Economics Unit 1 : Economic Thinking Glossary

Economic problem

Unlimited wants but limited resources.

Resources

Inputs used to produce goods and services.

Scarcity

Not enough resources to satisfy all wants.

Wants

Things people would like to have.

Need

Things people must have to survive (food, water, shelter).

Finite

Limited in supply.

Consumers

People who buy and use goods and services.

Goods

Physical products (e.g. cars, clothes).

Services

Non-physical products (e.g. teaching, healthcare).

Economic good

Scarce good that has a price.

Infinite

Unlimited in supply.

Utility

The satisfaction gained from consuming a good/service

Capital

Man-made resources used in production (e.g. machines).

Natural resource

Inputs from nature (e.g. oil, water, land).

Consumption

Using goods and services to satisfy wants.

Human resource

Workers and their skills.

Enterprise

Entrepreneur who organises resources and takes risks.

Labour

Human effort (physical or mental) used in production.

Land

all natural resources used in production

Output

The total amount of goods and services produced.

Productivity

Output per worker or per unit of input.

Man-made resource

Same as capital → tools/machines made by humans.

Factor payment

Rewards for factors of production (rent, wages, interest, profit).

Opportunity cost

Next best alternative forgone when making a choice.

Consumer goods

Goods for direct consumption (e.g. food, clothes).

Capital goods

Goods used to make other goods (e.g. factories, machines).

Actual growth

Increase in production by using more resources (moving to curve).

Potential growth

Increase in maximum possible output (PPC shifts outward).

Economic goods

Scarce goods with an opportunity cost.

Free goods

Goods with no opportunity cost (e.g. air).

Production Possibility Curve (PPC)

A graph showing the maximum output combinations of two goods.

Factors of production

Land, labour, capital, enterprise.

Constant opportunity cost

When giving up one good always costs the same amount of the other good.

Increasing opportunity cost

Giving up more and more of one good to produce extra units of another.

Diminishing returns

When adding extra inputs leads to smaller increases in output.

Free market economy

Decisions made by consumers and producers, little government control.

Planned economy (command)

Government makes most economic decisions.

Mixed economy

Both government and private sector make decisions.

Economic system

The way a country organises production and distribution of goods and services.

Government intervention

When the government steps in to regulate or control the economy.

Market forces

Supply and demand deciding prices and output.

Self-interest

People act to benefit themselves.

Public sector

Part of the economy controlled by the government.

Private sector

Businesses and individuals producing for profit.

Public goods

Goods provided by government, non-excludable and non-rival (e.g. streetlights, defence).

Merit goods

Goods that are beneficial but often under-consumed if left to the market (e.g. education, healthcare).