Dr. Christopher Pass - 2012;2005;

This dictionary contains material especially suitable for students reading foundation economics courses at polytechnics and universities, and for students preparing for advanced school economics examinations. The dictionary will be useful also to A and degree-level students reading economics as part of broader-based business studies, commerce or social science courses as well as to students pursuing professional qualifications in the accountancy and banking areas. Finally, it is expected that the dictionary will be of interest to general readers of the economic and financial press.

The dictionary provides a comprehensive coverage of mainstream economic terms, focusing in particular on theoretical concepts and principles and their practical applications. Key economic terms are given special prominence, including, where appropriate, diagrammatic illustrations. In addition, the dictionary includes various business and commercial terms that are relevant to an understanding of economic analysis and applications. It is, of course, difficult to draw a precise dividing line between economic and economics-related material and other subject matter. Accordingly, readers are recommended to consult other volumes in this series, in particular the Collins Dictionary of Business, should they fail to find a particular entry in this dictionary. In the interests of brevity, we have kept institutional minutiae and description, as well as historical preamble, to a minimum.

To cater for a wide-ranging readership with varying degrees of knowledge requirements, dictionary entries have been structured, where appropriate, so as to provide, firstly, a basic definition and explanation of a particular concept, then leading on through cross-references to related terms and more advanced refinements of the original concept.

Cross-references are denoted both in the text and at the end of entries by reproducing the keywords in small capital letters.

ability-to-pay principle of taxation the principle that TAXATION should be based on the financial standing of the individual. Thus, persons with high income are more readily placed to pay large amounts of tax than people on low incomes. In practice, the ability-to-pay approach has been adopted by most countries as the basis of their taxation systems (see PROGRESSIVE TAXATION ). Unlike the BENEFITS-RECEIVED PRINCIPLE OF TAXATION , the ability-to-pay approach is compatible with most governments desire to redistribute income from high income earners to low income earners. See REDISTRIBUTION-OF-INCOME PRINCIPLE OF TAXATION, POVERTY .

above-normal profitorexcess profit a PROFIT greater than that which is just sufficient to ensure that a firm will continue to supply its existing product or service (see NORMAL PROFIT ). Short-run (i.e. temporary) above-normal profits resulting from an imbalance of market supply and demand promote an efficient allocation of resources if they encourage new firms to enter the market and increase market supply. By contrast, long-run (i.e. persistent) above-normal profits ( MONOPOLY or super-normal profits) distort the RESOURCE ALLOCATION process because they reflect the overpricing of a product by monopoly suppliers protected by BARRIERS TO ENTRY . See PERFECT COMPETITION .

above-the-line promotion the promotion of goods and services through media ADVERTISING in the press and on television and radio, as distinct from below-the-line promotion such as direct mailing and in-store exhibitions and displays. See SALES PROMOTION AND MERCHANDISING .

absenteeism unsanctioned absences from work by employees. The level of absenteeism in a particular firm often reflects working conditions and morale amongst workers in that firm and affects the firms PRODUCTIVITY . See SUPPLY-SIDE ECONOMICS .

Fig. 1 Absolute advantage. The relationship between resource input and output.

absolute advantage an advantage possessed by a country engaged in INTERNATIONAL TRADE when, using a given resource input, it is able to produce more output than other countries possessing the same resource input. This is illustrated in Fig. 1 with respect to two countries (A and B) and two goods (X and Y). Country As resource input enables it to produce either 100X or 100Y; the same resource input in Country B enables it to produce either 180X or 120Y. It can be seen that Country B is absolutely more efficient than Country A since it can produce more of both goods. Superficially this suggests that there is no basis for trade between the two countries. It is COMPARATIVE ADVANTAGE , however, not absolute advantage, that determines whether international trade is beneficial or not, because even if Country B is more efficient at producing both goods it may pay Country B to specialize (see SPECIALIZATION ) in producing good X at which it has the greater advantage.

absolute concentration measure see CONCENTRATION MEASURES .

ACAS see ADVISORY, CONCILIATION AND ARBITRATION SERVICE .

accelerator the relationship between the amount of net or INDUCED INVESTMENT (gross investment less REPLACEMENT INVESTMENT ) and the rate of change of NATIONAL INCOME . A rapid rise in income and consumption spending will put pressure on existing capacity and encourage businesses to invest, not only to replace existing capital as it wears out but also to invest in new plant and equipment to meet the increase in demand.

By way of simple illustration, let us suppose a business meets the existing demand for its product, utilizing 10 machines, one of which is replaced each year. If demand increases by 20%, it must invest in two new machines to accommodate that demand in addition to the one replacement machine.

Investment is thus, in part, a function of changes in the level of income: I = f(Y). A rise in induced investment, in turn, serves to reinforce the MULTIPLIER effect in increasing national income.

Fig. 2 Accelerator. The graph shows how gross national product and the level of investment vary over time. See entry.

The combined effect of accelerator and multiplier forces working through an investment cycle has been offered as an explanation for changes in the level of economic activity associated with the BUSINESS CYCLE . Because the level of investment depends upon the rate of change of GNP, when GNP is rising rapidly then investment will be at a high level, as producers seek to add to their capacity (time t in Fig. 2). This high level of investment will add to AGGREGATE DEMAND and help to maintain a high level of GNP. However, as the rate of growth of GNP slows down from time t onward, businesses will no longer need to add as rapidly to capacity, and investment will decline towards replacement investment levels. This lower level of investment will reduce aggregate demand and contribute towards the eventual fall in GNP. Once GNP has persisted at a low level for some time, then machines will gradually wear out and businesses will need to replace some of these machines if they are to maintain sufficient production capacity to meet even the lower level of aggregate demand experienced. This increase in the level of investment at time t1 will increase aggregate demand and stimulate the growth of GNP.