Small Simple Dictionary of Economics (Part 1 of 8)

Economics, like other sciences and arts, has its own language. Without knowledge of this language, it is very difficult to understand economics. This has stopped many from following local, national and international economic developments. When I mention that economics is my field of interest, it often creates a sense of uneasiness since, unlike politics and sports, where almost everyone has an opinion, no one has much to say, and the conversation quickly changes to other things. This is unfortunate because economics is everywhere and is one of the most important factors in our lives. It touches almost every activity we undertake. But also, it isn’t easy to have an economics dictionary handy, so I explain about 200 common economic terminologies in a simple way. For some, it may be overly simplified; if that is the case, they can always refer to the Oxford Dictionary of Economics.

Aggregate demand: the total demand for final goods and services in an economy at a given time.

Aggregate expenditure: the total amount of expenditure on goods and services.

Aggregate supply: the total amount of domestic goods and services that businesses and government supply, including consumer products and capital goods.

Arbitration is a procedure for settling disputes in which a neutral third party or arbitrator issues a binding award upon each side after hearing presentations from all sides in a dispute.

Asset: an item or property owned by a person or a business which has a money value. Assets are of three main types: a) physical, b) financial and c) intangible.

Average cost: equal to total cost divided by the number of goods produced

Average propensity to consume (APC): the percentage of income spent on goods and services rather than savings.

Average propensity to save: the proportion of income that is saved rather than spent on goods and services.

Average rate of taxation: the total tax paid by an individual divided by the total income upon which the tax was based.

Average revenue: the total revenue received (price and number of units sold) divided by the number of units.

Bad debt is an accounting term for money owed that is unlikely to be paid.

A balanced budget is a budget in which revenues are equal to expenditures.

Balance of trade: the difference between the value of exports and the value of imports.

Balance sheet: a statement of the assets, liabilities, and capital of a business or other organization at a particular point in time, detailing the balance of income and expenditure over the preceding period.

Balance of payments: a statement of a country’s trade and financial transactions with the rest of the world over a period of time, usually one year.

Bankruptcy or insolvency: a condition under which a person or firm’s liabilities to creditors exceed assets. The individual or firm is, therefore, unable to pay all liabilities from its assets.

Barter: exchange (goods or services) for other goods or services without using money.

Base rate: the interest rate that commercial banks use to calculate the rate of interest to be charged on loans and overdrafts to their customers.

Bear: a market condition in which the prices of securities fall, and widespread pessimism causes the negative sentiment to be self-sustaining. As investors anticipate losses in a bear market and selling continues, pessimism only grows.

Bearer bonds are debt securities issued by a business entity, such as a corporation or government. It differs from the more common types of investment securities in that it is unregistered – no records of the owner or the transactions involving ownership are kept.

Bill of exchange: financial security representing an amount of credit extended by one business to another for a short period of time.

A black market, or underground economy, is a market in which goods or services are traded illegally.

Blue Chip: a nationally recognized, well-established and financially sound company. Blue chips generally sell high-quality, widely accepted products and services. Blue chip companies are known to weather downturns and operate profitably in the face of adverse economic conditions, which helps contribute to their long record of stable and reliable growth.

Bond: financial security issued by businesses and by the government as a means of borrowing long-term funds. Bonds are typically issued for a period of several years; they are repayable on maturity and bear a fixed interest rate.

Bonus shares: shares issued to existing shareholders without further payment on their part.

Boom: a business cycle phase characterized by full employment output levels and some upward move on the general price level.

Brokerage: a financial institution that facilitates the buying and selling of financial securities between a buyer and a seller.

Business cycle: the fluctuations in economic activity that an economy experiences over some time. A business cycle is defined in terms of periods of expansion or recession.