOME at factor cost. ( GNIfc)
  • Add the value of DEPRECIATION to obtain NET NATIONAL INCOME at factor cost (NNIfc) i.e. THE NATIONAL INCOME.

***** NET NATIONAL INCOME, just like NET NATIONAL PRODUCT is the actual National Income.

***** There is nothing like market prices or indirect tax and subsidy elements to be taken care of in the INCOME APPROACH.

MEASUREMENT OF NATIONAL INCOME (EXPENDITURE APPROACH)

DEFINITION: The expenditure approach measures national income by recording and summing up the final expenditures on consumption and investment (or on final goods and services currently produced in a country) made by individuals, firms and government during the year.

HOW IT IS DONE

***** Only final expenditures are recorded/included.

***** Expenditures on intermediate goods and services are excluded.

***** Government expenditure on Transfer payments is excluded.

***** (X – M) = NET EXPORTS

***** Total Expenditure (E) can be broken down into five large categories:

  • Private CONSUMPTION Expenditure (C)
  • GOVERNMENT Expenditure – on both recurrent and capital goods (G)
  • INVESTMENT Expenditure – by firms (I)
  • EXPORTS (X)
  • IMPORTS (M)

           ***** The 5 items above constitute AGGREGATE DEMAND according to the Keynesian Analysis.

EQUATION FOR CALCULATING TOTAL NATIONAL EXPENDITURE

E or GDE = C + I + G + (X – M)

That is:

  • GDEmp = C + I + G + (X – M)
  • GNEmp = GDE + P ( Net Property Income from abroad)
  • NNEmp = GDEmp – Depreciation.
  • NNEfc = NNEmp – Indirect Taxes + Subsidies.

***** NET NATIONAL EXPENDITURE at factor cost( NNEfc), just like NNPfc and NNIfc, is the actual NATIONAL INCOME.

GROSS NATIONAL PRODUCT (GNP) AT FACTOR COST

MEANING:Gross National Product at factor cost is the monetary value of all final goods and services produced by the nationals of a country irrespective of where they live during a period of time,usually a year and measured at factor cost. That is, indirect taxes which inflate the value of the final goods and services are subtracted while subsidies which reduce the value of final goods and services are added.

***** GDP + Net factor income from abroad – Indirect Taxes + Subsidies = GNPfc.

NET NATIONAL PRODUCT

DEFINITION: Net National Product is the gross annual output of a nation or Gross National Product less depreciation (or capital consumption allowance)

***** GNP – Depreciation = NNP

DISPOSABLE INCOME

DEFINITION: Disposable income refers to the income of an individual or a community after all direct taxes have been deducted and all benefits e.g. transfer payments (such as pension and family allowances) have been added. Disposable income is simply the take –  home –  pay of a worker.

STANDARD OF LIVING

DEFINITION: Standard of living is a measure of how well the people in a country live i.e. it is a measure of the economic or material welfare of the people in a country. Standard of living depends on the amount and kinds of goods and services that the people of a country can enjoy

COST OF LIVING 

DEFINITION: Cost of living refers to how much money must be spent in order to acquire the goods and services needed for living within a period of time. Cost of living depends on the general level of prices of goods and services.

*****There is a direct relationship between cost of living and general level of prices. This means that the higher the general level of prices, the higher the cost of living and the lover the general level of prices, the lower the cost of living.

*****There is an inverse relationship between cost of living and standard of living. This means that when the cost of living rises, the standard of living falls and when the cost of living falls, the standard of living rises, all things being equal.

 PER CAPITA INCOME

DEFINITION: Per capita income is the average amount of output or income available per person (or per head) in a country per period of time, usually in a year.

Per capita income is obtained by dividing a country’s Gross National product (GNP) or National Income  by the total population of that country,

 i.e. GNP ÷ Population = Per Capita Income,

 or:  National Income ÷ Total Population = Per Capita Income

AGGREGATE SUPPLY

DEFINITION: Aggregate supply is the total value of output (i.e. goods and services) produced at constant prices in a country within a period of time, usually one year

*****Classical economists (particularly, J. B. Say argued that supply of goods and services creates its own demand and therefore there can be no overproduction or underproduction, i.e. over employment or under – employment.

AGGREGATE DEMAND

DEFINITION: Aggregate demand is the total of planned expenditure for the economy as a whole, i.e. the total effective demand for goods and services and services produced within a country.

*****Keynes argues that aggregate demand creates aggregate supply and considers the factors determining aggregate demand in the economy as the main factors which determine real income and employment levels. Keynes, therefore, advocates that there should be government manipulation of the components of aggregate demand so as to achieve full employment and to minimize economic fluctuations.

*****COMPONENTS OF AGGREGATE DEMAND.

  1.  The household
  2. The firm
  3. The government
  4. The international trade

*****The following types of expenditure in the economy correspond to the four sectors above.

  1. Consumption expenditure by households , denoted by the letter C.
  2. Investments i.e. expenditure on capital goods by firms, represented by the letter I.
  3. Government expenditure, expressed as G and
  4. Sales of exports abroad, represented by the letter X

THE MULTIPLIER

DEFINITION: The national income multiplier (or the multiplier, for short) is a measure of the change in the national income resulting from a change in any of the components of aggregate demand {C + I + G + (X – M)} or change in injections ((I + G + X) or withdrawals (S + T + M).

*****The multiplier can also be defined as the number that is multiplied by a change in any of the components of aggregate demand to achieve a change in national incomes.

THE TAXATION MULTIPLIER

(The multiplier effect on income due to changes in tax levels).

DEFINITION: The taxation multiplier is the increase in equilibrium income associated with a decrease in taxes.

THE DEFLATIONARY GAP

DEFINITION: Deflationary gap is the difference between actual income and full-employment income

It is usually measured by the vertical discrepancy at full employment between the C + I + G + (X – M) schedule (i.e. aggregate demand, AD) and the 45° line.

It is also referred to as under-employment gap.

THE INFLATIONARY GAP

DEFINITION: The inflationary gap is defined as the gap between full employment income and actual income.

It is usually measured by the vertical discrepancy at full-employment income between the C + I G + (X – M) schedule (i.e. Aggregate Demand, AD) and the 45° line

FISCAL POLICY

DEFINITION: Fiscal Policy refers to changes in level of government spending or taxation in order to either raise aggregate demand (AD) so as to reduce demand – deficiency unemployment in a deflationary situation or to reduce aggregate demand (AD) so as to bring equilibrium level of income to the full employment level in an inflationary situation.

 In short, fiscal policy refers to changes in government income and expenditure to achieve desired economic objectives, given the state of the economy. 

*****ITS EFFECTS: government’s fiscal policy effects national income and employment in several ways during a period of recession or deflation or during a period of inflation.

MONETARY POLICY

DEFINITION: Monetary policy refers to measures taken by the government through the central bank to influence the rate of interest (i.e. the price of money) and the supply of money.

ECONOMIC GROWTH

MEANING: Economic Growth is the percentage increase in the total output of goods and services of a country at stable prices in a year. This implies an increase in inputs as well.

 ECONOMIC DEVELOPMENT

MEANING: Economic development is a sustained increase in the total output of a country accompanied by changes in technology, structure of production, peoples attitude to work and health delivery which result in an improvement in the standard of living or increased per capita real income.

In other words, it is the sustained increase in both output and changes in technical and institutional arrangement which result in higher standards of living or increase per capita real income.

UNDER-DEVELOPED COUNTRY

DEFINITION  : An under-developed country is the country where the real income per head and the general standard of living are much lower than in the developed countries  of North America, Europe, Australia, New Zealand and Japan .

DEVELOPMENT PLANNING

MEANING: Development planning is a deliberate effort on the part of the central government aimed at maximizing the social and economic welfare of the citizens through efficient allocation of resources.

The central government sets economic targets to be attained within a specific period of time ( 5, 6, 10 or 20 years) and resources are allocated toward achieving the set goals in order to maximize the social and economic welfare of the citizens.

DEVELOPMENT PLAN

MEANING: A development plan is government’s consciously formulated economic policies for the equitable allocation of resources to all sectors of the economy in order to achieve a rapid rate of economic development.

CO-OPERATIVE FARMING SYSTEM

DEFINITION: Co-operative farming system is the type of farming in which peasants or ordinary farmers come together to form a sort of association or union.

AGRICULTURAL PRODUCE MARKETING BOARD

MEANING: An agricultural produce marketing boards is a body set up by the government and given the sole right to buy and export agricultural products like cocoa, timber, rubber, coffee, cotton and palm products.

*****A marketing board is usually named after the commodity in which it deals so that we have for example, Cocoa Marketing Board. Nigeria and Ghana now have Cocoa Board, Timber, Grains Board, Groundnuts Board etc.

INDUSTRIALIZATION

DEFINITION: industrialization is the process of expanding the manufacturing sector of a country’s economy by increasing production in factories or establishing manufacturing industries.

INDIGENIZATION

DEFINITION: Indigenization is a deliberate policy of the government to enable the indigenes or nationals of a country to have more participation in the economy of their own country. It is a way of reducing the power of control over the economy by foreigners in a country.

PRIVATIZATION OR DIVESTITURE

DEFINITION: Privatization or divestiture is the sale of state enterprises to the general public or private sector.

In other words, privatization is the transfer of the ownership of business enterprises from the state or government to private investors. For example, the government of Ghana has privatized the electricity, water and sewerage and the graphic corporation and so we now have Electricity Company of Ghana, Ghana Water Company etc.

NATIONALIZATION

DEFINITION: Nationalization refers to bringing private commercial enterprises under public ownership and control.

DEREGULATION

DEFINITION: Deregulation refers to the simplification or removal of regulations which tend to make a state enterprise a monopoly in a particular sector (e.g. media and broadcasting) as a way of encouraging the entry and participation of private investors in order to allow competition in that sector.

RURAL INDUSTRIALIZATION

DEFINITION: Rural industrialization is the setting up of manufacturing industries in  rural areas.

INTERNATIONAL TRADE

DEFINITION

International trade is the exchange of goods and services between countries.

TRADE RESTRICTIONS

DEFINITION: Trade restrictions are artificial barriers or obstacles to the free working of principle of comparative cost advantage

i.e. Trade restrictions are artificial barriers which are deliberately created by governments to hinder the free flow of goods and services across international boundaries to protect their interests.

BI-LATERAL TRADE

MEANING: Trade between two countries.

MULTI-LATERAL TRADE

MEANING: Trade among many or more than two countries.

ABSOLUTE COST ADVANTAGE

MEANING: Absolute Cost Advantage is a concept in international trade and refers to one country’s actual total cost of producing commodities for export relative to (compared to) that of another country.

One country is considered to have absolute cost advantage over another country where its actual total cost of producing COMMODITIES is lower than that of the other country

COMPARATIVE COST ADVANTAGE

MEANING: Comparative cost advantage is a concept in international trade and refers to one country’s cost of producing a particular export commodity relative to (compared to) another country’s cost of producing the same commodity e.g. Ghana’s cost of producing cocoa relative to (compared to) Norway’s cost of producing cocoa.

OR

Its cost of producing one commodity in terms of producing another. e.g. Ghana’s cost of producing cocoa relative to (compared to) its (Ghana’s) cost of producing airplanes. i.e. the OPPORTUNITY COST of producing one instead of the other.

***** The principle of comparative cost advantage stresses that it is economically prudent for a country to specialize in the production of only goods for which it enjoys comparative cost advantage and ignore the rest even if it has absolute cost advantage in producing all.

***** It is this specialization borne out of comparative cost advantage which is at the root of trade between countries or among countries i.e. international trade.

FREE TRADE

DEFINITION  : Free trade means the absence of restrictions, obstacles, barriers or hindrances in the movement of goods and services across international boundaries or between countries.

TARIFFS

MEANING: Tariffs are taxes or duties placed on imports and exports. A tariff may be ad valorem (i.e. taxed according to the monetary value of the goods) or specific (i.e. lump sum tax per unit of weight or physical quantities). Tariffs or customs duties become protective when they are placed more heavily on imported goods than on home-produced goods.

TERMS OF TRADE

The concept “terms of trade” is the ratio at which commodities are exchanged for one another. Since this is similar to the barter of say, cocoa and cotton, between country A and B (as it deals with the exchange of real commodities rather than money) this concept of the terms of trade is called the “commodity terms of trade” or “net barter terms of trade”. 

DEFINITION: When applied to international trade, terms of trade refers to the rate at which a country sells its exports relative to the price it pays for its imports

BALANCE OF PAYMENTS (BOP)

DEFINITION: The balance of payments is a systematic record showing the relationship between a country’s total payments to other countries and its total receipts from them within a year.

BALANCE OF TRADE/VISIBLE BALANCE (BOT)

DEFINITION: Balance of Trade is the difference between the total value of a country’s tangible (visible) exports and the total value of her tangible (visible) imports within a given period of time, usually one year. It is also called visible balance or trade balance.

*****THE 2 MAIN COMPONENTS OF BALANCE OF PAYMENTS: CURRENT ACCOUNT AND CAPITAL ACCOUNT

CURRENT ACCOUNT: It has 2 components namely, visible trade and invisible trade.

VISIBLE TRADE

DEFINITION

VISIBLE TRADE is the sale and purchase of tangible, visible goods or merchandise exports and imports e.g. cocoa, vehicle etc

***** BALANCE OF TRADE (BOT) is the difference between payments and receipts in the VISIBLE TRADE component only of the current account. This is why it is also called visible balance.

***** BOT could be either favourable (surplus BOT) or unfavourable (deficit BOT)

INVISIBLE TRADE

INVISIBLE TRADE is the sale and purchase of services e.g. shipping, tourism, insurance, banking etc

***** A country could have either a surplus or deficit on her current account. It could also be a balanced current account.

  • CAPITAL ACCOUNT (MOVEMENTS): It has 2 main components namely, long – term capital movements and short – term capital movements.

i. LONG-TERM CAPITAL MOVEMENTS. Typical long – term capital movements include:

  1. Long term lending and borrowing between governments of the home country and foreign countries or between governments and international institutions.
  2. The purchase of stocks and shares in foreign companies or the purchasing by foreign residents of shares in home-based companies
  3. The setting up of plantations, mines, or factories abroad, or the establishment of similar enterprises by foreign companies in the home country

ii. SHORT – TERM CAPITAL MOVEMENTS. Typical short – term capital movements include:

  1. All lending and borrowing by banks and private individuals
  2. Also foreign nationals may purchase or sell short-term instruments such as treasury bills, bills of exchange, etc
  3. Foreign nationals may also deposit money in foreign banks or make remittances home

*****THE BALANCING ITEM /ACCOMMODATING TRANSACTIONS.

Transactions here exist to ensure that deficits are covered and surpluses are used up. e.g. transfer of gold, sale of assets abroad etc.

*******BALANCING THE BALANCE OF PAYMENTS

  • In the accounting sense, the overall BOP MUST ALWAYS BALANCE.
  • But the BALANCE OF TRADE need not always balance.
  • This is when deliberate adjustments are done to balance an unbalanced BOP for accounting purposes.
  • Such adjustments are in the form of certain transactions in the CAPITAL ACCOUNT to offset any overall deficit or to dispose of any surplus.
  • Such TRANSACTIONS include:
  • Changes in the official reserves
  • Foreign currency lending and borrowing.
  • This balancing act is only artificial and for accounting purposes only. It does not in any way mean that the BOP is in reality balanced or is always in EQUILIBRIUM.

EQUILIBRIUM IN THE BALANCE OF PAYMENTS

DEFINITION: An equilibrium in the balance of payment is achieved and sustained when the balance of payments balances without any adjustment.

It is when imports of goods and services plus autonomous capital outflows are in balance with exports of goods and services plus autonomous capital inflows without resorting to borrowing.

In other words, the balance of payments is in EQUILIBRIUM when there is neither a deficit nor surplus net income and autonomous capital flows.

BALANCE OF PAYMENTS DEFICIT

DEFINITION – A deficit in the balance of payments means that payments in respect of imports of goods and services plus autonomous capital outflows are greater than receipts in respect of exports of goods and services plus autonomous capital inflows in a given year.

BALANCE OF PAYMENTS SURPLUS

DEFINITION: A surplus in the balance of payments means that receipts in respect of exports of goods and services plus autonomous capital inflow are greater than payments in respect of imports of goods and services plus autonomous capital outflow in a given year

DEVALUATION/CURRENCY DEVALUATION

DEFINITION: Devaluation is a government’s deliberate reduction in the value of its country’s currency relative to the values of the currencies of other countries in foreign exchange markets.

REVALUATION/CURRENCY REVALUATION

DEFINITION: Revaluation is a government’s deliberate INCREASE in the value of its country’s currency relative to the values of the currencies of other countries in foreign exchange markets.

DEPRECIATION OF A CURRENCY/CURRENCY DEPRECIATION

DEFINITION: Depreciation of a currency is a reduction in the value of a country’s currency relative to the values of the currencies of other countries in foreign exchange markets which comes about as a result of the interaction between the market forces of demand and supply.

FOREIGN AID

DEFINITION: Foreign Aid is the assistance in the form of resources or commodities such as foreign currency, equipment, technical skills, food, relief items etc. given by rich countries e.g. Britain, the USA, Germany, Japan etc., international organizations and financial institutions e.g. the World Bank, the I.M.F., Peace Corps, specialized agencies of the UN etc. to usually needy or poor countries in Africa, South America etc.

FOREIGN INVESTMENT

DEFINITION: Foreign investment is investment made by foreigners or the inflow of foreign capital into an economy. It may be in the form of loans to the government of the country or in the form of equity capital (foreigners buying shares in local businesses) or in the form of direct private investment in which foreigners bring in their capital to establish businesses to be managed by themselves.

EXPORTS

MEANING: Exports are goods and services a country sells to other countries. All goods and services West African countries sell to other countries constitute visible (i.e. goods) and invisible (i.e. services) exports respectively.

IMPORTS

MEANING: Imports are goods and services a country buys from other countries.

  1. Visible imports i.e. goods
  2. Invisible imports i.e. services

 ECONOMIC INTEGRATION

DEFINITION: Economic integration is the deliberate act of governments to pool their economic resources in other to achieve a greater efficiency in the production of goods and services for the social and economic welfare of their countries

 FREE TRADE AREA (FTA)

MEANING:  A Free Trade Area is by far the simplest form of economic integration as all barriers on trade among members are removed but each member state retains its own barriers to trade with non – member nations. In other words, there are no common external tariffs. Also, there is no loss of political sovereignty.

CUSTOMS UNION

MEANING: A Customs Union is a grouping of countries within which tariffs or other barriers to trade among members are abolished ( as in a Free Trade Area) but in addition has common external tariffs and other barriers on imports from non – members.

A COMMON MARKET

DEFINITION: A common market refers to a grouping of countries within which there is free movement of both goods and factors of production and creation of common tariffs wall against outsiders or non-members.

ECONOMIC UNION

DEFINITION: An economic union refers to a grouping (i.e. integration) of countries within which there is free movement of both goods and factors of production and the creation of a common tariff wall against outsiders or non-members and in addition the adoption of common social, economic, political and financial decisions such as the setting up of a common parliament and a common currency for member nations.

A COMPLETE ECONOMIC INTEGRATION

DEFINITION: A complete economic integration refers to a grouping of countries within which there is free movement of both goods and factors of production and the creation of a common tariff wall against non-member states and in addition, the adoption of common social, economic, political and finance policies with a supra-national authority whose decisions are binding on all member states. An example is the European Union (EU)

THE INTERNATIONAL MONETARY FUND (IMF)

DEFINITION: The International Monetary Fund (IMF) is a financial institution set up to manage the international monetary system, to create favourable conditions for the expansion of international trade and to provide an all – round extension of international purchasing power to enable countries in temporary (short – term) balance of payment difficulties to overcome such difficulties without harming the interests of others. It came out of the Bretton Woods (USA) conference of 1944 which established more or less fixed exchange rates in the world.

THE WORLD BANK

(THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (IBRD) OR THE WORLD BANK)

WHAT IT IS: The IBRD or World Bank is a sister institution of the IMF as both are products of the 1944 Bretton Woods Conference in the USA. It is the world’s largest source of long – term multilateral development finance.

THE INTERNATIONAL DEVELOPMENT ASSOCIATION (IDA)

WHAT IT IS: The International Development Association is an affiliate of the World Bank. A general feeling that development finance on somewhat easier terms should be made available to the poorer areas of the less – developed world led to the formation of the IDA.

THE INTERNATIONAL FINANCE CORPORATION (IFC)

WHAT IT IS:  The IFC is another member of the World Bank Group. It operates on more commercial lines.

THE ORGANIZATION OF PETROLEUM EXPORTING COUNTRIES (OPEC)

WHAT IT IS: The OPEC is a cartel of crude oil producers that supplies crude oil to the world. It is the best known international commodity agreement which is an important example of international economic co – operation. The OPEC was formed in 1960 with its headquarters in Geneva, Switzerland – a neutral ground for its member – states. It is made up of thirteen member – nations namely Saudi Arabia, Iran, Ecuador, Algeria, Libya, Kuwait, Nigeria, Venezuela, Iraq, Qatar, Gabon, Indonesia and the United Arab Emirates (UAE). Saudi Arabia remains the largest producer of oil within the OPEC.

OPEC accounts for about 60% of total global crude – oil production and some 90% of the world’s total exports as the other large producers, the USA and Russia are not large exporters.

THE ECONOMIC COMMUNITY OF WEST AFRICAN STATES (ECOWAS)

DEFINITION: The Economic Community of West African States (ECOWAS) is an economic integration or co-operation of fifteen West African States seeking to accelerate economic and social development of member state in order to improve the living standards of their peoples

THE EUROPEAN ECONOMIC COMMUNITY (EEC)

WHAT IT IS: The European Economic Community (EEC) is also known as The European Common Market. It was set up to promote free trade among members under the Treaty of Rome, Italy in 1957. Its founding members were six European countries namely Italy, France,West Germany, Belgium, Luxembourg and Holland. Britain, The Republic of Ireland and Denmark joined in 1972 and much later, Spain, Portugal and Greece joined. Today, the EEC has expanded beyond Europe with the acceptance of some African, Caribbean and Pacific (ACP) countries as associate members.

THE AFRICAN DEVELOPMENT BANK (AfDB)

WHAT IT IS: The African Development Bank was set up in 1964 with the efforts of both The Organization of African Unity (OAU) and The Economic Commission for Africa (ECA) to spearhead the economic and social development of the continent through the granting of loans to private firms and governments of member states. It is headquartered in Abidjan, Ivory Coast.

THE UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT (UNCTAD)

WHAT IT IS: UNCTAD was set up by the United Nations to help LDCs deal with their international trade problems. It held its maiden conference in Geneva, Switzerland in 1964.

THE GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT)

WHAT IT IS: The GATT was signed by 23 countries in Geneva, Switzerland in October 1947 with the aim of exploring ways to reduce barriers in international trade, eliminate discrimination and prevent any new restrictions on international trade.

THE WORLD TRADE ORGANIZATION (WTO)

DEFINITION: The World Trade Organization is an intergovernmental organization which regulates international trade. It is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments (especially the URUGUAY ROUND of talks, 1986 – 1994).

***** The WTO officially commenced work on January 1, 1995 under the Marrakesh Agreement signed by 123 nations on 15 April, 1994 replacing the General Agreement on Tariffs and Trade (GATT) which had been in operation since 1948. Its headquarters is in Geneva specifically Centre William Rappard, Switzerland and it currently has 164 members.

THE UNITED NATIONS ECONOMIC COMMISSION FOR AFRICA (ECA)

WHAT IT IS: The ECA was established in 1958 with the aim of promoting social and economic development of Africa by coordinating the developmental activities of the United Nations and its agencies in Africa. Its headquarters is in Addis Ababa, Ethiopia.

THE WEST AFRICAN CLEARING HOUSE (WACH)

DEFINITION: The West African Clearing House (WACH) is an organization set up to provide effective bank facilities and operations in order to overcome the obstacles faced in commercial transactions within the West African sub-region

THE NEW PARTNERSHIP FOR AFRICA’S DEVELOPMENT (NEPAD)

DEFINITION: The New Partnership for Africa’s Development (NEPAD) is a pledge by African leaders, based on a common vision and a firm and shared conviction, that they have a pressing duty to eradicate poverty and to place their countries, both individually and collectively on a path of sustainable growth and development, and at the same time to participate actively in the world economy and body politic

THE AFRICA GROWTH AND OPPORTUNITIES ACT (AGOA) OF THE UNITED NATIONS

WHAT IT IS:  AGOA is one of the partnerships constituting the NEPAD. It was created by the government of the United States of America to help develop trade and development opportunities for Africa.

MONEY

DEFINITION: Here is a simple definition of money which takes into account its functional liquidity and legal aspects:

Money is anything which is generally acceptable in exchange for goods and services and in settlement of debts

DEMAND FOR MONEY

MEANING: Demand for money is the desire to hold money (i.e. to keep one’s resources in liquid form) instead of investing it. By money being liquid, it means money can be changed into some other form of wealth without loss or delay.

Demand for money is therefore the demand to hold perfectly liquid reserves.

In short, demand for money is liquidity preference (i.e. the preference for money for money in liquid form instead of in any other form)

BARTER

DEFINITION: Barter is the direct exchange of goods and services for goods and services i.e. a process of swapping one good or service for another good or service.

VALUE OF MONEY

MEANING: The value of money in other words, the exchange value of money (i.e. not the intrinsic value of money which is always less than the face value) means the quantity of goods and services that money can buy.

When a given amount of money can buy more goods and services now than before, we say that the value of money now is higher than before.

The more goods and services that money can buy, the higher the value of money and vice versa, i.e. the fewer that money can buy, the lower its value.

MONEY SUPPLY

MEANING: Money supply consists of currency in circulation in the economy outside the banking system and demand deposits of the commercial banks.

MONEY MARKET

DEFINITION: The money market is a financial market in which short-term funds are borrowed or lent to its members. Institutions found in the money market are mostly banks, credit unions and micro-credit enterprises.

Instruments on the money market include treasury bills, bills of exchange/commercial bills (which are promissory notes), money-at-call and treasury certificates (Government securities just like treasury bills. But unlike treasury bills which mature in 90 days, treasury certificates mature in one year and can be sold by the holder before the time of maturity just like bills of exchange).

CAPITAL MARKET

DEFINITION: The capital market is a financial market in which long-term funds are borrowed or lent to its members namely industry and commerce and government. The money lent and borrowed in this type of market is used to finance capital projects.

PRICE INDEX

DEFINITION: Price index numbers are the means by which the average change in the prices of a group of goods and services are worked out or measured.

*****The most important price indices are the

  1. Consumer Price Index (CPI) and the
  2. Producer Price Index (CPI)

Others are the import and share price index numbers.

LEGAL TENDER

DEFINITION: A legal tender is a medium of exchange which is backed by law in a country and every individual or institution is obliged under the law to use and accept it as such.

TOKEN MONEY

DEFINITION: Token money is money whose face value is greater than the value of the material content of it. In other words, the value stated on it should be higher than the material used in printing it, be it paper/note or coin.

COMMODITY MONEY

DEFINITION: Commodity money is the type of money where a good (commodity) e.g. salt, gold, fish etc is used as a medium of exchange. This was used extensively in the period before the introduction of bank notes and coins as medium of exchange.

INFLATION

DEFINITION: Inflation is a persistent (or continuous) and appreciable rise in the general level of prices of goods and services over a period of time. It is a situation in which the general price level is persistently moving upward leading to a persistent and continuous fall in the value of money.

DEMAND-PULL INFLATION

DEFINITION: Demand-pull inflation is a persistent rise in the general price level in an economy resulting from the tendency of aggregate demand to be excessive at current prices.

COST-PUSH INFLATION

DEFINITION: Cost-push inflation is a persistent rise in the general price level in an economy resulting from rising costs of production, particularly rising wages, which push up prices.

DEFLATION

DEFINITION: Deflation is a persistent or sustained fall in the general level of prices, leading to a persistent rise in the vale of money.

A BANK

DEFINITION: A bank is a business organization or a financial institution that sells different kinds of services, all involving money, in one way or another and makes profit on the services it provides.

Banks play an important role in the economy not only as places for saving money but also in making it easier to access money to do business.

Banks therefore function as financial middlemen between savers and borrowers.

BANKING

DEFINITION: Banking refers to the provision of financial services such as accepting money deposits, lending money, holding cash reserves, making investment, creation of money, safeguarding valuables, facilitating foreign exchange transactions and acting as trustees and advisers all for the purpose of making profits for the share holders.

CENTRAL BANK

DEFINITION: A central bank is a financial institution which on behalf of the government owns the whole of its capital stock, exercises ultimate control over the polices of the Joint –  Stock or Commercial Banks and other financial institutions so as to make them comply with the monetary and economic policies of the government. It also controls the entire financial system of any country. Each independent country in West Africa has its own central bank, e.g. The Bank Of Ghana (B.O.G), The Central Bank of Nigeria (C.B.N) The Bank of Sierra Leone (B.S.L) etc.

COMMERCIAL BANK

DEFINITION: Also called Joint-Stock Banks, commercial banks are profit-seeking public limited liability companies which provide financial or banking services for individuals, the business community and the government.

Commercial banks are financial intermediaries. They attract funds from depositors and lend funds to borrowers. Examples are the Ghana Commercial Bank, Standard Chartered Bank, International Commercial Bank, Barclays Bank, UT Bank, HFC Bank etc.

DEVELOPMENT BANK

DEFINITION: Development banks are financial institutions established by the government for the purpose of providing long-term finance for the development of certain sectors of the economy, particularly the agricultural, industrial, housing and construction sectors. Examples are, Agricultural Development Bank (ADB), Bank for Commerce and Industry (BCI), National Investment Bank. (NIB), Bank for Housing and Construction (BHC) all in Ghana and the Nigerian Industrial Development Bank (NIDB), Nigeria Bank for Commerce and Industry, among others.

MERCHANT BANKS/ACCEPTANCE HOUSES

DEFINITION: Merchant banks are financial institutions which specialize in accepting bills of exchange and also in undertaking ordinary banking services.

THE STOCK EXCHANGE

DEFINITION: The stock exchange is a highly organized market for buying and selling existing or old long-term securities, namely, shares, debentures and government bonds.

Examples of stock exchange are the Ghana Stock Exchange (GSE), Nigeria or Lagos Stock Exchange (NSE) or (LSE) and the London Stock Exchange.

 THE CAPITAL MARKET

DEFINITION: The capital market is a market for the lending and borrowing of    long-term loans.

FOREX BUREAU/ FOREIGN EXCHANGE BUREAU/ BUREAU DE CHANGE

DEFINITION: Forex (foreign exchange) bureau are non-bank financial institutions which buy and sell foreign currencies (i.e. foreign exchange) in the foreign exchange market.

In other words, they trade foreign currencies with the public. The commonest foreign exchange traded in are the US dollar, Canadian dollar, British pound sterling, Dutch mark, French Franc, CFA Franc and the Euro

FINANCE HOUSE

DEFINITION: A finance house is an institution primarily concerned with the financing of hire-purchase transactions and other forms of installment credit. Finance houses advance funds to people wishing to buy durable goods and charge high rates of interest.

Other names for finance houses are finance companies, hire purchase finance companies and industrial banks

PUBLIC FINANCE

DEFINITION: Public finance is about the spending and revenue-generation activities of the state or government i.e. public finance deals with governments budget for the year and its effects on the economy.

NATIONAL BUDGET  

DEFINITION: A national budget is an official statement of the estimated revenue and expenditure of the government during a particular period of time, usually one year. A budget could be deficit, surplus or balanced.

DEFICIT BUDGET

DEFINITION: A deficit budget means that government’s planned expenditure is greater than its estimated revenue for the year. It often referred to as an inflationary budget because of the excess money supply it creates in the economy that tends to cause a continuous rise in the general price level.

BUDGET DEFICIT FINANCING

DEFINITION: Financing a deficit budget means raising more revenue to meet excess expenditure over revenue.

NATIONAL DEBT

DEFINITION: The national debt is the total accumulated sum of all outstanding central government debt.

*****The national debt is made up of

  1. External debt
  2. Domestic or internal debt

SURPLUS BUDGET

DEFINITION: A surplus budget means planned government expenditure is less than estimated government revenue or estimated government revenue exceeds estimated government expenditure

BALANCED BUDGET

DEFINITION: A balanced budget means planned government expenditure is equal to estimated government revenue

RECURRENT EXPENDITURE

DEFINITION: Recurrent expenditure in a government budget refers to planned spending on items that constitute running cost i.e. expenses that occur ( are repeated) every year, e.g. salaries, wages, expenses on repair of road and bridges, interest on the public or national debt, fuel and maintenance of official vehicles, etc. 

CAPITAL EXPENDITURE

DEFINITION: Capital Expenditure refers to government planned expenditure on items that which are durable in nature and does not recur every year. e.g. expenditure on building new schools, hospitals, roads, dams, expenses on securing new aircraft,rural electrification projects etc.

*****Planned government capital expenditure is usually smaller than recurrent expenditure.

FISCAL POLICY

DEFINITION: Fiscal policy is the deliberate manipulation of government income and expenditure so as to achieve desired economic and social objectives

 RECURRENT REVENUE

MEANING: Recurrent revenue is the income government generates on a regular basis from various sources including grants-in-aid from international institutions and richer nations.

TAX

DEFINITION: A Tax is a compulsory levy imposed by a government or its agents on individuals, firms as well as on goods and services, irrespective of the exact amount of services rendered to the tax payer in return, and not imposed as a penalty for any offence. It is made up of direct and indirect taxes.

DIRECT TAX

DEFINITION: Direct Taxes are taxes imposed directly on individuals or organizations by the government or it’s agents and therefore paid directly to government or its agents by the taxpayer.  e.g. income tax, company tax.

INDIRECT TAX

DEFINITION: Indirect Taxes are taxes levied on goods and services and therefore not paid directly by the taxpayer to the collecting authority.

PROGRESSIVE TAX

DEFINITION: Progressive taxation is the system of taxation in which as income or the stock of wealth to be taxed rises, the rate or percentage of income taken away as tax also rises and as income or stock of wealth to be taxed falls, the rate of taxation also falls.

***** There is a direct relationship between the level of income and the rate of taxation.

***** The marginal tax rate  of the progressive tax system increases as income increases.

REGRESSIVE TAX

DEFINITION: Regressive taxation is the system of taxation in which as income or the stock of wealth to be taxed rises, the rate or percentage of income taken away as tax falls and as income or stock of wealth to be taxed falls, the rate of taxation rises.

***** Regressive taxation is common where both the rich and the poor have to pay the same amount of money either directly (e.g. poll tax, community development levy etc) or indirectly in the form of higher prices of goods and services consumed by both rich and poor.

***** INDIRECT TAXATION generally tends to be more regressive than direct taxation as both high income earners and low income earners buy many commodities from the same market.

***** There is an inverse relationship between the level of income and the rate of taxation.

***** The marginal tax rate of the regressive tax system falls as income increases.

PLEASE NOTE

***** MARGINAL RATE OF TAX  is the tax paid on additional (incremental) income.

***** AVERAGE RATE OF TAX is total tax paid divided by total taxable income.

PROPORTIONAL TAX

DEFINITION: The proportional tax system is the system whereby the rate (percentage) of taxation is the same (i.e. fixed) for all income earners, both the rich and the poor, though the amount of money taken away as tax varies with different levels of income.

***** The marginal tax rate of the proportional tax system is constant.

DEFINITION: The regressive tax system is the system where by the rate (i.e. percentage) or taxation rises as income or the stock of wealth to be taxed fall and vice versa, the rate of taxation fall as income or the stock of wealth to be taxed rises, even though the money taken as tax may be fixed.

THE INCIDENCE OF A TAX

DEFINITION: The incidence of tax refers to the effect of a tax and where the burden finally rests. In other words, the incidence of a tax refers to how the real burden of tax is distributed among persons in a country. The incidence of a tax falls on the person (organization) who finally pays the particular tax. Tax incidence is in short, an issue of who really bears the tax burden and to what extent

***** The incidence of tax in the case of DIRECT TAX usually falls on the income earner

***** THE INCIDENCE OF TAX or the burden of tax in the case of INDIRECT TAX falls COMPLETELY/ENTIRELY on either the seller of the taxed commodity or the buyer but could also be shared (though not necessarily equally) by both DEPENDING ON PRICE ELASTICITY OF DEMAND for the commodity.

  • PERFECTLY INELASTIC = THE BUYER
  • PERFECTLY ELASTIC     =  THE SELLER
  • FAIRLY ELASTIC OR FAIRLY INELASTIC = SHARED.

REVENUE ALLOCATION

MEANING: Revenue allocation refers to the distribution of the national income among the various regions or states making up the country

EQUILIBRIUM NATIONAL INCOME

DEFINITION: The equilibrium national income is the level at which aggregate demand equals aggregate supply of goods and service and also equals desired investment. The economy is in equilibrium when planned expenditure equals planned output. The equilibrium expenditure (or aggregate demand) line cuts the 45° line (i.e. the aggregate supply line).

FISCAL POLICY

DEFINITION: Fiscal Policy refers to changes in government income and expenditure to achieve desired economic objectives, given the state of the economy.

EXPORT PROMOTION

MEANING: Export promotion is government’s deliberate policy aimed at encouraging production for exports

EXPORT-LED INDUSTRIALIZATION

MEANING: Export-led industrialization is the process of establishing manufacturing industries purposely to produce for export or for the external market. The products may not even be used in the domestic market.

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About Ralph Nyadzi

Ralph is a professional blogger, founder and CEO of RN Digital Media Ent. He spends his day working as an online entrepreneur, e-learning strategist and a test prep coach. If you can't locate him anywhere on the web, just doing what he knows how to do best, check him out on his farm or in the kitchen. He lives with four cats in the Central Region of his native country, Ghana.

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