Economics Terms A-Z
An asset is ANY resource that produces positive economic value for its owner - its owner being its owner as a result of a past event, most likely a transaction. There are two classes of assets, tangible and intangible, which are themselves made up of subclasses. Of the tangible variety, most commonly you’ll hear about current and fixed assets. Current assets refer to things that can be consumed, exhausted or sold, such as cash, stock, and marketable securities. Whereas fixed assets are assets that are trickier to convert into cash, like land, buildings, equipment and machinery.
In contrast, intangible assets lack any physical form; they are ethereal. As a result, their value can be harder to gauge, which can contribute to the occasional discrepancy between a company's value according to its own books, and its value as per market capitalisation. Examples of intangible are: patents, trademarks, goodwill, copyright, and trade names.
In its simplest form, opportunity cost refers to the loss of the positive results of a decision when an alternative decision is made. It refers to the actual loss incurred by not choosing one option when another is selected. This cost does not only refer to money, but any lost benefits which may result in choice. A simple example of this would be that the opportunity cost of using a machine to make one product is the production of another product. That is, the second product cannot be produced, and its not being produced is an opportunity cost.
Consumer Surplus and Producer Surplus
Consumer surplus is the gain made by consumers when they purchase an item at the competitive market price rather than the (highest) price that they would have been willing to pay for it. Analogously, producer surplus is the gain made by producers when they sell an item at the market price rather than the (lowest) price that they would also have accepted for it.
Economies of Scale
Economies of scale are the savings that occur when an entity grows in size and can produce output more efficiently or at lower cost. Here, the word “entity” can refer to individuals, organisations or even entire nations.