Introduction to Economics: Key terms and Definitions
Land
Labour
Capital
Enterprise
Profit
Rent
Wages
Interest
Capital intensive
Labour intensive
Opportunity Cost
PPC/PPF
Consumption
Investment
Free market economy
Planned/command economy
Mixed economy
Price mechanism- Price as a signalling device, rationing device & profit incentive
Key Diagrams:
PPF/PPC curve to show:
a) trade off between consumption and investment
b) actual growth versus potential growth
c) economic growth versus economic development
Section 1: Microeconomics review: Key terms and definitions (HL only = red)
Demand
Quantity demanded
Ceteris Paribus
Substitute effect
Income effect
Utility
Marginal Utility
Complementary goods/joint demand
Substitute goods/competitive demand
Normal goods
Inferior goods
Superior goods
Supply
Quantity supplied
Complementary producer good
Substitute producer good
Surplus
Shortage
Maximum price
Minimum price
Parallel market
Price elasticity of demand
Inelastic demand
Elastic demand
XED
YED
PES
Tax
Subsidy
Specific tax
Ad valorem tax
Tax incidence/burden
Market failure
Social costs (Marginal)
Social benefits (Marginal)
Externalities
Positive externalities/external benefits
Negative externalities/external costs
Public goods/Private goods
Rivalry/Non rivalry
Excludability/non excludability
Merit goods
Demerit goods
Welfare loss
Short run and long run cost periods
Total cost
Fixed cost
Variable cost
Marginal cost
Average cost
Marginal product
Total product
Average product
Economics of scale
Total revenue
Average revenue
Marginal revenue
Profit
Normal profit
Supernormal profit
Economic loss/Sub normal profit
Profit maximisation
Revenue maximisation
Perfect competition
Monopolistic competition
Oligopoly
Monopoly
Natural monopoly
Barriers to entry/exit
Sunk costs
Price makers/takers
Productive efficiency
Allocative efficiency
Social efficiency
Consumer surplus
Producer surplus
Price competition and non-price competition
Price discrimination
Contestable markets
Key Diagrams:
Market demand and supply to show:
 Equilibrium market price and quantity
 Changes in the conditions of demand and supply and subsequent effects on above
 Effects of tax and subsidy on market price and quantity
 The incidence/burden of taxation/subsidy
 Max price scheme
 Min price scheme
 Guaranteed price scheme
 Buffer stock scheme
 Surplus and shortage
 Elasticities of demand and supply
Diagram to show relationship between income and quantity demanded
MSC/MSB diagram to show:
 Market failure associated with:
 Positive externalities of consumption (merit goods, public goods)
 Negative externalities of consumption (demerit goods)
 Positive externalities of production
 Negative externalities of production
 Profit maximising output versus socially efficient output
 Welfare loss
Diagram to show relationship between fixed costs, variable costs and total costs
Diagram showing economies and diseconomies of scale on LRAC curve
Diagram to show relationship between marginal product and average product
Output positions for a firm in perfect competition- used to show:
 Short run and long run output positions (must use in conjunction with market supply and demand)
 Productive and allocative efficiency
 Shut down output position
Output positions for a firm in monopoly- used to show:
 Possible profit situations in monopoly
 Revenue maximisation position
 Productive and allocative efficiency (or lack of)
Output positions for a firm in monopolistic competition- used to show:
 Short run and long run output positions
 Productive and allocative efficiency (or lack of)
 Possible profit situations in monopolistic competition
Output positions for a firm in oligopoly- used to show:
 Possible profit situations in oligopoly
 Price fixing agreement – firms act as monopoly
The Kinked Demand Curve- used to show:
 Price rigidity in oligopolies
Macroeconomics review: (HL only – red)
Key terms:
National income
GDP
GNP/NNP
Nominal GDP
Real GDP
GDP per capita
Economic growth
Economic development
Aggregate demand
Consumption
Investment
Net exports
Fiscal policy (expansionary/deflationary)
Monetary policy (expansionary/deflationary)
Interest rates
APC
APS
Durable goods
Non- durable goods
Disposable income
Real income/Purchasing power
Aggregate supply
SRAS/LRAS
Macroeconomic equilibrium
Output gap
Recessionary gap
Inflationary gap
Recession
The multiplier
Inflation
Deflation
Demand pull inflation
Cost push inflation
RPI/CPI
Unemployment
Unemployment rate
Derived demand
Labour force
Structural unemployment
Seasonal unemployment
Frictional unemployment
Real wage rate unemployment
Demand deficient unemployment
Equilibrium unemployment
Disequilibrium unemployment
Taxation
Direct taxes
Indirect taxes
Regressive taxes
Progressive taxes
Proportional taxes
Transfer payments
Gini coefficient
Key diagrams:
Circular flow of income used to show:
 National income
 Leakages and injections
 The effects of the multiplier (perhaps)
Investment schedule: used to show:
 Relationship between level of investment and interest rates
Macroeconomic equilibrium: used to show:
 Changes in AD caused by changes in components of AD
 Changes in SRAS caused by supply side shocks
 Changes in LRAS caused by supply side policies
 Effects of policies: demand side and supply side, fiscal, monetary, x-rate etc
 All show impact on price level and output level
 Output gaps- recessionary and inflationary
 Inflation (cost push and demand pull)
Keynesian versus Neo-classical LRAS: used to show:
 Differences in opinion between two schools of thought on Long Run equilibrium in economy
 Use Keynesian to illustrate the effects of demand deficient unemployment
The business/trade cycle: used to show:
 Fluctuations in economic output and long run trends
The Labour market: used to show
 Equilibrium unemployment (search/seasonal/structural) – include ADL, ASL and LF
 Disequilibrium unemployment (real wage rate & demand deficient) show ASL>ADL at equilibrium
wage rate
Lorenz curve: used to show:
 income distribution/income inequality
 Gini coefficient
The Phillips curve: used to show:
 Trade off between unemployment and inflation
The LR Phillips curve: used to show:
 Natural rate of unemployment
Key terms and diagrams: International trade (HL only = red)
International trade
Factor endowments
HL: Absolute advantage
HL: Comparative advantage
Free trade
Protectionism
Infant industries
Declining industries
Dumping
Tariffs
Quotas
Export subsidy
Embargo
Globalisation
MNE
FDI
Trading blocs
Free Trade Areas
Customs Unions
Common Market
Monetary Union
HL Trade Creation
HL Trade Diversion
Exchange rate
Fixed x-rate
Floating x-rate
Managed x-rate
Appreciation and depreciation
Revaluation and devaluation
Balance of Payments
Current Account
Trade balance
Current account surplus/deficit
Capital account
Financial account
Expenditure switching policies
Expenditure reducing polices
Terms of trade
Deteriorating terms of trade
Improvement in terms of trade
Key diagrams:
HL- PPF/PPC curves to show:
 Gains from specialisation and trade
 Comparative and absolute advantage
Tariff diagram to show:
 Impact onEquilibrium market price and quantity, world producers, domestic producers, domestic consumers,
government revenue, loss of consumer surplus, deadweight loss.
Quota diagram to show:
 Impact onEquilibrium market price and quantity, world producers, domestic producers, domestic consumers
Protectionist subsidy diagram to show:
 Impact onEquilibrium market price and quantity, world producers, domestic producers, domestic consumers
Foreign Exchange market diagram to show:
 Changes in demand and supply of currency and subsequent impact on equilibrium value of currency
in terms of another currency.
 Differences between fixed and floating x-rate systems
HL- The J curve to show


Correction of current account deficit over time
Marshall Lerner condition:
PED (exports) + PED (imports) >1
Development Economics – Key terms
ELDC (characteristics)
EMDC (characteristics)
Underemployment
Infrastructure
Property rights
Informal markets
Indebtedness
Capital flight
Poverty trap/cycle (all key diagram)
Export promotion/outward orientation strategies
Import substitution/inward-orientated strategies
Micro-finance
Aid
Tied aid
Multilateral aid
Bilateral aid
Grants
Indebtedness
Sustainable development
Key diagrams: Poverty cycle