Economics Definitions
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290 Terms
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Wants
Things you would like to have but are not essential for living. Wants are infinite.
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Needs
Things which are essential for living.
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Resources
Things used to produce goods and services. Resources are finite.
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Economic Problem
The gap between the limited amount of resources and the unlimited wants for them.
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Goods
Tangible items which can be purchased and used.
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Services
Something producers provide for consumers. These are intangible and ownership is not transferred.
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Market economy
The forces of supply and demand allocate resources via the price mechanism. All resources are privately owned and there is no government intervention.
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Planned economy
The government allocates all resources. They own everything and control prices and incomes.
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Mixed economy
Some resources are owned and allocated by the private individuals and the government owns and allocates others.
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Public sector
Organisations that are owned and run by the government
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Private sector
Firms that are owned and run by private individuals and groups. Their main goal is profit maximisation.
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Opportunity cost
The next best alternative foregone when an economic choice is made.
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Renewable resources
Resources that can be replaced as long as they are not overused. e.g. timber
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Non-renewable resources
Resources that cannot be replaced once used. e.g. oil
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Economic Choice
An option for the use of selected scarce resources
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Economic sustainability
Considers how an economic choice ensures the best and most responsible use of scarce resources sot that a firm or economy can keep growing over time.
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Environmental sustainability
Considers how an economic choice impacts renewable and non-renewable resources
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Social sustainability
The impact of development or growth that promotes an improvement in the quality of life for all
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Consumer
Buy goods or services for their own consumption and are the end-user of a product.
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Consumer Sovereignty
Through their purchase of goods and services
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Producer
Suppliers of goods and services.
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Government
Make and enforce rules within a country.
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Factors of production
Resources used in the production process
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Capital
Goods used to make other goods and services. Reward\= Interest
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Enterprise
Having ideas and taking risks in order to set up and run a business. Reward\= profit
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Land
The physical land itself and everything on and below the land which is available for production. Reward\= rent
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Labour
The human input into the production process.
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Reward\= wages
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Primary sector
The direct use of natural resources
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Secondary sector
The conversion of raw materials into goods. It involves all manufacturing and construction activities/ processes.
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Tertiary sector
The provision of a service
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Market
Where buyers and sellers meet to exchange good and services.
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Factor market
Where the services of the factors of production are bought and sold.
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Product market
Where final goods or services are bought and sold.
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Derived Demand
Where a factor of production is not demanded for itself
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Effective Demand
The quantity of a good or service that an individual is both willing and able to buy at the given price in a given period of time
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Specialisation
The process by which individuals
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Division of labour
Where each worker concentrates on only 1 small aspect of the production process.
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Efficiency
Concerned with the optimal production and distribution of scarce resources
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Profit
Total revenue- Total costs
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(Total) Revenue
Price x Quantity sold
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Average revenue
Total revenue / output
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Absolute advantage
Where a country is able to provide a good or service using fewer resources and at a lower cost than another country.
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Determination of Price
The interaction of the free market forces of demand and supply to establish the general price level for a good or service
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Demand
The number of goods and services consumers are willing and able to buy at a given price in a given period of time.
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Factors affecting demand (Non-Price Determinants
Population
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Advertisement
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Substitutes
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Interest rates
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Fashion
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Incomes
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Complementary Products
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Supply
The number of goods and services producers are willing and able to supply at a given price in a given period of time.
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Factors affecting supply (Non-Price Determinants)
Productivity
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Indirect Tax
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Number of Firms
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Technology
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Subsidies
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Weather
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Cost of Production
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Expansion of Supply
The movement upwards along the supply curve - leading to an increase in both price and quantity
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Contraction of Supply
The movement inwards along the supply curve - leading to a decrease in both price and quantity
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Equilibrium
The point at which demand and supply are equal at a given price in a given time period.
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Excess Demand
Where
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Excess supply
Where
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Price
The sum of money you have to pay for a good or service
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Cost
How much money it takes a producer to produce a good or service.
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Worth
How much you value something.
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Signalling
Sending a signal to producers that prices have increased
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Incentivising (transmission of preferences)
High market prices act as an incentive to produce more.
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Rationing
Only those who are willing and able to buy the good at the higher price can buy it
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PED (Price Elasticity of Demand)
Measures the responsiveness of the quantity demanded to a change in price of a good or service. Always NEGATIVE
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Factors affecting PED
Proportion of income allocated to spend on goods
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Addictive goods
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Luxury/Necessity
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Substitutes
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PES (Price Elasticity of Supply)
Measures the responsiveness of the quantity supplied to a change in price of a good or service. Always POSITIVE
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Factors affecting PES
Spare Capcity
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Time (how long it takes to produce)
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Ease and cost if sustainability of the FoP
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Production time (lags)
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Store stocks
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(SEPS- don't use time)
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Market
Where buyers and sellers meet to exchange goods and services.
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Competitive market
A market situation in which there are a large number of buyers and sellers who meet to exchange goods and services.
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Competition
Where different firms are trying to sell to a consumer a similar product
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Barriers to entry
Obstacles that might discourage a firm from entering a market.
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Market share
The proportion of sales that 1 business has compared to the total sales in the market.
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Monopoly
The only producer or seller of goods in a market.
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Monopoly power
Where 1 firm owns over 25% of the marker share.
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Oligopoly
A market dominated by a few large firms who control the majority of the market share. Small firms can also exist in the market.
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(An oligopoly exists if the 5 largest firms have over 50% market share.)
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Productivity
Output per worker per period of time.
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Capital intensive
Where the production of a good/service relies heavily on the use of machinery rather than labour.
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Production
The process of combining scarce resource to produce a good/service.
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The total output of goods and services produced by a firm in a given time period.
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Fixed costs
Stay the same no matter the output of the product. e.g. advertising costs
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Variable costs
Changes depending on the quantity of output. e.g. cost of raw materials
Note 
Flashcards (20)