economics definitions

Resources:

factors used to produce goods and services

The economic problem:

unlimited wants exceeding finite resources

Scarcity:

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

Wants:

desires for goods and services

Economic good:

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

Free good:

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

Factors of production:

the economic resources of land, labour, capital and enterprise

Land:

gifts of nature available for production

Labour:

human effort used in producing goods and services

Capital:

human made goods used in production

Enterprise:

risk bearing and key decision making in business

Consumer goods:

goods and services purchased by households for their own satisfaction

Occupationally mobile:

capable of changing use

Geographically inmobile:

incapable of moving from one location to another location

Mobility of labour:

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

Mobility of capital:

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

Mobility of enterprise:

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

Entrepreneur:

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

Labour force:

the people in work and those actively seeking work

Productivity:

the output per factor of production in an hour

Labour productivity:

output per worker hour

Output:

goods and services produced by the factors of production

Investment:

spending on capital goods

Gross investment:

total spending on capital goods

Depreciation (capital consumption):

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

Net investment:

gross investment minus depreciation

Negative net investment:

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

Opportunity cost:

the best alternative forgone when making a decision

Production possibility curve:

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

Market:

an arrangement which brings buyers into contact with sellers

Microeconomics:

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

Macroeconomics:

the study of the whole economics

Aggregate =

total

Economic agents:

those who undertake economic activities and make economic decisions

Private sector:

firms owned by shareholders and individuals

Economic system:

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

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

Directives:

state instructions given to state-owned enterprises

Mixed economic system:

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

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

Price mechanism:

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

Capital-intensive:

the use of a high proportion of capital relative to labour

Labour-intensive:

the use of a high proportion of labour relative to capital

Demand:

the willingness and ability to buy a product

Market equilibrium:

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

Market disequilibrium:

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

Demand:

the willingness and ability to buy a product

Market demand:

total demand for a product

Aggregation:

the addition of individual components to arrive at a total amount

Extension in demand:

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

Contraction in demand:

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

Changes in demand:

shifts in the demand curve

Increase in demand:

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

Decrease in demand:

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

Normal goods:

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

Inferior goods:

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

Substitute:

a product that can be used in place of another

Complement:

a product that is used together with another product

Ageing population:

an increase in the average age of the population

Birth rate:

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

Supply:

the willingness and ability to sell a product

Market supply:

total supply of a product

Extension in supply:

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

Contraction in supply:

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

Change in supply:

changes in supply conditions causing shifts in the supply cuve

Increase in supply:

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

Decrease in supply:

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

Unit cost:

the average cost of production. It is found by dividing total cost by output

Improvements in technology:

advances in the quality of capital goods and methods of production

Direct taxes:

taxes on the income and wealth of individuals and firms

Indirect taxes:

taxes on goods and services

Tax:

a payment to the government

Subsidy:

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

equilibrium price:

the price where demand and supply are equal

excess supply:

the amount by which supply is greater than demand

disequilibrium:

a situation where demand and supply are not equal

excess demand:

the amount by which demand is greater than supply

price elasticity of demand (PED):

a measure of the responsiveness of the quantity demanded

elastic demand:

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

inelastic demand:

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

perfectly elastic demand:

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

perfectly inelastic demand:

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

unit PED:

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

price elasticity of supply (PES):

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

elastic supply:

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

inelastic supply:

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

perfectly inelastic supply:

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

perfectly elastic supply:

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

unit PES:

when a change in price

Public sector:

the part of the economy controlled by the government

State-owned enterprises (SOEs):

organisations owned by the government which sell products

Privatisation:

the sale of public sector assets to the private sector

Price mechanism:

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

Market failure:

market forces resulting in an inefficient allocation of resources

Free rider:

someone who consumes a good or service without paying for it

Allocative efficiency:

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

productively efficient:

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

dynamic efficiency:

efficiency occurring over time as a result of investment and innovation

third parties:

those not directly involved in producing or consuming a product

social benefits:

the total benefits to a society of an economic activity