Important definitions/grade 11/economics

1. Scarcity: when resources are not enough to satisfy human wants

2. Opportunity cost: the next best alternative forgone when making a choice.
3. Renewable resources: resources that can be used and replaced. Eg: forest, solar energy
4. Non-renewable resources: resources that can be used only once and cannot be replaced. Eg: oil
5. Sustainable resources: something that is being used or consumed or produced at a rate that will
ensure it is available for future generations. It may not run out as it is renewable.
6. Sustainable development: development which enables future generations to access resources for
further development.
7. Non-sustainable resources: resources which are diminishing over time due to economic exploitation.
8. Production possibility curve: maximum possible output combinations of two goods or services an
economy can achieve when all resources are fully and efficiently employed.
9. Economic efficiency: the allocation of resources to get the best use of them.
10. Economic growth: an increase in GDP/ an increase in productive potential/ outward shift in PPC.
11. Positive statement: one that is based on facts/ it can be tested as true or false.
12. Normative statement: one that is based on value judgment/ it cannot be tested as true or false.
13. Division of labour: production of a good or service is broken down into different tasks and labour is
allocated to each task.
14. Free market economy: resources are allocated by the price mechanism.
15. Mixed economy: resources are partly allocated by the price mechanism and partly by the government.
16. Demand: it is the willingness and ability to buy a product or service at a given price.
17. Supply: it is the willingness and ability to sell a product or service at a given price.
18. Equilibrium: when price is equal to quantity.
19. Price mechanism: when price is determined through demand and supply forces/ the use of demand
and supply to allocate resources.
20. Excess demand: when quantity demanded is more than quantity supplied at the current price/ it is a
shortage.
21. Excess supply: when quantity supplied is more than quantity demanded at the current price /it is a
surplus.
22. Price elasticity of demand (PED): the responsiveness of demand for a good due to a change in its
price.
23. Price elasticity of supply (PES): the responsiveness of supply of a good due to a change in its price.
24. Income elasticity of demand (YED): the responsiveness of demand for a good due to a change in
income.
25. Cross elasticity of demand (XED): the responsiveness of the demand for a good to a change in the
price of another good.
26. Price elasticity of demand for labour: It is the degree of responsiveness of quantity demanded for
labour to a change in wage rate.
27. Price elasticity of supply of labour: It is the degree of responsiveness of quantity supplied of labour to
a change in wage rate.
28. Elastic demand: the proportionate change in demand is more than the proportionate change in price.
PED greater than 1.
29. Inelastic demand: the proportionate change in demand is less than the proportionate change in price.
PED less than 1.
30. Unit elasticity: the proportionate change in demand is equal to the proportionate change in price. PED
equal to 1.
31. Inelastic supply: the percentage change in supply is less than the percentage change in price of good.
PES less than 1.

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32. Elastic supply: the percentage change in supply exceeds the percentage change in price of good. PES
greater than 1.
33. Inferior goods: as income increases so the demand for good decrease. It has negative YED.
34. Normal goods: as income increases so the demand for good increase. It has positive YED.
35. Substitute goods: when a one good can be used instead of another.eg: Apple iphone and Samsung
smart phone. Substitute goods have positive XED.
36. Complementary goods: when a good can be used with another good. Eg: tennis rackets and tennis
balls. Complementary goods have negative XED.
37. Consumer surplus: the difference between the price one is prepared to pay and the actual market
price. The area below the demand curve and above the price line.
38. Producer surplus: the difference between the price producers are willing to supply to the market and
the actual market price. The area above the supply curve and below the price line.
39. Indirect taxes: it is a compulsory charge on expenditure. Tax imposed on goods and services.eg: VAT
40. Direct tax: tax which are directly taken from producer or consumer. Eg: income tax/corporation tax
41. Specific tax: a tax set as a fixed amount per unit of good sold. There is a parallel shift in the supply
curve.
42. Ad valorem tax: tax set as a percentage of the price of a good. There is a pivotal shift in the supply
curve.
43. Subsidy: cash grants to encourage production/government grant to firms to increase production or
lower price.
44. Market failure: the price mechanism allocates resources inefficiently/ operation of market forces leads
to net welfare loss.
45. Private cost: costs internal to exchange/costs included within the price mechanism/social cost minus
external cost/costs incurred by producer or costs to the consumer.
46. Private benefit: benefit internal to an exchange/benefits included within the price mechanism/social
benefit minus external benefit/revenue received by producer or satisfaction received by consumer.
47. Social cost: costs to the society due to an economic activity.
48. Social benefit: benefits to the society due to an economic activity.
49. External cost: negative third party effects/cost which price mechanism does not take into account/costs
outside of the market mechanism/the difference between social costs and private costs
50. External benefit: positive spillover effects/benefits which price mechanism does not take into
account/benefits outside of the market mechanism/the difference between social benefits and private
benefits.
51. Private goods: a good where consumption by on person results in could not be available or less
available for the consumption by another.
52. Public goods: goods which have the features of non-rivalry and non-excludability. Eg: defense/ street
lights
53. Non-rivalry: the consumption of good by one person does not reduce the amount available for another
person. It is called non-diminishability or non-exhaustibility.
54. Non-excludability: it means once a good is provided no person can be excluded from benefiting or
suffering from it.
55. Merit goods: goods that some people think should be provided in greater quantity. They are under-
provided by market mechanism. Eg: health care and education.
56. Demerit goods: consumption of these goods produces large negative externalities to the society. They
are over-provided by market mechanism. Eg: drugs, alcohol, cigarettes etc
57. Asymmetric information: people lack knowledge to make informed choices.
58. Geographical immobility: the inability of labour to move from one area to another to take available
work.
59. Occupational immobility: the inability of labour to move from one occupation to another.

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60. Minimum price scheme: a price floor/ minimum price below which price cannot fall.
61. Maximum price: a price ceiling/ maximum price above which price cannot increase.
62. National minimum wage: the legal minimum hourly rate of pay employers can set.
63. Government failure: government intervention which leads to a net welfare loss or inefficient allocation
of resources.
64. Welfare loss: the excess of social cost over social benefit for a given output.
65. Welfare gain: the excess of social benefit over social cost for a given output.
66. Tradable pollution permit: a limit placed on firms carbon emissions through issue of permits. These
permits can be purchased and sold. Fines are imposed if exceed limit without buying permits.
67. Free-rider problem: it is possible for people to consume a good without paying for it once it is
provided.
68. Moral hazard: It occurs where an economic agent makes a risky decision knowing that, if losses are
made, the burden will be borne by another party.
69. Renewable resources: An economic resource which is not depleted by use/ replenishes after use/ can
be used continuously/ be used again and again.
70. Non-renewable resources: An economic resource that cannot be replaced/ replenished once used/
resource that is finite.
71. Financial markets: The bringing together of buyers and sellers to exchange financial products.
72. Production possibility frontier: PPF is the maximum production potential using all available
resources.
73. Free good: A free good is a good with zero opportunity cost .This means it can be consumed in as
much quantity as required without reducing the availability to others/Product is so abundant that it is
impossible for a price to be charged / Abundant in supply with no opportunity cost /A good that is not
scarce and does not have to be bought or traded.
74. Rational consumers: those who maximizes their utility.
75. Habitual behaviour; it occurs when consumers behave based on their habit.
76. Utility: the satisfaction or benefit derived from consuming a good or set of goods.
77. Law of diminishing marginal utility: the value or utility that individual consumers gain from the last
product consumed falls the greater the number consumed.
78. Short run: the period of time when at least one factor input to the production process can be varied.
79. Long run: the period of time in which all factor inputs can be varied but the state of technology remains
constant.
80. Market- clearing price: the price at which there is neither excess demand nor excess supply but where
everything offered for sale is purchased.
81. Complete market failure: when a market fails to supply any of good that is demanded, creating a
missing market.
82. Missing market: a market where the market mechanism fails to supply any of a good. Example: public
goods in market economy.
83. Partial market failure: when a market for a good exists but there is too much or not sufficient
production of the good.
84. Quasi –public goods: a good that does not perfectly possess the characteristics of non-rivalry and non-
excludability and yet which also is not perfectly rival or excludable.
85. Market bubble: occurs when rising demand drives prices beyond the level that might normally be
expected.
86. Speculation: means buying or selling something in the expectation of a future price change and a profit.
87. Economic good: a good that derives utility/ a good with scarcity and therefore an opportunity cost/
scarcity means people may be willing to pay for it

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