Cambridge IGCSE Economics Key Words & Definitions

Key words and definitions for Cambridge IGCSE Economics

Wants

Desires for goods and services.

Resources

Factors used to produce goods and services.

The economic problem

Unlimited wants exceeding finite resources.

Scarcity

A situation where there is not enough to satisfy everyone’s wants.

Economic goods

A product which requires resources to produce and therefore has an opportunity cost.

Free goods

A product which does not require any resources to make and so does not have an opportunity cost.

Factors of production

The economic resources of land, labour, capital and enterprise.

Land

Gifts of nature available for production.

Labour

Human effort used in producing goods and services.

Capital goods

Human-made goods used in production.

Consumer goods

Goods and services purchased by households for their satisfaction.

Enterprise

Risk bearing and key decision making in business.

Occupationally mobile

Capable of changing use.

Geographically immobile

Incapable of moving from one location to another location.

Mobility of labour

The ability of labour to change where it works or in which occupation.

Mobility of capital

The ability to change where capital is used or in which occupation.

Entrepreneur

A person who bears the risks and makes the key decisions in a business.

Labour force

People in work and those actively seeking work.

Productivity

The output per factor of production in an hour.

Labour productivity

Output per worker hour.

Output

Goods and services produced by the factors of production.

Investment

Spending on capital goods.

Gross investment

Total spending on capital goods.

Depreciation

The value of capital goods that have worn out or become obsolete.

Net investment

Gross investment minus depreciation.

Opportunity cost

The next best alternative forgone while making an economic decision.

Production possibility curve

A curve that shows the maximum output of two types of products and combination of those products that can be produced with existing resources and technology.

Microeconomics

The study of the behaviour and decisions of households and firms and the performance of individual markets.

Macroeconomics

The study of the whole economy.

Market

An arrangement which brings buyers into contact with sellers.

Economic agents

Those who undertake economic activities and make economic decisions.

Private sector

Firms owned by shareholders and individuals.

Economic systems

The institutions, organisations and mechanisms that influence economic behaviour and determine how resources are allocated.

Planned economic system

An economic system where the government makes the crucial decisions, land and capital are state-owned and resources are allocated by directives.

Directives

State instructions given to state-owned enterprises.

Mixed economic system

An economy in which both the private and public sectors play an important role.

Market economic system

An economic system where consumers determine what is produced, resources are allocated by the price mechanism and land and capital are privately owned.

Price mechanism

The way the decisions made by households and firms interact to decide the allocation of resources.

Capital-intensive

The use of a high proportion of capital relative to labour.

Labour-intensive

The use of a high proportion of labour relative to capital.

Demand

The willingness and ability to buy a product.

Supply

The willingness and ability to sell a product.

Market equilibrium

A situation where demand and supply are equal at the current price.

Market disequilibrium

A situation where demand and supply are not equal at the current price.

Market demand

Total demand for a product.

Aggregation

The addition of individual components to arrive at a total amount.

Extension in demand

A rise in the quantity demanded caused by a fall in the price of the product itself.

Contraction in demand

A fall in the quantity demanded caused by a rise in the price of the product itself.

Changes in demand

Shifts in the demand curve.

Increase in demand

A rise in demand at any given price, causing the demand curve to shift to the right.

Decrease in demand

A fall in demand at any given price, causing the demand curve to shift to the left.

Normal goods

A product whose demand increases when income increases and decreases when income falls.

Inferior goods

A product whose demand decreases when income increases and increases when income falls.

Substitute

A product that can be used in place of another.

Complement

A product that is used together with another product.

Ageing population

An increase in the average age of the population.

Birth rate

The number of live births per thousand of the population in a year.

Market supply

Total supply of a product.

Extension in supply

A rise in the quantity supplied caused by a rise in the price of the product itself.

Contraction in supply

A fall in the quantity supplied caused by a fall in the price of the product itself.

Changes in supply

Changes in supply conditions causing shifts in the supply curve.

Increase in supply

A rise in supply at any given price, causing the supply curve to shift to the right.

Decrease in supply

A fall in supply at any given price, causing the supply curve to shift to the left.

Unit cost

The average cost of production. It is found by dividing the total cost by the output.

Improvements in technology

Advances in the quality of capital goods and methods of production.

Tax

A payment to the government.

Direct taxes

Taxes on the income and wealth of individuals and firms.

Indirect taxes

Taxes on goods and services.

Subsidy

A payment by the government to encourage the production or consumption of a product.

Equilibrium price

The price where demand and supply are equal.

Disequilibrium

A situation where demand and supply are not equal.

Excess supply

The amount by which supply is greater than demand.

Excess demand

The amount by which demand is greater than supply.

Price elasticity of demand (PED)

A measure of the responsiveness of the quantity demanded to a change in price.

Elastic demand

When the quantity demanded changes by a greater percentage than the change in price.

Inelastic demand

When the quantity demanded changes by a smaller percentage than the change in price.

Perfectly elastic demand

When a change in price causes a complete change in the quantity demanded.

Perfectly inelastic demand

When a change in price has no effect on the quantity demanded.

Unit elasticity of demand

When a change in price causes an equal change in the quantity demanded, leaving total revenue unchanged.

Price elasticity of supply (PES)

A measure of the responsiveness of the quantity supplied to a change in price.

Elastic supply

When the quantity supplied changes by a greater percentage than the change in price.

Inelastic supply

When the quantity supplied changes by a smaller percentage than the change in price.

Perfectly elastic supply

When a change in price causes a complete change in quantity supplied.

Perfectly inelastic supply

When a change in price has no effect on the quantity supplied.

Unit elasticity of supply

When a change in price causes an equal change in the quantity supplied.

Public sector

The part of the economy controlled by the government.

State-owned enterprises (SOEs)

Organisations owned by the government which sell products.

Privatisation

The sale of public sector assets to the private sector.

Price mechanism

The system by which the market forces of demand and supply determine prices.

Market failure

Market forces resulting in an inefficient allocation of resources.

Free rider

Someone who consumes a good or service without paying for it.

Allocative efficiency

When resources are allocated to produce the right products in the right quantities.

Productively efficient

When products are produced at the lowest possible cost and making full use of resources.

Dynamic efficiency

Efficiency occurring over time as a result of investment and innovation.

Third parties

Those not directly involved in producing or consuming a product.

Social benefits

The total benefits to a society of an economic activity.

Social costs

The total costs to a society of an economic activity.

Private benefits

Benefits received by those directly consuming or producing a product.

Private costs

Costs borne by those directly consuming or producing a product.

External benefits

Benefits enjoyed by those who are not involved in the consumption and production activities of others directly.