Microeconomics and Macroeconomics Quick-Reference Glossary

Vocabulary flashcards covering key microeconomics and macroeconomics terms defined in the quick-reference glossary.

Demand

The quantity of a good or service that consumers are willing and ABLE to purchase at a given price over a given time period.

Supply

The quantity of a good or service that producers are willing and ABLE to offer for sale at a given price over a given time period.

Equilibrium price

The price at which quantity demanded equals quantity supplied. The market clears--no unsatisfied buyers or sellers.

Disequilibrium

A state where planned demand does not equal planned supply. Price adjusts upward (excess demand) or downward (excess supply).

PED

% change in Qd ÷ % change in price. Measures responsiveness of demand to a change in the product's own price. Normally negative; $|\text{PED}| > 1$ = elastic.

YED

% change in Qd+% change in income. Positive = normal good; negative = inferior good; $\text{YED} > 1$ = luxury good.

XED

% change in Qd of Good A+% change in Price of Good B. Positive = substitutes; negative = complements.

PES

% change in Qs + % change in price. Always positive. Measures responsiveness of supply to a change in price.

Substitute goods

Goods in competitive demand; can replace each other. A rise in the price of one increases demand for the other.

Complementary goods

Goods in joint demand; used together. A rise in the price of one decreases demand for the other.

Derived demand

Demand for a factor of production arising from demand for the final good or service it helps produce.

Composite demand

Demand for a good that has multiple uses, so increased demand for one use reduces availability for others.

Joint supply

Where two goods are produced together from the same production process.

GDP

The total value of all final goods and services produced within a country in a given time period.

Real GDP

GDP adjusted for inflation, showing genuine changes in the volume of output.

Real GDP per capita

Real GDP divided by population; a measure of average living standards.

Inflation

A sustained rise in the general price level. Measured by the CPI in the UK. Government target: $2\%$.

CPI

The main UK inflation measure; a weighted price index of a basket of goods and services, EXCLUDING mortgage interest payments.

RPI

An older inflation measure that INCLUDES mortgage interest payments. No longer used for the official inflation target.

Unemployment

People without a job who are willing and able to work and are actively seeking employment.

Productivity

Output per unit of input. Labour productivity = output per worker or per hour worked.

Current account deficit

Where imports of goods, services, and income exceed exports. The country is a net borrower from the rest of the world.

Index number

A number expressing the value of a variable relative to its base year value (= $100$).

Base year

The year assigned the value $100$ in an index. All other years are expressed relative to this.

Weights (price index)

Numbers reflecting the relative importance of each item in household spending. Higher weight = greater impact on the index.