Economics paper 1 defenitions

Consumer

person or organisation that directly uses a good or service

Government

political body that runs the country and makes and enforces laws

Producer

businesses that make, grow, mine, construct or supply products

Good

tangible product (you can touch it)

Service

intangible product (you can't touch it)

Interdependency

the dependence of two or more groups on each other

Factors of production

resources used to produce goods and services

Labour

the work that humans do in the workplace

Capital

the work that humans do in the workplace

Land

natural resources

Enterprise

refers to the entrepreneur: who brings together other factors of production

Needs

Essentials for life

Wants

Non-essentials

Scarce

insufficient to satisfy all wants (restricted / finite / shortage)

Economic problem

Insufficient resources to satisfy all wants

Opportunity cost

The next best alternative foregone when making a choice

Sustainable

Provides for today without negatively affecting the future

Markets

brings together buyers and sellers to of goods and services

Factor market

where factors of production are bought and sold

Product market

where finished goods and services are bought and sold

Exchange

Something is given up for something desired

Specialisation

Concentrate on a limited number of activities

Division of labour

workers specialise in one role

Primary sector

Raw materials are grown or extracted

Secondary sector

Raw materials used to manufacture of construct

Tertiary sector

Services are provided

Demand

willing and able to buy a product at a particular price in a particular time period

Law of demand

As price rises, demand falls (contracts). As price falls, demand rises (expands)

Individual demand

demand from one consumer

Market demand

demand from all consumers

Subsidy

Government money to encourage firms to produce

Tax

Compulsory payment to Government by firms and individuals

Price elasticity of demand

Responsiveness of demand to a change in price

Elastic demand

% change in demand is greater than % change in price

Inelastic demand

% change in price is greater than % change in demand

Supply

willing and able to provide a product at a particular price in a particular time period

Law of supply

As price rises, supply rises (expands) and as price falls supply falls(contracts)

Individual supply

supply of one producer

Market supply

supply of all producers

Price elasticity of supply

Responsiveness of supply is to a change in price

Elastic supply

% change in supply is greater than % change in price

Inelastic supply

% change in price is greater than % change in supply

Price

the amount you have to pay

Efficiency

a measure of how effectively scarce resources are being used

Equilibrium

the price and quantity at which supply equals demand

Allocation of resources

how scarce resources are allocated

Determination of price

prices are set through the interaction of supply and demand

Market forces

how supply and demand affect price and quantity

Competition

different firms trying to sell similar product to a consumer

Competitive market

there are large numbers of firms and consumers

Monopoly

A sole producer of seller of a good or service

Oligopoly

small number of firms dominate a particular market

Price competition

where firms compete by reducing prices

Non-price competition

where firms compete using advertising, etc.

Collusion

secret agreement or cooperation between firms to fix prices

Profit

if revenue from sales is greater than costs of production

Loss

if revenue from sales is less than costs of production

Production

a measure of the value of goods and services produced

Productivity

a measure of the efficiency of production

Calculation of productivity

total output / total input

Average revenue

revenue from producing one unit

total revenue

revenue from producing all units

Internal economies of scale

average costs fall as a business grows

External economies of scale

cost savings for a business because it is part of an industry

Fixed costs

costs, however much is produced. This includes the cost of premises and machinery

Variable costs

Costs that vary based on how much is produced. This includes raw materials

Labour market

where workers sell and employers buy labour

Total costs

what a business spends producing its product (fixed + variable costs)

Average costs

total costs divided by the quantity produced

Supply of labour

when workers are willing and able to work at current wage

Demand for labour

when employers are willing and able to employ at current wage

Wage

an hourly rate of pay based upon the number of hours worked

Salary

an annual fixed amount, paid weekly or monthly

gross pay

earnings before deduction of taxes and pension contributions

Net pay

earnings after deductions of taxes and pension contributions

National Insurance

an additional tax on income

Financial sector

part of the economy made up of financial services businesses and services.

Money

Anything generally accepted as means of payment for goods / services

Medium of exchange

Something sellers accept from buyers for goods / services.

Investment

Spending on capital goods by firms to increase production / productivity

Rate of interest

cost of borrowing money / payment for saving

Mortgage

loan to buy property

Loan

where money is borrowed

Savings

Where money is saved for future use