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Consumer
A person or organisation that directly uses a good or service
Producer
A person, company or country that makes, grows or supplies goods and/or services
Government
A political authority that decides how a country is run and manages its operation
Good
A tangible product, i.e. a product that can be seen or touched
Service
An intangible product, i.e. a product that cannot be seen or touched
Production
The total output of goods and 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 and services, e.g. land, labour, capital and enterprise
Land
The factor of production that is concerned with the natural resources of an economy, such as farmland and mineral deposits
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
Capital
The factor of production that relates to the human-made aids to production
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 entrepeneur
Scarce resources
When there is an insufficient amount of something to satisfy all wants
Unlimited wants
The infinite desire for goods or service consumers would like to have
Economic problem
How to best use scarce 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 resource
Economic sustainability
The best use of resources in order to create growth or development for a country, firm or individual, both now and into the future
Social sustainability
The impact of development or growth that promotes an improvement in quality of life for all, now and into the future
Environmental sustainability
The impact of development or growth where the effect on the natural world is small and possible to manage, now and into the future
Market
Any 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, such as the extraction of basic materials and goods from land and sea
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
Product market
Market in which final goods or services are offered to consumers, businesses and the public sector
Factor market
Market in which the services of the factors of production are bought and sold
Derived Demand
A demand for a commodity/service, which is a consequence of a demand for something else
Specialisation
The process by which individuals, firms, regions and whole economies concentrate on producing those products that they are best at producing
Exchange
The giving up of something that the individual or firm has, in return for something they wish to have but do not possess
Productivity
How much output can be produced with a given set of inputs
Division of labour
Where workers specialise in, or concentrate on, one area of the production process
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 in a given time period, found by adding together all individual demands
Shift of the demand curve
A complete movement of the existing demand curve either outward (to the right) or inward (to the left)
Movement along the demand curve
When the price changes, leading to a movement up or down the existing demand curve
Tax
A compulsory payment to the government
Subsidy
An amount of money the government gives directly to firms to encourage production and consumption
Price elasticity of demand (PED)
The responsiveness of quantity demanded to a change in the price of the product
Inelastic demand
When the percentage change in quantity demanded is greater than the percentage change in price
Elastic demand
When the percentage change in quantity demanded is greater than the percentage change in price
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 its price
Individual supply
The supply of a good or service by an individual producer
Shift of the supply curve
The complete movement of the existing supply curve either outward (to the right) or inward (to the left)
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, leading to a movement up (expansion) or down (contraction) on the existing supply curve
Price elasticity of supply (PES)
The responsiveness of quantity supplied to a change in the price of a product
Inelastic supply
When the percentage change in quantity supplied is less than the percentage change in price
Elastic supply
When the percentage change in quantity supplied is greater than the percentage change in price
Unitary supply
When the percentage change in quantity is the same as the percentage change in price
Price
The sum of money paid by a consumer to a producer 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 the quantity supplied exactly matches the quantity demanded
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
Allocation of resources
How scarce resources are distributed among producers, and how scarce goods and services are allocated among consumers
Market forces
Factors that determine price levels and the availability of goods and services in an economy without government intervention
Competition
Where different firms are trying to sell a similar product to a consumer
Market Economy
Where the forces of supply and demand allocate scarce resources
Monopoly
A sole producer or seller of a good or service
Oligopoly
Where a small number of firms control the large majority of market share
Competitive Markets
A large number of producers compete with each other to satisfy consumer wants and needs
Profit
The difference between the revenue received from the sale of a good or service and the costs involved in making and/or selling the good, including any opportunity costs
Production
The total output of goods and services produced by a firm or industry in a period of time
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
Total cost
All the costs of the firm added together
Average cost
The cost of producing a unit (unit cost of production)
Total revenue
The total income of a firm from the sale of its goods and services
Average revenue
The revenue per unit sold
Loss
When a firm’s revenue is less than its costs, i.e. TR < TC
Economies of scale
The cost of advantages a firm can gain by increasing the scale of production, leading to a fall in average costs
Labour market
Where workers sell their labour and employers buy the labour: it consists of households’ supply of labour and firms’ demand for labour
Supply of labour
The total number of people who are willing and eligible to supply their labour, including the unemployed
Demand for Labour
The total number of people who are willing and able to purchase labour at a given wage at a given time period
Gross pay
The amount of money that 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
National insurance
A contribution paid by workers, and their employers, towards the cost of state benefits
Net pay
The amount of money that an employee is left with after deductions are made from the gross income
Pension contributions
Payments made to a pension fund. If you are employed, contributions are usually from three sources - the employee, the employer and the government
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, and involves the flow of capital
Investment
The purchase of capital goods that are used to produce future goods and services. It is also an asset purchased to provide an income in the future and/or to be sold at a profit
Rate of interest/interest rate
The cost of borrowing money, i.e. that which is paid to the lender. It is also the reward for saving
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
Mortgage
An agreement with a financial institution to borrow money to purchase a property
Insurance company
Financial institution that guarantees compensation for specified loss, damage, illness or death in return for an agreed premium
Saving(s)
The part of a person’s (disposable) income which is not spent on consumption. Savings are done by savers
Borrowing
To receive money from another party with the agreement that the money will be repaid
Banks
A financial institution that accepts deposits from the public and lend out loans to the public
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