IGCSE CIE Economics Key Terminology

Absolute poverty

Extreme outright poverty with income equal to or less than $1.25 per day.

Appreciation

Increase in the value of a currency relative to another in a floating exchange rate system.

Average fixed cost

Fixed cost per unit of output.

Average total cost

Total cost per unit of output.

Average variable cost

Variable cost per unit of output.

Balance of payments

Financial record of a country's transactions with the rest of the world for a given time period.

Barriers to entry

Obstacles that prevent firms from entering a market.

Bartering

Swapping items for other items through bargaining and negotiation when there is no money.

Base year

Starting year used when calculating a price index.

Basic economic problem

How best to allocate scarce resources to satisfy unlimited needs and wants.

Birth rate

Number of live births per thousand of the population in a year.

Borrowing

Taking out a loan and repaying it with interest over time.

Business cycle

Fluctuations in a country's economic activity over time around a long-term growth trend.

Capital expenditure

Spending on fixed assets that last more than 12 months.

Capital-intensive industries

Industries where the use and cost of capital is more important than other factors of production.

Central bank

Monetary authority that manages the money supply and the banking system.

Claimant count

Number of people out of work who are claiming unemployment benefits.

Collective bargaining

Trade union representatives negotiating pay and conditions with employer representatives.

Commercial bank

Retail bank providing financial services such as savings, loans and mortgages.

Complements

Products that are jointly demanded.

Conglomerate merger

Integration of firms from unrelated areas of business.

Consumer Price Index (CPI)

Weighted index of consumer prices used to measure the cost of living for an average household.

Consumption

Value of all private household spending within a country.

Contraction in demand

Fall in quantity demanded following an increase in price.

Contraction in supply

Fall in quantity supplied following a fall in price.

Corporate social responsibility (CSR)

Ethical approach by firms towards stakeholders and the environment.

Cost-push inflation

Inflation caused by higher costs of production forcing up prices.

Costs of production

Firm's expenditure in producing goods and/or providing services.

Current account

Part of the balance of payments recording exports and imports of goods and services plus net income transfers from abroad.

Current account deficit

When a country's imports exceed its exports.

Current account surplus

When a country's exports exceed its imports.

Current expenditure

Spending on goods and services consumed within the current year, often recurrent.

Cyclical unemployment

Unemployment caused by lack of demand in the economy and a fall in national income.

Death rate

Number of deaths per thousand of the population in a year.

Deflation

Sustained fall in the general price level over time.

Demand

Willingness and ability of customers to pay a given price to buy a good or service.

Demand for labour

Number of workers firms are willing and able to hire at a given wage rate.

Demand-pull inflation

Inflation caused by higher levels of demand in the economy.

Demerger

Merged firms splitting into two separate firms.

Demerit goods

Goods or services whose consumption causes negative spillover effects on third parties.

Demographics

Study of population distribution and trends.

Dependency ratio

Comparison of the number not in the labour force with the number in paid employment.

Depreciation (currency)

Fall in the value of a currency relative to another in a floating exchange rate system.

Derived demand

Demand for a factor of production that arises from the demand for the goods and services it helps produce.

Devaluation

Official and deliberate reduction in the value of a currency in a fixed exchange rate system.

Diseconomies of scale

Rising average costs of production as the firm increases in size.

Disposable income

Income available to spend after compulsory deductions such as income tax.

Division of labour

Workers specialising in a particular production process.

Economic agents

Households, firms in the private sector and the government.

Economic development

Improvement in living standards using both quantitative and qualitative indicators.

Economic goods

Goods that are limited in supply.

Economic growth

Annual increase in the level of national output (percentage change in GDP).

Economies of scale

Cost-saving benefits of large-scale operations that reduce average costs.

Embargo

Ban on trade with a certain country.

Employment

Use of factors of production such as labour.

Equilibrium price

Price at which quantity demanded equals quantity supplied.

Excess demand

Shortage caused by price being below equilibrium.

Excess supply

Surplus caused by price being above equilibrium.

Exchange rate

Price of one currency in terms of another currency.

Extension in demand

Increase in quantity demanded following a fall in price.

Extension in supply

Increase in quantity supplied following an increase in price.

External benefits

Positive side-effects of production or consumption on third parties for which they do not pay.

External costs

Negative side-effects of production or consumption on third parties for which they receive no compensation.

External economies of scale

Economies of scale arising from factors outside the firm.

Factors of production

Resources used to produce goods and services: land, labour, capital and enterprise.

Female participation rate

Proportion of women active in the labour force.

Fertility rate

Average number of births per woman.

Fiscal policy

Use of taxes and government spending to influence macroeconomic objectives.

Fixed costs

Costs that do not change with the level of output.

Fixed exchange rate system

System where the central bank intervenes to keep the currency at a pegged value.

Floating exchange rate system

System where the currency value is determined by market forces without government intervention.

Foreign exchange market

Market where different currencies are bought and sold.

Formal sector employment

Officially recorded employment where workers pay income taxes and are counted in GDP.

Franchise

Licence to trade using another firm's name, logos, brands and trademarks.

Free goods

Goods that are unlimited in supply and have zero opportunity cost.

Free trade

International trade without protectionist measures.

Frictional unemployment

Temporary unemployment when people are between jobs or changing jobs.

Full employment

Situation where everyone willing and able to work has a job.

GDP per head

Average value of annual GDP per person.

Geographical mobility

Willingness and ability of labour to move to different locations for work.

Globalisation

Process by which world economies become more interdependent and interconnected.

Goods

Physical items such as tables, cars and toothpaste.

Government budget

Government's planned revenues and expenditures.

Gross domestic product (GDP)

Monetary value of goods and services produced within a country in a given period.

Horizontal merger

Integration between firms in the same sector of industry.

Human Development Index

Composite indicator of living standards including education, healthcare and income.

Hyperinflation

Extremely high and rapidly rising inflation.

Imported inflation

Inflation caused by higher import prices increasing costs of production.

Import quota

Quantitative limit on the sale of a foreign good.

Industrial action

Measures taken by trade union members in disputes with employers, such as strikes.

Inflation

Sustained rise in the general level of prices over time.

Innovation

Commercialisation of new ideas and products.

Interdependence

Situation where the three sectors of industry depend on each other.

Internal economies of scale

Economies of scale arising from within the firm's organisation.

International specialisation

Countries concentrating on certain goods or services where they have cost advantages.

International trade

Exchange of goods and services across national borders.

Investment expenditure

Total capital spending by businesses in a country.

Labour force survey

Household-based survey using ILO standards to collect work-related statistics.

Labour-intensive industries

Industries where labour costs are a higher proportion of total costs than other factors.

Macroeconomics

Study of the economy as a whole rather than individual markets.