Cambridge IGCSE® & O-Level Economics – Key Vocabulary

A comprehensive set of key economics terms and definitions drawn from the opening chapters of the Cambridge IGCSE & O-Level Economics Coursebook, covering the basic economic problem, resource allocation, demand & supply analysis, and elasticity concepts.

Economics

The study of how scarce resources are allocated to satisfy unlimited wants.

Economic Problem

The situation in which unlimited wants exceed finite resources, forcing choices to be made.

Scarcity

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

Economic Good

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

Free Good

A product that takes no resources to make and so has no opportunity cost (e.g. sunshine).

Factors of Production

The economic resources of land, labour, capital and enterprise used to produce goods and services.

Land

All natural resources used in production, including the earth, minerals, water and climate.

Labour

Human effort, both mental and physical, used to produce goods and services.

Capital

Human-made goods (e.g. machinery, factories) used to produce other goods and services.

Enterprise

The ability and willingness to bear risk and organise the other factors of production.

Mobility of Labour

The ability of workers to change where they work (geographical) or the job they do (occupational).

Mobility of Capital

The ease with which capital goods can be moved between places or different uses.

Investment

Spending on new capital goods.

Gross Investment

Total spending on capital goods in a period.

Depreciation (Capital Consumption)

The value of capital goods that have worn out or become obsolete.

Net Investment

Gross investment minus depreciation; the addition to the capital stock.

Opportunity Cost

The best alternative foregone when a choice is made.

Production Possibility Curve (PPC)

A curve showing the maximum combinations of two products that can be made with existing resources and technology.

Extension in Demand

An increase in the quantity demanded caused solely by a fall in the product’s own price.

Contraction in Demand

A decrease in the quantity demanded caused solely by a rise in the product’s own price.

Increase in Demand

A rightward shift of the demand curve due to factors other than the product’s own price.

Decrease in Demand

A leftward shift of the demand curve caused by non-price factors.

Normal Good

A product whose demand rises when income rises and falls when income falls.

Inferior Good

A product whose demand falls when income rises and rises when income falls.

Substitute

A good that can be used in place of another; an increase in its price raises demand for the other good.

Complement

A good used together with another; an increase in its price lowers demand for the related good.

Extension in Supply

An increase in the quantity supplied caused solely by a rise in the product’s own price.

Contraction in Supply

A decrease in the quantity supplied caused solely by a fall in the product’s own price.

Increase in Supply

A rightward shift of the supply curve due to non-price factors.

Decrease in Supply

A leftward shift of the supply curve resulting from changes other than the good’s price.

Market Equilibrium (Market-Clearing Price)

The price at which quantity demanded equals quantity supplied.

Excess Demand

A shortage where quantity demanded exceeds quantity supplied at the current price.

Excess Supply

A surplus where quantity supplied exceeds quantity demanded at the current price.

Microeconomics

The study of behaviour and decisions of households, firms and individual markets.

Macroeconomics

The study of the whole economy, including aggregates such as total output, employment and inflation.

Market Economic System

An economy in which resources are allocated mainly through the price mechanism with minimal government intervention.

Planned Economic System

An economy where the government makes key decisions and directs resources, owning most land and capital.

Mixed Economic System

An economy that combines significant roles for both the market and government in allocating resources.

Price Mechanism

The way changes in price caused by demand and supply interact to allocate resources.

Price Elasticity of Demand (PED)

A measure of responsiveness of quantity demanded to a change in price; calculated as %ΔQD ÷ %ΔP.

Elastic Demand

Demand where PED > 1; quantity demanded changes by a greater percentage than price.

Inelastic Demand

Demand where PED < 1; quantity demanded changes by a smaller percentage than price.

Unitary Elasticity (PED = 1)

Demand where the percentage change in quantity equals the percentage change in price, leaving total revenue unchanged.

Price Elasticity of Supply (PES)

A measure of responsiveness of quantity supplied to a change in price; %ΔQS ÷ %ΔP.

Elastic Supply

Supply where PES > 1; quantity supplied changes by a greater percentage than price.

Inelastic Supply

Supply where PES < 1; quantity supplied changes by a smaller percentage than price.

Perfectly Inelastic Supply

Supply with PES = 0; quantity supplied remains unchanged when price changes.

Perfectly Elastic Supply

Supply with PES = ∞; suppliers will offer any quantity at the going market price but none at a higher price.

Total Revenue

The amount a firm receives from sales; price multiplied by quantity sold.