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Limited resources
Having an end to the amount of resources available
Unlimited wants
People wanting more even though they have got what they wanted beforer
Needs vs wants
Basic requirements for humans to survive against the desires that people have to increase their happiness
Basic economic problem
Allocation of a nation's scarce resources between competing firms with infinite wants
Scarce resources
Amount of resources available when supply is limited
Opportunity cost
Cost of the next best alternative that was given up when making a choice
Capital goods
Purchased by firms to make consumer goods
Consumer goods
Goods purchased by households
Production Possibility Curve (PPC)
Shows the different combinations of goods that can be produced in an economy if all resources are efficiently used
Economic growth
Increase in the level of output of goods by an economy
Revenue
Money that a business receives over time from selling goods or services
Enterprises
Companies, organisations or businesses
Demand schedule
Table of the quantity demanded of a good at different prices
Demand curve
Line to show how much of a good will be bought at different prices
Effective demand
Amount of a good people are willing to buy at a given price and period of timme
Inverse relationship
When one variable increases, the other decreases
Shift in the demand curve
Movement to the left of right of the entire curve due to factors excluding price
Disposable income
Income available for people to spend
Inferior goods
Goods for which demand falls if income rises
Normal goods
Goods for which demand rises as income rises
Substitute goods
Goods bought alternatively to another some function good
Complementary goods
Goods purchased and consumed together
Supply
Amount that producers are willing to offer for sale at different prices in a given time period
Supply curve
Line to show how much of a good sellers will supply at different prices
Proportionate relationship
When one variable increases, so does the other
Shift in the supply curve
Movement to the left of right of the entire curve due to factors excluding price
Indirect taxes
Taxes levied on spending (eg. VAT)
Productivity
Rate at which goods are produced in relation to work, time and money to produce
Subsidy
Money paid by the government to reduce the cost of production or price
Yield
Amount of something that is produced
Equilibrium price
Price at which supply and demand are equal
Total revenue
Amount of money generated from selling a good (revenue = price x quantity)
Excess demand
Where demand is greater than supply
Excess supply
Where supply is greater than demand
Price elasticity of demand
Responsiveness of quantity demanded to a change in price
Price inelastic demand
Change in price results in a proportionally smaller change in the quantity demanded (PED = -1 —> 0)
Price elastic demand
Change in price results in a proportionally greater change in the quantity demanded (PED = -∞ —> -1)
Perfectly elastic demand
Change in price will result in zero demand (PED = -∞)
Perfectly inelastic demand
Change in price has no effect on demand (PED = 0)
Unitary elastic demand
Responsiveness is proportionally equal to a change in price (PED = -1)
Price elasticity of supply
Responsiveness of quantity supplied to a change in price
Price inelastic supply
Change in price results in a proportionally smaller change in supply (PES = 0 —> 1)
Price elastic supply
Change in price results in a proportionally greater change in supply (PES = 1 —> ∞)
Perfectly elastic supply
Where producers will supply an infinite amount at a given price (PES = ∞)
Perfectly inelastic supply
Where supply is fixed (PES = 0)
Unitary elastic supply
Change in price will be exactly proportional to quantity supplied (PES = 1)
Income elasticity of demand
Responsiveness of quantity demanded to a change in income
Discretionary expenditure
Non-essential spending / spending that isn't automatic
Excise duty
Government tax on certain goods sold in the economy (eg. cigarettes, alcohol & petrol)
Value added tax (VAT)
Tax on some goods and services - businesses pay VAT on most goods and pass it on to the consumer
Economy
System that attempts to solve the basic economic problem
Private sector
Provision of goods and services by businesses owned by individuals or groups
Public sector
Government organisations that provide goods and services in the economy
Shareholders
People that own shares in a company
Dividend
Part of a company's profit that is divided among shareholders
Mixed economy
Economy where goods and services are provided by both public and private sectors
Market failure
Where markets lead to inefficiency
Merit goods
Goods that are under provided by the private sector
Public goods
Goods that aren't likely to be provided by the private sector
Non-excludability
Once provided for one consumer, it's provided for all
Non-rivalry
One person's consumption doesn't reduce the enjoyment of others
Free-riders
Individuals who enjoy the benefit of a good but allow others to pay for it
Monopolies
Situation where a business activity is controlled by only one company
Privatisation
Act of selling a company or activity controlled by the government to private investors
Nationalised industries
Public corporations previously part of the private sector
Natural monopolies
Situation that occurs when one firm in an industry can serve the entire market at a lower cost than would be possible with smaller firms
Takeovers
Acct of taking control of a firm by buying over 50% of its shares
Private costs
Costs of an activity to firms
External costs
Negative spillover effects of consumption or production on third parties
Social costs
Costs of an economic activity to both society and firms (social cost = private cost + external cost)
Private benefits
Rewards of consumption or production
External benefits
Positive spillover effects of consumption or production on third parties
Social benefits
Benefits of an economic activity to both society and firms (social benefit = private benefit + external benefit)
Third parties
Someone who isn't one of the two main parties involved in an agreement or legal case
Pollution permits
Government issued document that gives a business the right to discharge a certain quantity of a polluting material in the environment
Note
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