1. Normative statements: statements that cannot be supported or refuted because it is a value judgement. 2. Positive statements: statements that can be supported or refuted by evidence. 3. Scarcity: a situation in which economic agents’ unlimited wants exceed what can be produced by limited resources. 4. Free goods: goods that are unlimited in supply and therefore have no opportunity cost. 5. Economic goods: goods that are scarce because their use has an opportunity cost. 6. Renewable resources: resources, such as fish stocks or forests, that can be exploited over and over again because they have the potential to renew themselves. 7. Non-renewable resources: resources, such as coal or oil, which once exploited cannot be replaced. 8. Opportunity cost: the benefits of the next best alternative that are given up. 9. Fixed capital: economic resources, such as factories and hospitals, that are used to transform working capital into goods and services. 10. Working or circulating capital: resources that are in the production system waiting to be transformed into goods or other materials before being finally sold to the consumer. 11. Capital goods: goods that are used in the production of other goods, such as factories, offices, roads and equipment. 12. Consumer goods: goods and services that are used by people to satisfy their needs and wants. 13. Production possibility frontier: a curve that shows the maximal combinations of two goods which an economy can produce when it fully and efficiently utilises its existing resources. 14. Division of labour means that the way a good or service is produced is divided into a number of tasks that are performed by different workers, instead of all the tasks being done by the same person. 15. Specialisation is the production of a limited range of goods by an individual, firm or country in co-operation with others so that together a complete range of goods is produced. 16. Functions of money: medium of exchange, store of value, unit of account, standard of deferred payments 17. Financial market: where brings together buyers and sellers to exchange financial produces. 18. The role of financial market: to facilitate saving to make funds available to businesses and individuals to facilitate the exchange of goods and services to provide forward markets in commodities and currencies to provide a market for equities 19. Command economy: an economic system where government, through a planning process, allocates resources in society. 20. Free market economy: an economic system that resolves the basic economic problems mainly through the market mechanism. 21. Mixed economy: an economy where both the free-market mechanism and the government planning process allocate significant proportions of total resources. 22. Utility: the satisfaction or benefit derived from consuming a good. 23. Marginal utility is the benefit of consuming an extra unit 24. Rationality: Neo-classical economics assumes that consumers are rational, who aim to maximise their own utility or economic welfare. 25. Law of diminishing marginal utility: the value or utility that individual consumers gain from the last product consumed falls as the greater the number consumed. 26. Consumer surplus: The difference between how much buyers are prepared to pay for a good and what they actually pay. 27. Producer surplus: The difference between the market price which firms receive and the price at which they are prepared to supply. 28. Price elasticity of demand (PED): the responsiveness of changes in quantity demanded to changes in price. Formula: percentage change in quantity demanded/percentage change in price. 29. Demand is price elastic if the value of elasticity is greater than one, meaning that a percentage change in price will bring about an even larger percentage change in quantity demanded. 30. Demand is price inelastic if the value of elasticity is less than one, meaning that a percentage change in price will bring about a smaller percentage change in quantity demanded. 31. Demand is of unitary elasticity if the value of elasticity is exactly one, meaning that a percentage change in price will lead to an exact and opposite change in quantity demanded. 32. Income elasticity of demand (YED): the responsiveness of changes in quantity demanded to changes in income. Formula: percentage change in quantity demanded/percentage change in income. 33. Normal good: A good where demand increases when income increases. 34. Inferior good A good where demand falls when income increases. 35. Cross elasticity of demand (XED): the responsiveness of changes in quantity demanded of one good to changes in the price of another. 36. Formula: percentage change in quantity demanded of good X /percentage change in price of good Y 37. Complementary goods are products which are used together. 38. Substitute goods are two alternative goods that could be used for the same purpose. 39. Price elasticity of supply (PES): the responsiveness of changes in quantity supplied to changes in price. Formula: percentage change in quantity supplied/percentage change in price. 40. Supply is price elastic if the value of elasticity is greater than one, meaning that a percentage change in price will bring about an even larger percentage change in quantity supplied. 41. Supply is price inelastic if the value of elasticity is less than one, meaning that a percentage change in price will bring about a smaller percentage change in quantity supplied. 42. Market equilibrium: a situation where quantity demanded is equal to quantity supplied. When the market is in equilibrium, there is no tendency for prices to change. We say the market-clearing price has been achieved. 43. Equilibrium price: The price at which there is no tendency to change planned purchase are equal to planned sales. 44. Excess demand: Where demand is greater than supply. 45. Excess supply: Where supply is greater than demand. 46. Incentive function: Price acts as incentives to motivate decision-makers to respond to the information. 47. Signalling function: Price acts as a signal communicate information to decision-makers. 48. Rationing function: the changes in price distributes scarce goods to those consumers who value them most highly. 49. An indirect tax is a tax on expenditure, the two major indirect taxes are value added tax and excise duties. 50. Ad Valorem tax: Tax levied as a percentage of the value of the good. 51. A unit tax: The amount of tax charged changes with the amount or volume of the goods purchased. 52. Subsidy: A grant given which lowers the price of a good, usually designed to encourage production or consumption of a good. 53. Market failure: Where resources are inefficiently allocated due to imperfections in the working of the market mechanism. 54. Externality: The difference between social costs or benefits and private costs or benefits. 55. An external cost occurs when producing or consuming a good or service imposes a cost (negative effect) upon a third party. 56. An external benefit occurs when producing or consuming a good causes a benefit to a third party. 57. Public good is a good which has two characteristics, non-rivalry and non-excludability. Non-rivalry means that consumption by one economic agent does not reduce the amount available for consumption by others. Non-excludability means that once provided, it is impossible to prevent any economic agent from consuming the good. 58. Free-rider problem means a person or organization that receives benefits that other have paid or without making any contribution. 59. Information failure/gap: where buyers or sellers or both do not have the information that is available to make a decision. 60. Moral hazard: when an economic agent makes a decision in their own best interest knowing that there are potential negative risks, and that if problems result, the cost will be partly paid by other economic agents. 61. Principal-agent problem occurs when the goals of principals, those who would gain or lose from a decision, are different from agents, those making decisions on behalf of the principal. For example, shareholders (principals) and managers (agents), or children (principals) and parents (agents). 62. Market bubble refers to a sustained rise in the prices of financial assets such as housing and equities which takes values will above long-run sustainable levels. 63. Speculation means buying or selling something in the expectation of a future price change and a profit. 64. Asymmetric information: where buyers and sellers have different amounts of information, with one group having more information than the other. 65. A maximum price is the highest amount that a producer may legally charge for a good or service, which is set below the market equilibrium price. 66. A minimum price is the lowest amount that a producer may legally charge for a good or service, which is set above the market equilibrium price. 67. Government failure occurs when government intervention leads to a net welfare loss compared to the free market solution. 68. Rent-seeking: the use of political power by an economic agent to influence the distribution of resources for their own benefit at the expense of others without creating any extra wealth for society. 69. Tradable pollution permit: a permission issued, usually by a government, to allow a fixed amount of pollution to be created; this permit can be used by the owner or sold to another firm.