Economics key terms and concepts

Sam Allen

What is a consumer?

An individual or organisation that direclty uses a good or service. For own personal use rather than production, end user.

What is a good?

Tangible product, can be seen and touched eg

What is a service?

Cannot be seen or touched, intangible, eg

"What is the government?

Group of individuals that have power to run a country. make and enforce rules. spends money in economy. affect economy with policies. eg

What is a producer?

Supply goods and services. eg. make choices about what and how they produce, influence

What is interdependence?

One group responds to actions of another group. eg.

What is capital?

Human made aids to production. eg. used to support and enable infrastructure

What is enterprise?

Risk taking in organising other three. organise production and bear risk, eg. willing to take forward idea

Explin factors of production?

Resources or inputs, means by which producers produce goods and services eg.

What is land?

Natural resources in economy. all raw materials, naturally occuring - eg

What is labour?

HUman resources available, depends on eg.
Concenred with workforce in physical and mental effort involved in production

What is scarce resources?

Insufficient amount to satisfy all wants
Fewer things to make goods and services than desired, finite, insufficient

What are unlimited wants?

INfinite desire for something. whether or not they have resources, too many different uses for resources

What are needs?

Something a consumer muist have to survive, limited eg. could be possible to satisfy

What are wants?

Unlimited, include anything a consumer would like whether or not they have resources eg.

What is the economic problem?

How to best use limited resources to satisfy unlimited wants of people
Gap
Choice is allocation of resources

What is oppurtunity cost?

The value of the next best alternative given up when making a choice
eg.

What are economic choices?

Coptions for the use of selected scarce resources, weighed and allocated eg.

What is economic sustaibability?

Responsible development or growth, now and into the future. best and most responsible use of scarce resourecs so a firm can keep growing overtime eg. considers cproduction cost

What is social sustainability?

Impact of development or growth promotes improvement in quality of life for all, now into the future
affects communtiies wellbeing, requires meet of basic needs encourages fairness eg. traffic

What is environmental sustainability?

Impact of development or growth where the effect is small and possible to manage, now ant inot the future eg. pollution
renewable non renewable`

What is a market?

Way of bringing buyers and sellers together to buy and sell goods and services
eg. physical market

What is theprimary sector?

Direct use fo natural resources, eg extraction of basic materials and goods from land and sea includes agriculture, fishing, forestry, mining, oil, gas extraction

What is the secondary sector?

All the activities in economy concerned with either manufacturing and construction

Manufacturing - direct use of raw materials, eg refining oil
Indirect use eg car components

Construction - building or infrastructure eg houses

What is the tertiary sector?

All activities in economy in which service is provided, idea of a service - eg transport retailing tourism finance

Dealing with other people direclty

What ist he factor market/

Market in which the services of the factors of production are bought and sold

derived demand, price determined by intercation of demand and supply

What is the product market?

Market in which final goods or services offered to consumers, businesses and public sector

What is exchange

The giving up of something that the idividual or firm has, in return for something they wish to have but do not posess - originally bartering but today done through mone

What is specialisation?

Process by which individuals, firms, regions, whole economies concentrate on producing products they are best at producing - results in increase an output and greater efficiency

What is division of labour?

Where workers specialise in, or concentrate on, one area of the production process - specialisation by individuals

What is demand?

The willingness and ability to purchase a good or service at the given price in a given time period, inversely proportional to price

What is the law of demand?

For most products the quantity demanded inversely varies with its price, depends on PED

What is individual demand?

The demand for a good or service by an individual consumer

What is market demand

Total demand for a good or service. found by adding together all individual demands

What is a movement along the demand curve

When the price changes leading to a movement up or down the existing demand curve

What is a shift of the demand curve?

A complete movement of the existing demand curve either outward or inward

What is PED?

The responsiveness of quantity demanded to a change in price of the product
Percentage change in quantity demanded / percentage change in price

What is elastic demand

When percentage change in quantity demanded is greater than percentage change in price

What is inelastic demand

When percentage change in quantity demanded is less than percentage change in price

What do the PED values mean?

PED = 0, erfectly price inelastic
Ped = infinity, perfectly price elastic
Ped = -1, unitary price elastic

What is supply?

The ability and willigness of firms to provide goods and services at each prictie in a given time period
Time period very important

What is the law of supply?

For most products the quantity supplied varies directly with its price

What is individual supply?

The supply of a good or service by an individual producer

What is market supply?

THe total supply of a good or service as a result of adding together all individual producers’ supplies

What is a movement along the supply curve?

When the price changes, leading to a movement up(expansion) or down(conctraction) on the existing supply curve - particularly noticeable in agricultural industry.

What is a shift of the supply curve?

The complete movement of the existing supply curve either outward or inward

What is PES?

THe responsiveness of quantity suppleid to a chaneg in price of the product

What is elastic su0pply?

When the percentage change in quantity suppleid is greater than the percentage change in price, between 1 and infinity

1 = unitary elastic

What is inelastic supply?

When the percentage change in quantity supplied is less than the percentage change in price, between 0 and 1

What is price?

THe sum of money you have to pay for a good or service, determined by the interaction of supply and demand

Used to indicate worth but not accurate measure in all cases

What is worth?

How ,much you value something, vary between different people to due fashion or different situations

What is effieciency/

The optimal production and distribution of scarce resoucrers - average production costs lowest and profit margin at its highest

What is equilibrium price and quantity?

Where supply equals demand price unlikely to change given the existing conditions for supply and demand

What is the determination of price?

The interaction of the free market forces of demand and supply to establish the general level of price for a good or service

What is the allocation of resources?

How scarce resourcse are distributed among producers and how scarce goods and services are allocated among consumers

What is competition?

Where different firms are trying to sell a similar product to a consumer. In a competitive market large number of producers compete with each other

Explain price competition

Firms lower prices to gain customers and thus market share, firms that cannot acheive this go out of business
Firms cannot sell at less than cost-price for any length of time as it will also result in them going out of business
Limited
Likely to take place where there are a number of larger firms

Explain non price competition?

offering specialist product, or better more personalised consumer service
Conveniently located, quality of product - often leads to consumer loyalty
through marketing, advertising, create brand loyalty

Why do producers compete?

Market entry - advertising or low price, forces existing producers to espond
Survival - existing customers need to be persuaded to return while new customers should be enticed, firms extend range of products

Profit - to survive and grow, provide means for investment, to expand business and innovate
Innovate successfuly then able to compete strongly in the market

What is a monopoly?

A Sole producer or seller of a good or service, characterised byu absence of competition
exist because of barries to entry - legal, greater efficiency, location, copyrights/patents, at least 25% of the market

What is an oligopoly?

Where a small number of firms control the large majority of market share
5 largest firms 50% or more of market share, number must be low enough so one firm has significant effect over other firms

DDoes not prevent existence of smaller firms, barriers to entry but less
Control market hrough collusion, illegal in the UK

HOw do monopoly and oligopoly markets differ from competitive markets?

Firms larger, higher price, large economies of scale so may be efficient

What is profit?

The amount of money a producer has left after all the costs have been paid, when TR > TC

What is productivity?

Measure of the degree of efficiency of the use of factors of production in the productionprocess, measured in terms of output per unit of input

What is the role of producers?

Infleunce market prices, make profit, employ workers and pay wages
INdividuals self employed, firms exert power over markets, government provide services

What is production?

Total output of goods and services produced by a firm or industry in a period of time. comes about by bringing together factors of production

What is total cost?

ALl the costs of the firm added together - such as raw materials that vary with o0utput, also consists of costs a firm has by existing(fixed cost) TFC + TVCW=

What is average cost?

Cost of producing a unit(unit dcost of production) TC/Q
Fall in average cost means that firms are becoming more efficient

What is total revenue?

The total income of a firm from the sale of its goods and services
Sales revenue or sales turnover, TR = P x q

What is average revenue?

Revenue per unit sold, TR/Q - same as price of product

What is loss?

WHenn a firm is losing money when TR < TC, may or may not matter immediately depnding on reserves

what are economies of scale?

Cost advantages a firm can gain by increasing the scale of production, leading to a fall in average costs - producer gainsbecause firm is now more efficient which gives cmopetitive advantage, can also increase market share by lowering price

What is the labour market?

Where workers sell labour and employers buy labour, consits of household supply of labour and firms demand for labour

What is the role and operation of the labour market?

Role - enable workers who are willing and able to sell their labours to meet employers who are willing and able to offer them a job, to determine a wage rate for this work

Operation - lacks perfect mobility
Lack skills required
Unwilling to relocate to another part of country
personal factors
Information failureq

What is the interaction of workers and employers?

If a worker wants a pay rise they discuss it with their employer, trade unions
Negotiate with employers on behalf of its memebers to set wage rate, work conditions, collective bargaining

Wage rate applies to all in occupation

What is the supply of labour?

The total number of people willing and eligible to supply their labour, including unemployed

Potential additional supply of those who are inactive

What is gross pay?

The amount of money an employee earns before any deductions made. normally quioted when jobs are advertised

What is net pay?

Take home pay, actual amount of money an employee has to spend or save after all deductions made - income tax, national insuance and pension contributions

What is income tax?

A tax levied directly on personal incomeW

What is national insurance?

Contribution paid by workers and employers towards cost of state benefits

What is net pay?

Amount of money an employee is left with after deductions made from gross income

What is pension?

a fixed amount paid at regular intervals to a person or their surviving dependants

What is money?

Anything that is generally accepted as a means of payment for goods and services - cosnists of notes and coins(legal tender) and bank deposits in form of btoh current and saving accounts

What is a medium of exchange?

Anything that sets standard of value fo goods and services acceptable to all parties involved in a transaction - money acts as this

What is the financial sector?

Conissts of financial organisations and products, and involves flow of capital

Helps markets to function and consumers households, firms and government to acrry out economic activities all within regulatory framework

Explain the role of the central bank

Issue bank notes, control monetrary policy by setting bank rate
provide financial stability by trying to ensure UK citizens can trust financial orgnaisations

Manage countrys foreign reserves and intervene in foreign exchange4 market
Act as bank for commercial banks
Be bank for governmnet

What is investment?

Purchase of capiital goods that are used to produce furture goods and services
Also asset purchased to provide income in the future and/or to be sold at a profit

Commercial banks

Basic role is to take deposits from customers aqnd turn them into assets for banks - do this by lending money they deposite, gaining higher interest rte

In general - higher Ri than base rate to borrowers and offers savers lower than base rate

What is interest rate?

The cost of borrowing money that which is paid to lender, also reward for savingi

What do banks do

Accept deposits aqnd pay interest on them, keep savings safe

Make payments on behalf of customers by accepting cheques or card payments - mcuh more important as fewer coins used

Issue loans to individuals and firms, and provide overdraft falicities - loans set period of time, overdrafts when bank allows money not in account - agreed beforehand and interest charged daily

Safe deposit boxes for expensive items

What are building societies?

Mutual financial institution owned by members, primary objectives are to receive deposits from members and lend money for members to purchase porperty

members have rights to attend and speak at meteings, each emmbner has one vote regardless of how much money invested

What are mortgages

Agreement with financial institution to borrow money to purchase property

What are insurance companoies?

Financial instutitons that guarantee compensation for specified loss, damage illness or death in return for agreed premium

Life insurance - pays money to surviving family, either whole life or term life ensurance

general insurance covers non life polocies, spreads risk of loss across all insuracne holders