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Economics Definitions

Barriers to entry

Definition: Obstacles to the entry of new firms into a market. Barriers to entry may take various forms. They may be technical barriers, legal barriers or barriers that arise from strong branding of the product.

Consumer surplus

Definition: This occurs when people are able to buy a good for less than they would be willing to pay. They enjoy more utility than they had to pay for.

Capital account

Definition: That part of the balance of payments accounts that measures the flows of capital in and out of the country.

International trade

Definition: The exchange of goods and services between countries


Definition: Investment is the purchase of capital equipment. i.e. the purchase of machines, equipment, factories etc. that firms need to enable them to produce. It is usually split into two parts:

1. Replacement investment - this is where companies buy new machinery and equipment that simply replaces something they had already that was worn out or inefficient. Depreciation is often used as an approximation for this.

2. Net investment - this is where companies buy new machinery or equipment. It is this type of investment that actually adds to the capital stock of the economy.

Investment can also refer to changes in the level of stocks

Purchasing power parity

A method for calculating the correct value of a currency, which may differ from its current market value. It is helpful when comparing living standards in different countries, as it indicates the appropriate EXCHANGE RATE to use when expressing incomes and PRICES in different countries in a common currency.


Opposition to FREE TRADE. Although intended to protect a country’s economy from foreign competitors, it usually makes the protected country worse off than if it allowed international trade to proceed without hindrance from trade barriers such as QUOTAS and TARIFFS.

Public goods

Things that can be consumed by everybody in a society, or nobody at all. They have three characteristics. They are:

• non-rival – one person consuming them does not stop another person consuming them;

• non-excludable – if one person can consume them, it is impossible to stop another person consuming them;

• non-rejectable – people cannot choose not to consume them even if they want to.