Studied by 11 people
Basic Economic Problem
Allocate scarce resources to satisfy unlimited needs and wants.
Labour
Human effort used up in productive activites
Production
The act or process of using resources to make and supply goods and services to satisfy human needs and wants
Factor Mobility
The ability to move factors of production from one productive use or location to others
Good and Services
Outputs or products of productive activity
Factors or Production
Scarce resources used to produce other goods and servgices, inputs to productive activities
Free Goods
Any resources or products that are unlimited in supply
Economic Goods
Any resources of prodcutions that are limited in supply and scarce relative to human wants
Entrepreneur
People with enterprise skills who are willing to take the risks and decisions necessary to organize resources into firms for production
Consumption
Using up of goods and services by consumers to satisfy their human needs and wants
Enterprise
Skills possessed by successful entrepreneurs including the ability to organize resources into firms for the purpose of production
Factor Rewards
Payments made to the owners of factors of production in return for supplying them to firms for productive use
Chain of Production
Businesses from the primary, secondary and tertiary sectors work interdependently to make a product and sell it to the final customer.
Goods
Physical items such as tables, cars, toothpaste and pencils.
Services
Non-physical items such as haircuts, bus journeys, telephone calls, and internet access.
Needs
Goods that are essential for survival.
Wants
Goods and services that are not necessary for survival but are demanded, huamn desires for different goods and services which are without limit and ever increasing.
Opportunity Cost
The cost of the next best opportunity forgone when making a decision.
Production Possibility Curve
Shows the maximum amount of goods and services which can be produced in an economy, which is the productive capability of the economy.
Economic System
The way in which an economy is organized and run, including how best to allocate society's scarce resource.
The Fundamental Economic Questions
The key questions that all economic systems strive to answer: what, how and for whom production should take place.
Market Economy
A type of economic system that relies on the market forces of demand and supply to allocate resources with minimal government intervention.
Mixed Economy
A type of economic system that combines elements of both the planned and market economic systems, with some resources being owned and controlled by private individuals and firms while others are owned and controlled by the government.
Planned Economy
A type of economic system that relies on the government allocating scarce resources. It is often associated with a communist political system that strives for social equality.
Demand
The willingness and the ability of customers to pay a given price to buy a good or service. The higher the price of a product, the lower its demand tends to be.
Supply
The willingness and the ability of firm to provide a good or service at given prices. The higher the price of a product, the higher its supply tends to be.
Equilibrium
When the quantity demanded for a product is equal to the quantity supplied of the product. There are no shortages or surpluses.
Excess Demand
When the demand for a product exceeds the supply of the product at certain price levels. This happens when the price is set below the equilibrium price, resulting in shortages.
Excess Supply
When the supply of a product exceeds the demand at certain price levels. This results in a surplus because the price is too high. (i.e. above the market equilibrium price).
Substitutes
Products that are in competitive demand as they can be used in place of each other. For example, tea and coffee or McDonald's and Burger King meals are substitute products.
Complements
Products that are demanded for their use together with other products. For example, tea and milk or the cinema and popcorn are jointly demanded.
Price Elasticity of Demand
Measures the extent to which demand for a product changes due to a change in its price.
Price Elastic Demand
Describes demand for a product that is relatively responsive to changes in price, usually due to substitutes being available.
Price Inelastic Demand
Describes demand for a product that is relatively unresponsive to changes in price, mainly because of the lack of substitutes for the product.
Price Elasticity of Supply
Measures the responsiveness of quantity supplied of a product following a change in its price.
Private Benefits
The benefits of production and consumption enjoyed by a firm, individual, or government.
Private Costs
The actual costs of a firm, individual or government.
External Benefits
The positive side-effects of production or consumption incurred by third parties, for which no money is paid by the beneficiary.
External Costs
The negative side-effects of production or consumption incurred by third parties, for which no compensation is paid.
Social Benefits
The true or full benefits of consumption or production: that is, the sum of private benefits and external benefits.
Social Costs
The true or full costs of consumption or production: that is, the sum of private costs and external costs.
Merit Goods
Goods and services which, when consumed, create positive spillover effects in an economy (e.g. education, training, and health care). They are under-consumed so government intervention (subsidy) is often needed.
Subsidy
A sum of money given by the government to a producer to reduce the costs of production or to a consumer to reduce the price of consumption.
Demerit Goods
Goods or services which, when consumed, cause negative spillover effects in an economy (e.g. cigarette smoking, alcohol and gambling). Demerit goods are over-consumed due to imperfect consumer information about such goods.
Public Goods
Products that one individual can consume without reducing its availability to another individual, and from which no one is excluded. National defence, public parks and streetlights can all be considered public goods. A public good is an item consumed by society as a whole and not necessarily by an individual consumer. Public goods are provided by the government and financed by tax revenues.
Non-excludability
Means that once a good has been created, it is impossible to prevent other people from gaining access to it. For example, it is not possible to exclude non-payers from enjoying the benefits of products such as national defence.
Non-rivalry
Means that consumption of the product by one more person does not reduce someone else's ability to consume it.
Free riders
People who take advantage of the goods or services provided but have not paid for the provision of the goods or services.
Bartering
The act of swapping items in exchange for other items through a process of bargaining and negotiation.
Money
Anything that is widely accepted as a means of exchange, and acts as a measure and store of value and a standard of deferred payment.
Functions of money
Describe the role that money plays in the economy: money is a medium of exchange, a store of value and a measure of value (or unit of account), and a standard of deferred payment
Central Bank
The monetary authority that oversees and manages the supply of money and the banking system of the nation.
Commercial Bank
Retail banks that provide financial services to their customers, such as accepting savings account deposits and approving bank loans.
Money Supply
The amount of money in the economy at a particular point of time.
Stock Exchange
An institutional marketplace for trading the shares of public limited companies.
Demand for Labour
The number of workers firms are willing and able to employ at a given wage rate.
Labour Supply
People who are of working age and are willing and able to work at prevailing wage rates.
Labour Force Participation Rate
The percentage of the working population that is working.
Wage
The return for labour services, paid hourly or weekly. Payment depends on the amount of time worked.
Equilibrium Wage Rate
When the wage rate workers are willing to work for equals the wage rate that firms are prepared to pay.
Geographical Mobility
When a person is prepared to relocate to another area for a job.
National Minimum Wage
The lowest amount a firm can pay its workers and is set by the government.
Specialisation of labour
When a worker becomes an expert in a particular profession or in a part of a production process.
Trade Union
An organization that aims to protect the interests of its members: namely, the terms of pay and working conditions of employment.
Collective Bargaining
When a trade union representative negotiates on behalf of the union's members with the employment to reach an agreement that both sides find acceptable.
Industrial Action
Any deliberate act to disrupt the operations of a firm in order to force the management to negotiate better terms and conditions of employment, e.g. strike action.
Strike
When union members withdraw their labour services by refusing to work.
Income
The total amount of earnings an individual receives in a period of time. It may consist of wages, interest, dividends, profits and rental income.
Disposable income
The earnings of an individual after income tax and other charges have been deducted.
Wealth
The value of assets a person owns minus their liabilities (the amount they owe to others).
Consumer Spending
The amount of household expenditure per time period.
Saving
When a person puts aside some of their current income for future spending.
Dissaving
Occurs when people spend their savings.
Borrowing
Occurs when an individual, firm or the government takes out a loan from a financial institution, paying back the debt with interest over a period of time.
Sole Trader
A person who owns and runs a business as a signer proprietor. Sole traders take all the risks but keep any profit made by the business.
Partnerships
Businesses owned by between 2 and 20 owners, who pool funds and take risks together, but have to share profit between them.
Unlimited Liability
If a business goes bankrupt, the owner(s) is (are) personally liable for the debts; even if it means that personal belongings have to be sold.
Private Limited Company
Has limited liability and can sell shares to raise finance, but not to the general public.
Public Limited Company
Has limited liability and can sell shares to the general public in stock exchange market to raise finance.
Multinationals
A business orgainsation that produce in more than one country. Examples are Apple, BMW, HSBC, Nike and Sony.
Limited Liability
In the event of a company going bankrupt the owner would not lose more than the amount they have invested in the company.
Co-operatives
Business organisations set up, owned and run by their members, who may be employees.
Public Corporations
Organisations that are wholly owned and funded by the government, such as the postal office.
Privatisation
The act of transferring ownership of business operations from a government organization to a privately owned company.
Production
The total output of goods and services in production process.
Productivity
A measure of efficiency that involves calculating the amount of output per unit of a factor input (such as output per worker or output per machine hour).
Labour-intensive Production
Occurs when labour costs account for proportionally more of a firm's costs than any other cost of production.
Capital-intensive Production
Happens when a firm spends proportionately more money on capital costs than on any other factor of production.
Innovation
The commercialization of new technology and products. It is a vital source of productivity.
Costs
A firm's expenditure on, for example, raw materials, wages, rent, loan repayments, fuel bills, marketing expenses, accountancy fees and legal costs.
Fixed Costs
Costs that a firm has to pay irrespective of how much it produces or sells, such as rent and bank loan repayment.
Variable Costs
Costs that change as the level of output changes, such as raw material costs, payment of wages.
Total Costs
The sum of all fixed costs of production and all variable costs of production.
Average Costs
The total cost of making one unit of product - that is, the unit cost of production.
Objectives
The goals or targets of an organization, such as business survival, growth, higher market share and profit maximisation.
Sales Revenue
The payment received by a firm from the sale of its goods and/or services.
Profit
The positive difference between a firm's total revenues and its total costs of production: that is, Total Revenue - Total Costs.
Market Structure
The key characteristics of a particular market, such as the number and size of firms in the market, the degree and intensity of price and non-price competition, and the nature of barriers to entry.
Barriers to entry
The obstacles that prevent other firms from effectively entering the market. Examples are the existence of intellectual property rights, large advertising budgets of existing firms, and legal constraints to prevent wasteful competition.
Perfect Competition
Describes a market where there is immense competition due to the absence of barriers to entry. This means there are many small firms competing in the market, none of which has any power to influence market supply or price.
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