Key Economic Terms for GCSE Micro

Allocation of resources

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

Asset

Something that is expected to provide a benefit to the owner in the future

Average cost (AC)

The cost of producing a unit (unit cost of production)

Average Revenue (AR)

The revenue per unit sold

Building society

A mutual financial institution that is owned by its members. Its primary objectives are to receive deposits from its members and to lend money for members to purchase property

Capital

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

Collective bargaining

Negotiations between a recognised trade Union and employer/s

Competition

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

Competition policy

A government policy to promote competition

Complement

Good or service that goes together with another, such as cars and fuel

Consumer

A person or organisation that directly uses a good or service

Consumer sovereignty

Through their purchase of goods and services, consumers are able to influence what producers supply and thus how resources are allocated

Contraction of supply

The movement downwards ALONG the supply curve, leading to a decrease in both price and quantity

Demand

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

Derived demand

Occurs when a product or factors of production is not demanded for itself, but is dependent on the demand for the product it helps to produce e.g. labour is a derived demand

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

Diseconomies of scale

When the average cost of production begin to increase as a firm grows in size

Disequilibrium

Where the quantity demanded does not equal the quantity supplied

Division of labour

Where workers specialise in, or concentrate on, one area of the production process

Economic choice

An option for the use of selected scarce resources

Economic problem

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

Economies of scale

The cost advantages a firm can gain by increasing the scale of production, leading to a fall in average costs

Effective demand

The quantity of a good or service that an individual is both willing and able to buy at a range of prices in a given time period

Efficiency

Concerned with the optimal production and distribution of scarce resources

Elastic demand

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

Elastic supply

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

Enterprise

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

Equilibrium price and quantity

Where the quantity supplied exactly matches the quantity demanded

Excess demand

Where, at the current price, the amount demanded is GREATER than the amount sellers are willing to produce

Excess supply

Where, at the current price, the amount supplied is GREATER than the amount consumers are willing to purchase

Exchange

The giving up of something that the individual or firm has, in return for something they wish to have but do not possess

Expansion of supply

The movement UPWARDS along the supply curve, leading to an increase in both price and quantity

External economies of scale

The cost advantages a firm can gain by increasing the scale of production, leading to a fall in average costs. They occur outside of a firm but within an industry.

Factor market

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

Factors of production

The resources in an economy that can be used to make goods and services e.g. land, labour, capital and enterprise

Financial sector

Consists of financial organisations and their products, and involves the flow of capital

Fixed cost (FC)

All the costs of the firm that have to be paid, even if production is zero.

Costs

Costs DO NOT VARY with output.

Good

A tangible product i.e. that can be seen or touched.

Gross income

Income received before any taxes are taken or benefits given.

Gross pay

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

Income tax

A tax levied directly on personal income i.e. a tax on a person's wages.

Individual demand

The demand for a good or service by an individual consumer.

Individual supply

The supply of a good or service by an individual producer.

Inelastic demand

When the percentage change in quantity demanded 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.

Insurance company

Financial institution that guarantees compensation for a specified loss, damage, illness or death in return for an agreed premium.

Internal economies of scale

A result of the growth of the firm itself, leading to a fall in average costs.

Invisible hand

Unobservable market forces assist demand and supply of goods and services in a free market to move automatically to an equilibrium position.

Labour

The factor of production that is concerned with the workforce of an economy in terms of both the physical and mental effort involved in production.

Labour market

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

Land

The factor of production that is concerned with the natural resources of an economy, such as farmland and mineral deposits.

Law of demand

For most products, the quantity demanded varies inversely with its price.

Law of supply

For most products, the quantity supplied varies directly with its price.

Loss

When a firm's revenue is less than its costs i.e. TR < TC.

Market

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

Market demand

The total demand for a good or service, found by adding together all individual demands.

Market economy

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

Market force

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

Market supply

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

Medium of exchange

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

Money

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

Monopoly

A sole producer or seller of a good or service.

Monopoly power

Where a firm has more than 25% of the market share.

Mortgage

An agreement with a financial institution to borrow money to purchase a property.

Movement along the demand curve

When the price of a good or service changes, leading to a movement up (contraction) or down (expansion) the existing demand curve.

Movement along the supply curve

When the price of a good or service changes leading to a movement up (expansion) or down (contraction) on the existing supply curve.

Need

Something a consumer has to have to survive.

Net income

Income available after the effect of direct taxes and benefits, often called disposable income.

Net pay

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

Oligopoly

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

Opportunity cost

The next best alternative given up when making a choice.

Price

The sum of money you have to pay for a good or service.

Price elasticity of demand (PED)

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

Price elasticity of supply (PES)

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

Primary sector

The direct use of natural resources, such as the extraction of basic materials and goods from land and sea

Producer

A person, company or country that makes, grows or supplies goods and services

Production

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

Productivity

One measure of the degree of efficiency in the use of factors of production in the production process. It is measured in terms of output per unit of input

Product market

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

Profit

The amount of money a producer has left after all the costs have been paid i.e. when total revenue is greater than total cost

Profit maximisation

Where the difference between total revenue and total cost is greatest. It is one possible objective of firms

Salary

A yearly wage, divided equally into 12 (monthly) parts

Scarce resources

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

Secondary sector

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

Service

An intangible product i.e. that cannot be seen or touched

Shift of the demand curve

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

Shift of the supply curve

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

Specialisation

The process by which individuals, firms, regions and whole economies concentrate on producing those products that they are best at producing

Substitute

Good or service that can be used in place of another good or service

Supply

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

Supply of labour

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

Tertiary sector

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

Total Cost (TC)

All the costs of the firm added together

Total Revenue (TR)

The total income of a firm from the sale of its goods or services

Trade Union

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

Unitary price elasticity of demand

When the percentage change in quantity demanded is THE SAME as the percentage change in price

Unitary price elasticity of supply

When the percentage change in quantity supplied is THE SAME as the percentage change in price

Unlimited wants

The infinite desire for something

Variable costs (VC)

All the costs of production that change as output changes