Theme 3 Economics

Derived Demand

Refers to the demand for a good or service that arises because of the demand for something else.

The Law of Diminishing Marginal Returns

An economic principle that states as you add more units of a variable input (like labour) to a fixed input (like machinery or land), the marginal return from each new unit of input will eventually decrease despite the total returns increasing. This will eventually lead to negative marginal returns. 

Fixed Input

Something that doesn't change (e.g., factory size, number of machines). 

Variable Input

Something you can change (e.g., number of workers).

Marginal Return

The extra output you get from adding one more unit of input. 

Marginal Revenue Product (MRP)

The change in a firm's revenue resulting from employing one more worker.

Marginal Physical Product (MPP)

The additional unitary output (not revenue) generated from one more unit of input.

Participation Rate

Reflects how many of working age are in or seeking work, shaped by economic and social factors. 

Labour Supply

The number of hours workers are willing to offer at different wage rates. 

Monopoly

Exists where there is a single seller of a good or service.

Monopsony

Exists where there is a single buyer of a good or service.

Occupational Immobility of Labour

The inability or unwillingness of workers to switch between jobs or industries due to a lack of transferable skills or qualifications.

Geographical Immobility of Labour

The inability or unwillingness of workers to move to different regions for employment. Key causes include high housing costs, family and social ties and lack of information about job opportunities elsewhere.

Specific tax

A tax charged as a fixed amount per unit of a good or service, regardless of its price.

Ad valorem tax

A tax charged as a percentage of the selling price of a good or service; it increases with the price of the product.