CAIE Economics Definitions

Production Possibility Curve (PPC)

A PPC shows the maximum potential combinations of two goods an economy can produce when resources are fully and efficiently employed, given current technology.

Subsidy

A subsidy is a payment by the government to producers, usually per unit of output, that lowers production costs and encourages higher supply.

Circular flow of income

The circular flow of income is an economic model that shows how income, expenditure, and output move continuously between households and firms, and how this flow is affected by leakages and injections.

Budget surplus and budget deficit

A budget surplus is when tax revenue exceeds government expenditure.

A budget deficit is when government expenditure exceeds tax revenue.