Ability-to-pay principle: (of taxation)
The principle is that one’s tax burden should depend upon the ability to pay as measured by income or wealth. This principle does not specify how much more those who are butter off should pay.
Absolute advantage: (in international trade)
The ability of Country A to produce a commodity more efficiently (i.e., with greater output per unit of input) than Country B. Possession of such an absolute advantage does not necessarily mean that A can export this commodity to B successfully. Country B may still have a comparative advantage.
Actual, cyclical, and structural budget
The actual budget deficit or surplus is the amount recorded in a given year. This is composed of the structural budget, which calculates what government revenues, expenditures, and deficits would be if the economy were operating the potential output, and the cyclical budget, which measures the effect of the business cycle on the budget.
Adverse selection
A type of market failure in which those people with the highest risk are the most likely to buy insurance. More broadly, adverse selection encompasses situations in which sellers and buyers have different information about a product, such as in the market for used cars.
Aggregate demand
Total planned or desired spending in the economy during a given period. It is determined by the aggregate price level and influenced by domestic investment, net exports, government spending, the consumption function, and the money supply.
Aggregate demand (AD) curve
The curve shows the relationship between the number of goods and services that people are willing to buy and the aggregate price level, other things equal. As with any demand curve, important variables lie behind the aggregate demand curve, e.g government spending, exports, and the money supply.
Aggregate supply
The total value of goods and services that firms would willingly produce in a given time period. Aggregate supply is a function of available inputs, technology, and price level.
Aggregate supply (AS) curve
The curve shows the relationship between, the output firms would willingly supply and the aggregate price level, other things equal. The AS. curve tends to be vertical at the potential output in the very long run but maybe upward-sloping in the short run.
Appropriable
The term applied to resources for which the owner can capture the full economic value. In a well-functioning competitive market, appropriable resources are priced and allocated efficiently.
Arbitrage
The purchase of a good or asset in one market for immediate resale in another market in order to profit from a price discrepancy. Arbitrage is important in eliminating price discrepancies, thereby making markets function more efficiently.
Asset
A physical property or intangible right that has economic value. Examples are plants, equipment, land, patents, copyrights, and financial instruments such as money or bonds.
Asymmetric information
A situation where one party to a transaction has better information than the other party. This often leads to a market failure or even to no market at all.
Automatic (or built-in) stabilizers
The property of a government tax and spending system cushions income changes in the private sector. Examples include unemployment compensation and progressive income taxes.
Average cost curve, long-run (LRAC, or LAC)
The graph of the minimum average cost of producing a commodity for each level of output assumes that technology and input prices are given but that the producer is free to choose the optimal size of plants.
Average cost curve, short-run (SRAC, or SAC)
The graph of the minimum average cost of producing a commodity for each level of output, using the given state of technology, input prices, and existing plant.
Average product
Total product or output divided by the quantity of one of the inputs. Hence, the average product of labour is defined as the total product divided by the amount of labour input, and similarly for other inputs.
Average revenue
Total revenue is divided by the total number of units sold-i.e., revenue per unit. Average revenue is generally equal to price.
Avera tax rate
Total taxes divided by total income: also known as effective Lax rate.