Economics

Demand

The quantity of a good or service consumers are willing and able to buy at different prices.

Supply

The quantity of a good or service producers are willing and able to sell at different prices.

Shortage

When quantity demanded is greater than quantity supplied.

Surplus

When quantity supplied is greater than quantity demanded.

Market Equilibrium

The point where quantity demanded equals quantity supplied.

How a shortage is cleared

Prices rise, causing demand to fall and supply to increase until equilibrium is reached.

How a surplus is cleared

Prices fall, causing demand to rise and supply to decrease until equilibrium is reached.

Movement Along the Demand Curve

A change in quantity demanded caused by a change in price.

Shift in Demand

A change in demand caused by a non-price factor.

Non-price Factors Affecting Demand

Income, population, tastes and preferences, prices of related goods, consumer expectations.

Movement Along the Supply Curve

A change in quantity supplied caused by a change in price.

Shift in Supply

A change in supply caused by a non-price factor.

Non-price Factors Affecting Supply

Production costs, technology, government policies, number of sellers, expectations.

Externality

A cost or benefit experienced by a third party who is not directly involved in an economic activity.

Positive Externality

A benefit to a third party from an economic activity.

Negative Externality

A cost to a third party from an economic activity.

Social Cost

The total cost to society, including private and external costs.

Social Benefit

The total benefit to society, including private and external benefits.

External Cost

A cost imposed on others outside the transaction.

External Benefit

A benefit received by others outside the transaction.

Cause of Positive Externalities

Activities such as education, vaccination, and public transport that benefit society.

Economic Growth

An increase in the production of goods and services in an economy over time.

GDP (Gross Domestic Product)

The total value of goods and services produced within a country in a year.

Real GDP

GDP adjusted for inflation.

GDP Formula

GDP = C + I + G + (X − M)

Consumption (C)

Spending by households.

Investment (I)

Spending by businesses on capital goods.

Government Spending (G)

Spending by government on goods and services.

Exports (X)

Goods and services sold overseas.

Imports (M)

Goods and services bought from overseas.

Calculating Real GDP

Nominal GDP adjusted to remove the effects of inflation.

Causes of Economic Growth

Increased investment, improved technology, higher productivity, population growth, better education.

Benefits of Economic Growth

Higher incomes, more jobs, improved living standards, increased government revenue.

Costs of Economic Growth

Pollution, resource depletion, congestion, environmental damage.

Limitations of GDP

Does not measure happiness, income inequality, environmental quality, or unpaid work.

Business Cycle

The pattern of economic growth and decline over time.

Upswing

A period when economic activity is increasing.

Boom (Peak)

The highest point of economic activity.

Downswing

A period when economic activity is decreasing.

Recession (Trough)

A significant decline in economic activity.

Expansionary Phase

A period of increasing economic growth.

Contractionary Phase

A period of decreasing economic growth.

Inflation

A sustained increase in the general price level over time.

Consumer Price Index (CPI

A measure of changes in the average prices of goods and services.

Inflation Rate

The percentage increase in prices over a period of time.

Calculating Inflation

[(New CPI − Old CPI) ÷ Old CPI] × 100

Demand-Pull Inflation

Inflation caused by excessive demand for goods and services.

Cost-Push Inflation

Inflation caused by rising production costs.

Unemployment

When people who are willing and able to work cannot find a job.

Unemployment Rate

The percentage of the labour force that is unemployed.

Labour Force

People who are employed or actively seeking work.

Calculating Unemployment Rate

(Unemployed ÷ Labour Force) × 100

Cyclical Unemployment

Unemployment caused by downturns in the business cycle.

Structural Unemployment

Unemployment caused by changes in technology or industry.

Frictional Unemployment

Short-term unemployment while people move between jobs.

Seasonal Unemployment

Unemployment caused by seasonal changes in demand for labour.