Economics

Year 11 End of year Exam

Term

Definition

Aggregate Production Function (APF)

A model showing the relationship between an economy's total output and its labour input, while capital and technology remain constant.

Anti-competitive Behaviour

Actions or agreements between firms that reduce competition, such as price fixing and collusion.

Anticipated Inflation

Inflation that consumers, workers and businesses correctly predict and prepare for.

Average Rate of Tax

Total tax payable divided by total income.

Barrier to Entry

Anything that makes it difficult for new firms to enter a market, such as patents, regulations or high start-up costs.

Boom

A period of very strong economic growth, usually associated with low unemployment and rising inflation.

Business Cycle

Fluctuations in economic activity through four phases: expansion, peak, contraction and trough.

Capital

Human-made resources, such as machinery and equipment, used to produce goods and services.

Capital Deepening

An increase in the amount of capital equipment available to each worker, increasing output per worker.

Cartel

A group of firms that work together to reduce competition, often by fixing prices or sharing markets.

Ceteris Paribus

A Latin term meaning "all other things remaining constant".

Circular Flow of Income Model

A model showing the movement of resources, goods, services, income and spending between sectors of the economy.

Club Good (Quasi-Public Good)

A good that is non-rival but excludable, such as a streaming subscription.

Coincident Indicators

Indicators that change at the same time as economic activity, such as employment and retail sales.

Collusion

An agreement between firms to reduce competition and increase profits.

Common Resource

A good that is non-excludable but rival, such as fish in the ocean.

Competitive Market

A market with many buyers and sellers, similar products and few barriers to entry or exit.

Complementary Goods

Goods that are normally consumed together, such as cars and petrol.

Consumer Price Index (CPI)

A measure of changes in the prices of a typical basket of household goods and services.

Consumer Surplus

The difference between the maximum price a consumer is willing to pay and the price they actually pay.

Consumption (C)

Household spending on final goods and services.

Contraction

A phase of the business cycle during which real GDP falls.

Cost-Push Inflation

Inflation caused by rising production costs that lead businesses to increase their prices.

Countercyclical Variable

A variable that falls during an expansion and rises during a contraction, such as unemployment.

Cyclical Unemployment

Unemployment caused by a fall in total spending and economic activity during a contraction.

Deadweight Loss (DWL)

A reduction in total economic surplus caused by underproduction or overproduction.

Decrease in Demand

A leftward shift of the demand curve caused by a non-price factor.

Decrease in Quantity Demanded

An upward movement along the demand curve caused by an increase in the good's price.

Deflation

A sustained decrease in the general price level.

Demand

The willingness and ability of consumers to purchase goods and services.

Demand Curve

A downward-sloping graph showing the relationship between price and quantity demanded.

Demand Schedule

A table showing the quantity consumers are willing to purchase at different prices.

Demand-Pull Inflation

Inflation caused when total spending grows faster than the economy's ability to produce.

Demerit Good

A good that harms the consumer and creates external costs, such as tobacco or alcohol.

Depression

A severe or prolonged contraction in economic activity, usually lasting more than a year.

Direct Tax

A tax paid directly by the person or organisation on whom it is imposed, such as income tax.

Discouraged Worker

Someone who has stopped looking for work after being unable to find a job.

Disinflation

A decrease in the rate of inflation.

Disposable Income (Yd)

Household income remaining after tax, including any government transfer payments received.

Economic Efficiency

Allocating resources to maximise society's net benefits.

Economic Growth

An increase in an economy's productive capacity, commonly measured by growth in real GDP.

Economic Indicators

Variables used to assess or predict the condition of the economy.

Economic Model

A simplified representation of economic reality.

Economic Problem

The problem created by unlimited wants and limited resources.

Economic System

The institutions and processes a country uses to allocate its resources.

Economics

The study of how scarce resources are allocated to satisfy unlimited wants.

Elastic Demand (Ed > 1)

Demand where quantity demanded changes by a greater percentage than price.

Elasticity

A measure of how responsive one economic variable is to a change in another.

Employed

Having a paid full-time, part-time or casual job.

Enterprise

The skills and ideas used by entrepreneurs to organise resources and manage production.

Equilibrium (Macroeconomic)

A situation in which total spending equals total production and leakages equal injections.

Equilibrium Price

The price where quantity demanded equals quantity supplied.

Excludable Good

A good that people can be prevented from consuming if they do not pay.

Expansion

A phase of the business cycle during which real GDP increases.

Exports (X)

Australian goods and services purchased by overseas consumers and businesses.

Externality

A cost or benefit of an economic activity experienced by an unrelated third party.

Factor Market

A market where firms purchase productive resources—such as labour, land and capital—from households.

Factors of Production

The resources used to produce goods and services: land, labour, capital and enterprise.

Free Rider

Someone who benefits from a good without paying for it.

Frictional Unemployment

Temporary unemployment experienced while moving between jobs or entering the workforce.

Full Employment

A situation in which cyclical unemployment is zero and unemployment is at its natural rate.

GDP Deflator

A price index covering all goods and services included in GDP.

GDP Gap

The difference between actual GDP and potential GDP.

Gini Coefficient

A measure of income inequality ranging from zero for perfect equality to one for perfect inequality.

Government Sector

Commonwealth, state and local governments that collect taxes and undertake government spending.

Gross Domestic Product (GDP)

The total market value of all final goods and services produced within an economy during a given period.

Headline CPI

The most widely reported CPI measure used to track changes in the cost of living.

Household Production

Unpaid goods and services produced within the home, such as cleaning and childcare, which are not included in GDP.

Household Wealth (Net Worth)

The value of a household's assets minus its liabilities.

Human Capital

The education, skills, training and experience possessed by workers.

Human Development Index (HDI)

A quality-of-life measure combining health, education and income.

Hyperinflation

Extremely rapid inflation, commonly defined as inflation exceeding 50% per month.

Imperfect Market

A market with limited competition, differentiated products, barriers to entry and firms with market power.

Imports (M)

Overseas goods and services purchased by Australian residents.

Incidence of a Tax

The way a tax burden is divided between buyers and sellers.

Income Effect

The effect of a price change on consumers' purchasing power.

Income Redistribution

Government action designed to reduce poverty and income inequality through taxation and spending.

Increase in Demand

A rightward shift of the demand curve caused by a non-price factor.

Increase in Quantity Demanded

A downward movement along the demand curve caused by a decrease in the good's price.

Indirect Tax

A tax imposed on sellers that is generally passed on to buyers, such as GST.

Inelastic Demand (Ed < 1)

Demand where quantity demanded changes by a smaller percentage than price.

Inferior Good

A good for which demand decreases as consumer income increases.

Inflation

A sustained increase in the general price level.

Inflation Rate

The percentage change in the general price level from one period to another.

Injections

Investment, government spending and exports that add spending to the circular flow.

Investment (I)

Business spending on new capital goods, construction and inventories.

Labour

The physical and mental effort used in production.

Labour Force

The total number of employed and unemployed people.

Labour Force Participation Rate

The percentage of the working-age population that is in the labour force.

Labour Market

The market in which workers supply labour and businesses demand labour.

Labour Productivity

Real GDP divided by the total number of hours worked.

Lagging Indicators

Indicators that change after economic activity changes, such as unemployment and inflation.

Law of Demand

As price rises, quantity demanded falls, ceteris paribus.

Law of Diminishing Returns

Adding more labour to a fixed amount of capital eventually causes output to increase at a decreasing rate.

Law of Increasing Opportunity Cost

Producing more of one good results in an increasing opportunity cost.

Law of Supply

As price rises, quantity supplied rises, ceteris paribus.

Leading Indicators

Indicators that change before the wider economy, helping to predict future economic activity.

Leakages

Saving, taxation and imports that remove spending from the circular flow.

Lorenz Curve

A graph showing the distribution of income or wealth. A greater distance from the line of equality indicates greater inequality.