OCR Economics Microeconomics

Consumer

A person or organisation that directly uses a good or service

Producer

A person

Government

A political authority that decides how a country is run and manages its operation

Good

A tangible product

Service

An intangible product

What is the difference between a good and a service?

A good is tangible

Production

The total output of good and/or services produced by a firm or industry in a time period

Factors of Production

The resources in an economy that can be used to make goods or services

What are the factors of production?

Capital

Enterprise

Land

Labour

(CELL)

What is Capital?

The factor of production that relates to the human-made aids to production

Give examples of Capital...

Lorries

What is Enterprise?

The factor of production that takes a risk in organising the other three factors of production. The individual who takes the risk is known as an entrepreneur

Give examples of Enterprise...

A software company that relies primarily on the labour of skilled software engineers

What is Land?

The factor of production that is concerned with the natural resources of an economy

Give examples of Land...

Agriculture

What is Labour?

The human input into the production process

Give examples of Labour...

Builder

What is the Basic Economic Problem?

Unlimited wants but scarce resources

Scarce Resources

When there is an insufficient amount of something to satisfy all wants

Unlimited Wants

The infinite desire for something which is not a necessity

Need

A necessity essential for survival

Want

Something a consumer would like to have

Economic Problem

How to best use limited resources to satisfy the unlimited wants of people

Opportunity Cost

The next best alternative given up when making a choice

Economic Choice

An option for the use of selected scarce resources

Economic sustainability

The best use of resources in order to create responsible development or growth

Social sustainability

The impact of development or growth that promotes an improvement in quality of life for all

Environmental sustainability

The impact of development or growth where the effect on the environment is small and possible to manage now and into the future

Renewable resources

Resources that can be replaced as long as they are not overused e.g. solar power

Non-renewable resources

Resources that cannot be replaced once they are used e.g. oil

Market

A way of bringing together buyers and sellers to buy and sell goods and services

Market Economy

An economy in which scarce resources are allocated by the market forces of supply and demand

Primary Sector

The direct use of natural resources

Secondary Sector

All activities in an economy that are concerned with either manufacturing or construction

Tertiary Sector

All activities in an economy that involve the idea of a service

Factor Market

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

Product Market

Market in which final goods and services are offered to consumers

Exchange

The giving up of something that the individual or firm has

Specialisation

The process by which individuals

Division of Labour

When workers specialise in

Demand

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

Law of Demand

For most products the quantity demanded varies inversely with its price

Individual Demand

The demand for a good or service by an individual consumer

Market Demand

The total demand for a good or service

Movement Along the Demand Curve

When the price changes

Shift of the Demand Curve

A complete movement of the existing demand curve either outward (to the right) or inward (to the left)

Subsidy

An amount of money the government gives directly to firms to encourage production and consumption

Tax

A compulsory payment to the government

Elastic Demand

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

Inelastic Demand

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

Price Elasticity of Demand (PED)

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

Supply

The ability and willingness of firms to provide goods and services at each price in a given time period

Law of Supply

For most products the quantity supplied varies directly with price

Individual Supply

The supply of a good or service by an individual producer

Market Supply

The total supply of a good or service as a result of adding together all individual producers' supplies

Movement Along the Supply Curve

When the price changes

Shift of the supply curve

The complete movement of the existing supply curve either outward (to the right) or inward (to the left)

Elastic Supply

When the percentage change in quantity supplied is less than the percentage change in price

Inelastic Supply

When the percentage change in quantity supplied is less than the percentage change in price

Price Elasticity of Supply (PES)

The responsiveness quantity supplied to a change in the price of the product

Price

The sum of money you have to pay for a good or service. It is determined by the interaction of supply and demand

Efficiency

The optimal production and distribution of scarce resources

Equilibrium Price and Quantity

Where quantity supplied exactly matches quantity demanded

Allocation of Resources

How scarce resources are distributed among producers

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

Market Economy

An economy in which scarce resources are allocated by the market forces of supply and demand

Market Forces

Factors that determine the price levels and the availability of goods and services in an economy without government intervention

Excess Demand

When quantity demanded exceeds quantity supplied

Excess Supply

When quantity supplied exceeds quantity demanded

Market Economy

An economy in which scarce resources are allocated by the market forces of supply and demand

Competition

Where different firms are trying to sell a similar product to a consumer

Price Competition

Firms lower prices to gain customers

Non-price Competition

Competing through methods other than price such as marketing

Competitive Markets

Many relatively small firms that do not have control of the price

Monopoly

A sole producer or seller of a good or service

Oligopoly

Where a small number of firms control the large majority of the market share

Labour Market

Where workers sell their labour and employers buy the labour: it consists of households' supply of labour and firms' demand for labour

Demand for Labour

The total number of workers an employer is willing and able to hire. This depends on the demand for the product that labour helps to produce (derived demand)

Supply of Labour

The total number of people who are willing and eligible to supply their labour

Trade Union

An organisation of workers that is active on behalf of its members: for example increasing wages and salaries and improving working conditions

Labour Immobility

Labour cannot move freely from one job to another

Salary

Yearly wage divided equally in 12 (monthly) parts

Pay

The amount of money that an employee earns. Can be used to refer to both wages (wage rate) and salary

Gross Pay

The amount of money that an employee earns before any deductions are made

Net Pay

The amount of money that an employee is left with after deductions are made from gross income

Income Tax

A tax levied directly on personal income

National Insurance

A contribution paid by workers

Pension

A fixed amount paid at regular intervals to a person (usually retired)

Bonus

A sum of money added to a person's wages as a reward for good performance

Overtime Payment

A sum of money added to a person's wages based on time time worked in addition to one's normal working hours

Money

Anything that is generally accepted as a means of payment for goods and services

Medium of Exchange

Anything that sets the standard of value of goods and services acceptable to all parties involved in a transaction

Financial Sector

Consists of financial organisations and their products

Investment

The purchase of capital goods that are used to produce future goods and services. Also an asset purchased to provide an income in the future and/or to be sold at profit

Interest Rate

The cost of borrowing money

Loan

Amounts of money that a bank gives a customer for a set period of time