O Level/IGSCE Economics Vocabulary (Cambridge)

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157 Terms

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Resources

factors used to produce goods and services

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The economic problem

unlimited wants exceeding finite resources

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Scarcity

a situation where there is not enough to satisfy everyone’s wants

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Economic good

a product which requires resources to produce it and therefore has an oppotunity cost

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Free good

a product which does not require any resources to make it and so does not have an oppotunity cost

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Factors of production

the economic resources of land, labour, capital and enterprise

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Land

gifts of nature available for production

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Labour

human used in producing goods and services

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Capital/capital goods

human-made goods used in production

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Consumer goods

goods and services purchased by households for their own satisfaction

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Enterprise

risk bearing and key decision making in business

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Occupationally mobile

capable of changing use

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Geographically immobile

incapable of moving from one location to another location

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Mobility of labour

the ability of labour to change where it works or in which occupation

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Mobility of capital

the ability to change where capital is used or in which occupation

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Mobility of enterprise

the ability to change where enterprise is used or in which occupation

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Entrepreneur

a person who bears the risks and makes the key decisions in a business

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Labour force

people in work and those actively seeking work

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Productivity

the output per factor of production in an hourL

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Labour productivity

output per workerO

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Output

goods and services produced by the factors of production

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Investment

spending on capital goods

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Gross investment

total spending on capital goods

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Depreciation (capital consumption)

the value of capital goods that have worn out or become obsolete

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Net investment

gross investment minus depreciation

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Negative net investment

a reduction in the number of capital goods caused by some obsolete and worn out capital goods not being replaced

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Opportunity cost

the best alternative forgone

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Production possiblity curbe

a curve that shows the maximum output of two types of products and combination of those products that can be produced with existing resources and technology

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Microeconomics

the study of the behaviour and decisions of households and firms, and the performance of individual markets

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Macroeconomics

the study of the whole economy

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Market

an arrangement which brings buyers into contact with sellers

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Economic agents

those who undertake economic activities and make economic decisions

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Private sector

firms owned by shareholders and individuals

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Economic system

teh institutions, organisations and mechanisms that influence economic behaviour and determine how resources are allocated

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Planned economic system

an economic system where the government makes the crucial decisions, land and capital are state-owned and resources are allocated by directives

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Directives

state instructions given to state-owned enterprises

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Mixed economic system

an economy in which both the private and public sectors play an important role

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Market economic system

an economic system where consumers determine what is produced, resources are allocated by the price mechanism and land and capital are privately owned

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Price mechanism

the way the decisions made by households and firms interact to decide the allocation of resources

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Capital-intensive

the use of a high proportion of capital relative to labour

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Labour-intensive

the use of a high proportion of labour relative to capital

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Demand

the willing and ability to buy a product

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Supply

the willingness and ability to sell a product

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Market equilibrium

a situation where demand and supply are equal at the current price

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Market disequilibrium

a situation where demand and supply are not equal at the current price

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Market demand

total demand for a product

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Aggregation

the addition of individual components to arrive at a total amount

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Extension in demand

a rise in the quantity demanded caused a fall in price of a product itself

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Contraction in demand

a fall in the quantity demanded caused by a rise in the price of a product itself

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Changes in demand

shifts in the demand curve

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Increase in demand

a rise in demand at any given price, causing the demand curve to shift to the right

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Decrease in demand

a fall in demand at any given price, causing the demand curve to shift to the left

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Normal goods

a product whose demand increases when income increases, and decreases when income falls

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Inferior goods

a product whose demand decreases when income increases, and increases when income falls

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Substitute

a product that can be used in place of another

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Complement

a product that is used together with another product

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Ageing population

an increase in the average age of the population

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Birth rate

the number of live births per thousand of the population in a year

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Market supply

total supply of a product

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Extension in supply

a rise in the quantity supplied caused by a rise in the price of the product itself

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Contraction in supply

a fall in the quantity supplied caused by a fall in the price of the product itself

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Change in supply

changes in supply conditions causing shifts in the supply curve

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Increase in supply

a rise in supply at any given price, causing the supply curve to shift to the right

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Decrease in supply

a fall in supply at any given price, causing the supply curve to shift to the left

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Unit cost

the average cost of production; found by dividing the total cost by output.

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Improvements in technology

advances in the quality of capital goods and methods of production

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Direct taxes

taxes on the income and wealth of individuals and firm

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Indirect taxes

taxes on goods and services

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Tax

a payment to the fovernment

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Subsidy

a payment by a government to encourage the production or consumption of a product

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Equilibrium price

the price where demand and supply are equal

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Excess supply

the amount by which supply is greater than demand

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Disequilibrium

a situation where demand and supply are not equal

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Excess demand

the amount by which demand is greater than supply

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Price elasticity of demand

a measure of the responsiveness of the quantity demanded to a change in price

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Elastic demand

when the quantity demanded changes by a greater percentage than the change in price

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PED formula

percentage change in quantity demanded/ percentage in price

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Inelastic demand

when the quantity demanded changes by a smaller percentage than the change in price

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Perfectly elastic demand

when a change in price causes a complete change in the quantity demanded

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Perfectly inelastic demand

when a change in price has no effect on the quantity demanded

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Unit elasticity of demand

when a change in price causes an equal change in the quantity demanded, leaving total revenue unchanged

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Price elasticity of supply

a measure of responsiveness of the quantity supplied to a change in price

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PES formula

Percentage change in quantity supplied/percentage change in price

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Elastic supply

when the quantity supplied changes by a greater percentage than the change in price

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Inelastic supply

when the quantity supplied changes by a smaller percentage than the change in price

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Perfectly inelastic supply

when a change in price has no effect on the quantity supplied

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Perfectly elastic supply

when a change in price causes a complete change in quantity supplied

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Unit PES

when a change in price causes an equal percentage in the change in the quantity supplied

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Internal economies of scale

lower long run average costs resulting from a firm growing in size

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External economies of scale

lower long run average costs resulting from an industry growing size

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Public sector

the part of the economy controlled by the government

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State-owned enterprises (SOEs)

organisations owned by the government which sells products

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Privatisation

the sale of public sector assets to the private sector

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Price Mechanism

the system by which the market forces of demand and supply determine prices

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Market failure

market forces resulting in an inefficient allocation of resources

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Free rider

somone who consumes a good or service without paying for it

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Allocative efficiency

when resources are allocated to produce the right products in the right quantities

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Productively efficient

when products are produced at the lowest possible cost and making full use of resources

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Dynamic efficientcy

efficiency occurring over time as a result of investment and innovation

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Third parties

those not directly involved in producing or consuming a product