Leaving Certificate Economics Revision Notes

A comprehensive vocabulary flashcard set covering key microeconomic definitions, markets, elasticity, production, market structures, market failure, and labor economics from the LC Economics Revision Notes.

Economics

A social science that studies human behavior and how we allocate scarce resources to satisfy our needs and wants.

Nominal value

Measures the value of a product at the time it was produced.

Real value

Nominal value adjusted for inflation.

Need

An immediate requirement, e.g., food and shelter, which we need to survive.

Want

Anything in excess of needs that is not necessary for survival, e.g., a foreign holiday or a new car.

Opportunity cost

The cost of foregone alternatives when making a choice.

Keynesian economics

An economic perspective believing that a well-functioning economy can be created with a combination of private sector and government assistance (a mixed economy).

Free market economics

An economic perspective advocating a 'hands-off' policy, rejecting government intervention and letting the marketplace sort out economic problems.

Positive economics

Economic analysis based on objective facts that can be proven to be true or false using evidence.

Normative economics

Economic analysis concerned with value judgements about what should occur, which cannot be upheld or disproved.

Land

Anything provided by nature that helps in the production of wealth. The reward for supplying land is rent.

Labour

The human effort involved in creating wealth. The reward for supplying labour is wages.

Capital

Anything made by humans that assists in the production of wealth. The reward for supplying capital is interest.

Enterprise

The factor of production that organises the other factors of production into a production unit to produce a good/service and undertakes all inherent risks in the hope of making a profit.

Production Possibilities Frontier

Shows the different combinations of economic goods that an economy can produce if all the resources available are fully and efficiently used.

Command economies

Economies where the state makes the vast majority of the decisions on how to allocate resources.

Cost-benefit analysis

A process that considers all costs and all benefits when deciding on a course of action.

Microeconomics

Studies the economic behavior of individuals, households and firms, or the small parts of the economy.

Macroeconomics

Studies the entire, or large, economy, concerned with the aggregate behavior of citizens in a country.

Sustainability

The ability to continue a defined behavior indefinitely.

Sustainable development

Development that meets the needs of the present without compromising the ability of future generations to meet their needs.

Social sustainability

The ability of a social system to operate indefinitely at a defined level of social wellbeing and harmony.

Resource depletion

The reduction of available natural resources that occurs when non-renewable resources are used up and cannot be replaced.

Resource degradation

Occurs when a natural resource becomes less productive over time.

Economic sustainability

Practices that support long-term economic growth without negatively impacting social, environmental, and cultural aspects of the community.

Inequality of income/wealth

How the income earned in an economy is distributed unequally across the population.

S80/S20 share ratio

Measures the annual income of the wealthiest 20% of households compared to the poorest 20%.

Gini Coefficient

Measures income inequality by comparing each household's income position to that of all other households, where 1 represents perfect inequality and 0 represents perfect equality.

Environmental Sustainability

The capacity to improve the quality of human life while living within the carrying capacity of the earth's supporting ecosystems.

Utility

The amount of benefit or satisfaction derived from the consumption of a good or service.

Marginal Utility

The change in total utility from the consumption of an additional unit of a good or service.

Law of Diminishing Marginal Utility

States that as an increasing amount of a good is consumed, a point will be reached eventually where the addition to total utility (marginal utility) will begin to decline.

Equi-marginal principle of consumer behaviour

States that consumers will spend their limited income in such a way so the ratio of marginal utility to price is the same for every good consumed in order to maximise utility.

Law of demand

States that an increase in price leads to a decrease in quantity demanded or a decrease in price leads to an increase in quantity demanded (ceteris paribus).

Consumer surplus

The benefit to consumers due to the difference between what consumers pay to consume a good and what they would have been willing to pay rather than go without the good.

Producer surplus

The benefit to producers due to the difference in price between what producers sell a good for and what they would have been willing to sell a good for.

Individual Demand

Studies the quantities of a good that an individual consumer is prepared to buy at each price.

Market Demand

Shows the different quantities of a good that all consumers in the market are prepared to buy at each price.

Effective Demand

Demand that is backed up by the necessary purchasing power.

Derived Demand

Where a factor of production is not demanded for its own sake, but because it is required to manufacture another good.

Composite Demand

When a commodity is required for several different uses.

Joint Demand

Where demand for one commodity is joined with demand for another commodity (complementary goods).

Substitute Goods

Goods that satisfy the same need and thus can be considered alternatives to each other.

Complementary Goods

Goods that are used jointly, where the use of one involves the use of the other.

Normal Goods

Goods that have a positive income effect, meaning as income increases, quantity demanded increases.

Inferior Goods

Goods that have a negative income effect, meaning as income increases, quantity demanded decreases.

Giffen goods

Goods with a positive price effect, where more is bought as the price rises and less is bought as the price falls.

Snob Goods

Goods or commodities that are attractive to some buyers because of their exclusiveness or high price.

Speculative Goods

Goods for which buyers expect future prices to be higher, so current quantity demanded may not fall even if prices increase slightly.

Addictive Goods

An exception to the law of demand where a person becomes addicted to a good and no longer acts rationally.

Individual supply

The quantity of a good supplied by an individual firm at different prices.

Market Supply

The quantity of a good supplied by all the firms in the market at different prices.

Subsidy

A sum of money granted by the state or a public body to help an industry or business keep the price of a commodity or service low.

Equilibrium price

The price in the market where quantity demanded equals quantity supplied and there is no tendency for change.

Market Equilibrium

The position where quantity demanded is equal to quantity supplied and there is no tendency for prices to change.

Excess Demand

A situation whereby the market price is below the equilibrium price and quantity demanded is greater than quantity supplied.

Excess Supply

A situation whereby the market price is above the equilibrium price and quantity supplied is greater than quantity demanded.

Elasticity

A measure of responsiveness (sensitivity) of the quantity demanded of a good to a change in some variable.

Price elasticity of demand (PED)

Measures the percentage change in the quantity demanded for a good caused by the percentage change in the price of the good itself.

Elastic Demand

Occurs when the percentage change in quantity demanded is greater than the percentage change in price ($\text{PED} > 1$).

Perfectly Elastic Demand

Occurs when consumers are prepared to buy all they can at a given price, but any price increase causes quantity demanded to fall to zero ($\text{PED} = \infty$).

Unit Elastic Demand

Occurs when the percentage change in demand is equal to the percentage change in the price of the good ($\text{PED} = 1$).

Inelastic Demand

Occurs when the percentage change in quantity demanded is less than the percentage change in price ($\text{PED} < 1$).

Perfectly inelastic demand

Occurs when a percentage change in price causes no change in the quantity demanded ($\text{PED} = 0$).

Income Elasticity of Demand

Measures the percentage change in the demand for a good caused by the percentage change of the income of the consumer.

Short Run (SR)

A period of time where at least one factor of production is held constant.

Long Run (LR)

A period of time long enough for all factors of production to be variable.

Fixed Costs

Costs that remain the same irrespective of the level of output.

Variable costs

Costs that change as output changes.

Total Cost

The entire cost of production faced by the firm, equal to fixed costs and variable costs added together.

Average total costs

The cost of making one unit of a good.

Average fixed costs

The fixed costs per unit of output produced.

Average Variable Costs

The variable costs per unit of output produced.

Law of Diminishing Marginal Returns

States that if increasing quantities of a variable factor of production are added to a given quantity of a fixed factor, eventually total output begins to decline.

Marginal physical product

The change in total output from hiring an extra worker.

Marginal Cost (MC)

The addition to total cost as a result of producing one extra unit of output.

Economies of Scale

Forces at work which result in a reduction of Long Run Average Costs (LRAC) as the firm or industry expands in size.

Diseconomies of Scale

Forces which result in an increase in Average Cost as the firm or industry increases its size of operation.

Internal Economies of Scale

Forces within a firm which cause average/unit costs to decline as the firm grows in size.

External Economies of Scale

Forces outside a firm which cause average costs to decline as the industry grows in size.

Internal Diseconomies of Scale

Forces within a firm which cause Average Cost to rise again once the firm reaches a certain size.

External Diseconomies of Scale

Forces outside a firm which cause Average Costs to rise as the industry expands in size.

Total Revenue (TR)

The total amount of payment received by the firm for providing its goods and services, calculated as $\text{TR} = P \times Q$.

Average Revenue (AR)

Revenue per unit of output.

Marginal Revenue (MR)

The extra revenue received by the firm for producing one extra unit of output.

Supernormal Profits

Profit earned when average revenue is greater than average costs, in excess of the minimum amount necessary to keep the firm in business in the Long Run.

Loss

Occurs when a firm produces where average revenue is less than average cost ($\text{AR} < \text{AC}$).

Normal Profits

Earned when average costs equal average revenue ($\text{AC} = \text{AR}$), representing the minimum profit needed to stay in business in the long run.

Explicit Costs

Input costs that require an outlay of money by the firm.

Implicit Costs

Input costs that do not require an outlay of money by the firm.

Private cost

Any cost that a person or firm pays in order to consume or produce goods and services.

Social Costs

The total cost society has to pay for the existence of a particular good or service, calculated as private costs plus external costs.

Social benefits

The advantages or benefits to society as a whole as a result of an individual firm consuming or producing a commodity.

Externalities

Unintended effects on third parties arising from the production or consumption of a good or service.

External diseconomies of production

Occurs when a producer carries out an activity and imposes a cost on third parties for which they are not compensated.

External economies of production

Happens when actions taken by producers result in benefits to third parties for which the producer is not compensated.

External diseconomies of consumption

Occurs when an action taken by a consumer imposes a cost on third parties for which they are not compensated.

External economies of consumption

Occurs when a consumer undertakes an action that benefits third parties for which the consumer is not compensated.

Full employment

A situation in which employment is available for all those who are prepared to work at existing wage levels.

Economic Growth

An increase in GNP per head, without any changes in the structure of society.