TERM
DEFINITION
A Loss
When costs are greater than revenue.
A Market
An arrangement which brings buyers and sellers into contact to
trade goods and services.
A Substitute
A product that can be used instead of another / alternative
product.
Absolute Poverty
Living on less than a specified amount (e.g. $1.90 a day) or
being unable to purchase basic necessities.
Aggregate Demand
The total demand for goods and services in an economy at a
given price level (C + I + G + X – M).
Average Costs
Total cost divided by output / cost per unit.
Average Fixed Cost
(AFC)
Fixed cost divided by output.
Average Total Cost
Total cost divided by output.
Average Variable Cost
(AVC)
Variable cost divided by output.
Basic Economic
Problem
Scarcity; wants are unlimited but resources are limited / finite.
Birth Rate
The number of births per 1,000 of the population per year.
Budget Deficit
When government spending exceeds government revenue / tax
receipts.
Budget Surplus
When government revenue / tax receipts exceed government
spending.
Capital Good
A man-made resource / good used to produce other goods and
services.
Capital-Intensive
Production
Production that uses a high proportion of capital relative to
labour.
Central Bank
The government's bank / bank of the commercial banks
responsible for monetary policy / issuing currency.
Choice
A decision between alternatives.
Claimant Count
A measure of unemployment counting those claiming
unemployment-related benefits.
Collective Bargaining
Negotiation between trade unions and employers over pay and
working conditions on behalf of workers.
Commercial Bank
A financial institution that offers services to the general public
/ firms (e.g. accepting deposits / lending money).
Conglomerate
Integration
Merger / takeover between firms in different industries /
producing unrelated products.
Consumer Prices Index
(CPI)
A measure of inflation based on a weighted basket of goods and
services.
Contraction in Demand
A fall in quantity demanded caused by a rise in price
(movement along the demand curve).
TERM
DEFINITION
Contraction in Supply
A fall in quantity supplied caused by a fall in price (movement
along the supply curve).
Cost-Push Inflation
Inflation caused by an increase in costs of production (e.g.
rising wages or raw material prices).
Currency Depreciation
A fall in the value of a currency in a floating exchange rate
system.
Current Account Deficit
The value of imports of goods and services / debit items is
greater than the value of exports / credit items.
Current Account
Surplus
The value of exports of goods and services is greater than the
value of imports.
Cyclical Unemployment
Unemployment caused by a lack of aggregate demand / during
a recession.
Death Rate
The number of deaths per 1,000 of the population per year.
Deflation
A sustained / persistent fall in the general price level.
Demand
The willingness and ability to buy a product at a given price
over a given time period.
Demand-Pull Inflation
Inflation caused by an increase in aggregate demand / too
much money chasing too few goods.
Demerit Good
A good that is worse for the consumer than they realise / overconsumed due to negative externalities.
Deregulation
The removal of government rules / restrictions to increase
competition / efficiency.
Devaluation
A fall in the value of a currency in a fixed exchange rate system,
caused by the government.
Developed Country
A country with a high GDP per head / high standard of living /
high HDI / advanced infrastructure.
Direct Tax
A tax on income, wealth or profit paid directly to the
government (e.g. income tax, corporation tax).
Diseconomies of Scale
A rise in average costs as output / scale of production increases
too much.
Division of Labour
Breaking down the production process into separate tasks
carried out by different workers.
Dumping
Selling goods in a foreign market at a price below cost / below
the domestic price.
Earnings
Income received from working / managing a firm / owning
land / lending money (e.g. wages + bonuses).
Economic Development
An improvement in economic welfare / standard of living (e.g.
better health, education, income).
Economic Good
A good that is scarce / has an opportunity cost and must be
paid for.
Economic Growth
An increase in a country's GDP / national output / productive
potential over time.
Economies of Scale
A fall in average costs as output / scale of production increases.
TERM
DEFINITION
Elastic Supply
A change in price causes a larger percentage change in quantity
supplied (PES > 1).
Embargo
A complete ban on trade / imports or exports with a particular
country.
Emigration
People permanently leaving a country to live in another
country.
Enterprise
The factor of production that organises the other factors / takes
risks in the hope of making profit.
Equilibrium Price
The price where quantity demanded equals quantity supplied /
market clears.
Exchange Rate
The price of one currency in terms of another currency.
Extension in Demand
A rise in quantity demanded caused by a fall in price.
Extension in Supply
A rise in quantity supplied caused by a rise in price (movement
along the supply curve).
External Benefits
Benefits enjoyed by third parties / society who are not directly
involved in the transaction.
External Costs
Costs imposed on third parties / society not paid for by the
consumer or producer.
External Growth of
Firms
Increasing size by merging with / taking over other firms.
Factor of Production
Resources used to produce goods and services (land, labour,
capital, enterprise).
Fertility Rate
The average number of children born to a woman in her
lifetime.
Finite Resource
A resource that is limited in supply / non-renewable and will
eventually run out.
Fiscal Policy
Government use of taxation and spending to influence the
economy / aggregate demand.
Fixed Cost
Costs that do not change with output.
Floating Exchange Rate
The value of a currency is determined by market forces /
demand and supply without government intervention.
Foreign Exchange
Market
A market where currencies are bought and sold / traded.
Free Good
A good with no opportunity cost / unlimited in supply.
Free Trade
Trade without restrictions / barriers (e.g. no tariffs / quotas).
Frictional
Unemployment
Unemployment when workers are between jobs / searching for
new jobs.
Full Employment
Where all those willing and able to work have a job /
unemployment is at its lowest possible level (~3%).
GDP per Head
Gross Domestic Product / total output divided by the
population.
Gender Distribution
The proportion / ratio of males to females in a population.
TERM
DEFINITION
Globalisation
The increasing integration / interdependence of the world's
economies through the growth of international trade,
investment and movement of people.
Government Budget
A plan of government revenue and government spending for
the coming year.
Gross Domestic Product
(GDP)
The total output / value of goods and services produced in a
country over a given period of time.
Horizontal Integration
Merger / takeover of firms at the same stage of production in
the same industry.
Human Development
Index (HDI)
A measure of living standards including income (GDP per
head), education, and health (life expectancy).
Immigration
People permanently entering a country from another country.
Import Quota
A limit on the quantity / value of goods / services bought from
other countries.
Import Tariff
A tax on goods / services entering a country.
Indirect Taxes
Taxes on expenditure / goods and services.
Industry
A group of firms producing the same / similar products.
Inelastic Supply
A change in price causes a smaller percentage change in
quantity supplied (PES < 1).
Inflation
A sustained / persistent rise in the general price level / fall in
the value of money.
Internal Growth of
Firms
Increasing size by expanding existing operations / increasing
output or market share (organic growth).
International Trade
The exchange of goods and services between countries.
Investment
Spending on capital goods / assets to increase productive
capacity.
Labour
Human effort / workers used in the production of goods /
services.
Labour Force
All those willing and able to work (employed + unemployed).
Labour Mobility
The ability of workers to move between jobs (occupational) or
areas (geographical).
Labour-Intensive
Industry
An industry that uses a high proportion of labour compared to
capital to produce goods/services.
Land (Factor of
Production)
Natural resources available for production.
Macroeconomics
The study of the economy as a whole / national and global
economic issues (e.g. inflation, unemployment, GDP).
Market Disequilibrium
Where demand does not equal supply, causing a shortage or
surplus.
Market Economic
System
An economic system where resources are allocated through the
price mechanism / market forces of demand and supply with
no government intervention.
TERM
DEFINITION
Market Equilibrium
When demand equals supply / there is no tendency for the
price to change.
Market Failure
When the market mechanism fails to allocate resources
efficiently / leads to social welfare loss.
Maximum Price
A price ceiling set by the government above which the price
cannot rise.
Medium of Exchange
A function of money; something accepted as payment for goods
and services.
Merit Good
A good that is better for the consumer than they realise / has
positive externalities and is under-consumed (e.g. education,
healthcare).
Microeconomics
The study of individual economic units / markets (e.g. firms,
households, prices of specific products).
Minimum Price
A price floor set by the government below which the price
cannot fall.
Minimum Wage
A legally set minimum level of pay / the lowest wage an
employer can legally pay a worker.
Mixed Economic System
An economy where resources are allocated by both the market
mechanism and the government.
Mixed Economy
An economy with a public sector and a private sector / market
forces and government intervention.
Monetary Policy
A demand-side policy / government measures to influence the
money supply / interest rate.
Multinational Company
A firm that produces / has operations in more than one
country.
Net Immigration
The number of immigrants entering a country is greater than
the number of emigrants leaving.
Opportunity Cost
The next best alternative foregone.
Optimum Population
The population size that maximises output per head / GDP per
capita given available resources and technology.
Perfect Competition
A market structure with many buyers and sellers, identical
products, free entry and exit, and perfect information.
Perfectly Inelastic
Supply
A change in price causes no change in quantity supplied (PES =
0).
Population Pyramid
A diagram showing the age and gender distribution of a
country's population.
Price Elasticity of
Demand (PED)
A measure of the responsiveness of quantity demanded to a
change in price (% change in QD / % change in price).
Price Elasticity of
Supply (PES)
A measure of the responsiveness of quantity supplied to a
change in price.
Price Mechanism
The system by which the forces of demand and supply
determine prices and allocate scarce resources.
Price-Elastic Demand
A change in price causes a larger percentage change in quantity
demanded (PED > 1).
TERM
DEFINITION
Price-Inelastic Demand
A change in price causes a smaller percentage change in
quantity demanded (PED < 1).
Primary Income
Income earned from factors of production abroad (e.g. profits,
dividends, interest, wages).
Private Benefit
Benefit received by the consumer / producer directly involved
in the transaction.
Private Cost
Cost borne by the producer / consumer / those directly
involved in the transaction.
Private Limited
Company
A business owned by shareholders where shares cannot be sold
to the general public.
Production Possibility
Curve (PPC)
A curve showing the maximum combination of two goods that
can be produced with current resources and technology.
Productivity
Output per worker / factor per period of time.
Profit
The difference between total revenue and total cost / when
revenue exceeds costs (TR - TC).
Profit Maximisation
Making the highest possible profit (where MC = MR).
Progressive Tax
A tax where the rate of tax rises as income rises.
Proportional Tax
A tax where the percentage of income paid in tax remains
constant / the same as income rises.
Protectionism
Government measures to restrict imports / trade or to protect
domestic industries.
Public Good
A good that is non-excludable and non-rival / not provided by
the market because firms cannot charge a price (e.g. street
lighting, defence).
Public Limited Company A firm that can sell shares to the general public / on the stock
exchange and has limited liability.
Public Sector
The part of the economy owned / controlled by the
government.
Rate of Interest
The cost of borrowing money / the reward for saving,
expressed as a percentage.
Recession
A fall in GDP / negative economic growth for two consecutive
quarters (6 months) or more.
Redistribution of
Income
Government measures to reduce inequality / the gap between
rich and poor.
Regressive Tax
A tax where the percentage of income paid in tax falls as
income rises.
Relative Poverty
Having an income / standard of living below a certain
proportion of the average for that country (e.g. below 60% of
median income).
Resources
Factors of production / inputs used to produce goods and
services (land, labour, capital, enterprise).
Sales Tax
A tax on the sale of goods / services (e.g. VAT / GST).
Saving
Income not spent or delayed consumption.
TERM
DEFINITION
Scarce Resources
Factors of production are limited / insufficient to satisfy wants.
Secondary Income
Current transfers between countries (e.g. foreign aid,
remittances, contributions to international organisations).
Secondary Sector
The manufacturing / construction sector which processes raw
materials into finished goods.
Shortage
When demand exceeds supply.
Social Benefit
The total benefit to society (private benefit + external benefit).
Social Cost
The total cost to society (private cost + external cost).
Specialisation
Concentration on a specific product / task to increase
efficiency.
Standard for Deferred
Payments
A function of money allowing payments to be made in the
future / enables borrowing and lending.
State-Owned Enterprise
A firm / business owned by the government / state.
Store of Value
A function of money; something that retains its value /
purchasing power over time.
Structural
Unemployment
Unemployment caused by a decline in a specific industry /
mismatch of skills due to changes in demand or technology.
Subsidy
A payment / grant from the government to reduce production
costs / increase production / lower price.
Supply
The willingness and ability to sell a product at a given price
over a given time period.
Supply-Side Policy
Measures designed to increase aggregate supply / productive
capacity by increasing the quantity / quality of resources.
Surplus
When supply exceeds demand / quantity supplied is greater
than quantity demanded.
Tariffs
A tax on imports.
Tertiary Sector
The services sector / production of services (e.g. banking,
tourism).
Total Cost
Fixed cost plus variable cost / the total expense of producing a
level of output.
Total Revenue
The income received by a firm from the sale of its goods /
services (Price x Quantity).
Trade in Goods Balance
The value of exports of goods minus the value of imports of
goods.
Trade in Goods Deficit
The value of imported goods is greater than the value of
exported goods.
Trade in Services Deficit
The value of imports of services is greater than the value of
exports of services.
Trade Union
An organisation of workers formed to protect their interests /
improve pay and working conditions.
Unemployment
People without jobs who are willing and able to work / seeking
work.
Unemployment Rate
The percentage of the labour force that is unemployed.
TERM
DEFINITION
Unit of Account
A function of money; a common measure used to express the
value / price of goods and services.
Variable Cost
Costs that change with output / rise as output increases.
Vertical Integration
Merger / takeover of firms at different stages of production in
the same industry.
Wages
Payment / reward for labour, usually paid weekly / hourly.
Weighted Price Index
An index where items are given a weight according to their
importance to calculate average price changes.