List of Important Economy Terms

Indian Economy is a very important part of the General Awareness section of many government exams like SSC, Banking, Railways, and many others. This section has a huge weightage of marks as many questions are coming from this section. we will discuss one of the important topics of the Indian Economy i.e. “List of Important Economy Terms”.

Important Economy Terms :

1. Absolute Advantage: Principle relating to the ability of an individual/firm or country to produce a greater quantity of products/goods/services than its competitors using the same amount of resources. 

2. Average Revenue: Refers to the revenue earned from the sale of goods per unit of product sold. This is determined by dividing the total revenue by the volume sold.

3. Accounting Profit: A company’s gross income, including explicit costs of doing business, such as taxes, depreciation, and expenses. This is the total revenue minus any explicit costs. Average tax rate: The tax rate that is paid when you add up all taxable sources of income and divide by the amount of unpaid tax.

4. Average Total Cost: The total cost per unit, including fixed and variable costs, is obtained by dividing the total cost by the output.
Average Fixed Cost: The fixed cost per unit of production, is determined by dividing the production fixed cost by the quantity produced (output).

5. Average Variable Cost: Divide the variable cost by the number of units produced.

6. Business Cycle: Economy-wide fluctuations in economic activity such as production, trade, and employment. 

7. Budget Surplus: Income or excess of income over expenses.

8. Budget deficit: A measure of fiscal health in which spending exceeds income.

9. Circular Flowchart: A basic visual model used in economics to show how the economy works (money flows through firms, markets, etc.

10. Comparative Advantage: Laws relating to an economic entity’s ability to produce goods and services at a lower opportunity cost than other economic entities.

11. Supplement: A product or service that is used in conjunction with another product or service. Complementary products and services have no value on their own, but add value when combined with another product or service. 

12. The cross-price elasticity of demand: Measures the response of the quantity demanded of one good to changes in the price of another good.

13. Cost: A combination of losses and gains evaluated by humans. All value that the seller must give up to produce the goods.

14. Consumer Surplus: The difference between what consumers are willing (and able to pay) for a service/good relative to the market price and how much they spend on the service/good. 

15. Coase theorem: an economic theory that given a competitive market with no transaction costs, no matter how property rights are divided, an efficient set of inputs and outputs will be chosen between the optimal distributions for production. When it comes to property rights involvement, stakeholders naturally focus on the most beneficial and efficient results.

16. Constant Return to Scale: Constant ratio between input and output. Occurs when the output increases in response to an increase in the number of inputs.

17. Competitive Market: A market where many manufacturers compete to meet the needs of many consumers. 

18. Collusion: An agreement between companies in a marketplace to restrict competition by deceiving, misleading, or defrauding the legal rights of others, sometimes illegal. Market-sharing agreements fix prices and limit production and opportunities.

19. Cartel: An organization formed from formal agreements between groups of producers of goods or services to regulate supply and manipulate prices.

20. Capital: Wealth or other meanings used to start a business are factors of production, the others being land and labor.

21. Decrease in the marginal product: It states that increasing the input constantly and keeping the other input constant initially helps increase in the output. Further increases in the input have limited effect and ultimately have no adverse impact on output. The Law of Diminishing Marginal Productivity helps us understand why increasing production is not always the best way to increase profitability.

22. Deadweight Loss: Reduction in headline surplus due to market inefficiencies. Applicable to shortages due to inefficient resource allocation.

23. Economies of Scale: An economic term that refers to situations where economies of scale have ceased to work for a company.

24. Economics: the study of how societies manage their scarce resources, or the science of producing, distributing, and consuming goods and services. 

25. Efficiency: A property of society in which resources are optimally allocated to best serve each individual or entity while minimizing waste and inefficiency.

26. Explicit cost: An obvious outflow of funds from a company that reduces profitability.

27. Equity: The value of an asset minus the liabilities of the asset. E = A– L ( Where A is an asset and L is a Liabilities)

28. Externalities: positive or negative effects of economic activity experienced by uninvolved bystanders. 

29. Export: The function of international trade that exports domestically produced goods abroad.

30. Equilibrium: A state of equilibrium in economic power where the quantity demanded = the quantity supplied.

31. Economic profit: total revenue – total cost

32. Efficiency metric: The amount of input that minimizes the average total cost.

33. Economies of Scale: Cost advantages that come with increasing volume.

34. Fixed costs: Costs that are not affected by production or sales volume. 

35. The free-rider problem: Market failures occur when people profit from shared resources and do not pay their fair share of taxes.

36. Factors of production: Inputs used to produce goods and services to generate economic profit.

37. Game theory: the study of human behavior in competitive or strategic situations.

38. Inflation: The rate of increase in the overall price of goods and services, resulting in a decrease in the purchasing power of a currency.

39. Interdependency: A relationship between two or more entities that depend on each other for goods or services. 

40. Imported goods: Goods produced overseas and sold domestically.

41. Inferior Goods: Goods for which demand decreases as income or real GDP increases.

42. Income elasticity of demand: The sensitivity of the quantity demanded of a particular good or service to changes in consumers’ real incomes.

43. Import Quota: A restriction on the number of goods that can be produced abroad and sold domestically.

44. Implicit costs: Costs are incurred, but not necessarily expensed.

45. Law of Demand: An economic (micro) law that all things being equal, as the price of a good or service increases, the quantity of the good or service demanded decreases. 

46. Law of Supply: Another microeconomic law that states that all things being equal, as the price of goods/services increases, the quantity of goods/services supplied will increase.  

47. Laffer Curve: A curve chart developed by Arthur Laffer that shows the relationship between tax rates and the amount of tax revenue collected by the government.

48. Lump-sum taxation: A fixed amount of tax regardless of changes in the taxpayer’s circumstances.