IGCSE Economics Key words

From all chapters

Define the economic problem

• Unlimited wants exceed finite resources

• Resources are scarce

• Choices have to be made by economic stakeholders about the best use of resources

Define scarcity

A situation where there are not enough resources to satisfy everyone’s wants

Define economic good

A product that required resources to produce and therefore has an opportunity cost

Define free good

A product that does not require resources to produce and therefore has no opportunity good

Define consumer goods

g/s purchased by households for their own satisfaction

Define investing

Spending by firms on capital goods & spending on new construction

Define land and what is its reward?

Gifts of nature available for production ; rent

Define labour and what is its reward?

Human efforts used in producing g/s ; wage

Define capital and what is its reward

Human-made goods used in further production ; interest

Define enterprise and what is its reward

Risk bearing & key decision making in business ; profit

Geographically vs occupationally movile

1. capable for changing location

2. capable of changing use

Define opportunity cost

The next best alternative foregone

Define the production possibility curve

A curve that shows the maximum output of 2 products & a combination of these two products can be produced with existing technology and resources

Define a market

an arrangement bringing buyers in contact with sellers

Define product market

where buyers and sellers exchange physical goods

Define factor market

A market where buyers & sellers meet to exchange FOPs

Define demand

The quantity that consumers are willing & able to buy a product at different prices

Define extension of demand

The rise in the quantity demand caused by a fall in the price of the product itself

Define contraction of demand

The fall in the quantity demanded due to the rise in the price of the product itself

Define normal good

A product whose demand increases income rises, and vice versa

Define inferior good

A product whose demand falls when income rises, vice versa

Define a substitute good

A product that can be used in place of another

Define a complement

a product used together with another product

Define supply

the quantity that sellers are willing and able to sell a product at a given price

Define equilibrium price

a situation where quantity demanded is equal to the quantity supplied at the current price

Define PED + the formula

the numerical measure of the responsiveness to the quantity demanded due to a change in price
% change in quantity demanded / % change in price

Define revenue

the total amount of money a firm makes from selling its g/s
price x quantity

Define PES + its formula

The numerical measure of the responsiveness of the quantity supplied due to changes in price

%change in quantity supplied / %change in price

Three conditions of a perfect competition?

• Large number of small firms sell homogenous products

• All buyers & sellers have complete market knowledge

• Every firm is a price taker w no control over the market

Define planned economy

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

Define a market economy

An economic system where consumers make crucial decisions, land & capital are privately owned, resources are allocated by the price mechanism

Define mixed economy

An economy where both private & public sectors play an important role

Define the price mechanism

The way decisions made by households & firms decide allocation of resources

Define directives

State instructions to SOEs

Define public sector

part of the economy owned, managed, and controlled by the government

Define private sector

Firms and business operations owned by shareholder individuals

Define SOE

organization owned by the government which sells products

Define privatization

Sale of public assets to the private sector

Define market failure

A situation where the market does not allocate resources in the best possible way

Define public goods

• non excludable (not easy to locate each non paying consumer and exclude them from the payers)

• non rival (consumption of the product by one more person does not reduce someone else’s ability to do so)

• can only be produced by the government using tax revenue

Define demerit goods

• Goods that are overconsumed if left to market forces because consumers do not fully realize how harmful the goods are 

Define merit goods

• Goods that are underconsumed if left to market forces because consumers do not fully realize how beneficial the goods are

Define monpoly

• A market structure in which there is one single seller and many buyers

• no close substitutes

• prohibitive barriers to entry

Define an externality

Failure to take into account all costs and benefits on a third party not involved in consumption/production

Define the private cost

Costs borne by those directly consuming or producing a product

Define social cost

private + external cost

The total costs to a society of an economic activtiy