ECONOMICS AS LEVEL DEFINITIONS

1. Resources – inputs available for the production of goods and services.

2. Wants – needs that are not always realised.
3. Scarcity – a situation in which wants and needs are in excess of the
resources available.
4. Choice – underpins the concept that resources are scare so choices have to
be made by consumers, firms and the government.
5. Fundamental economic problem – scarce resources relative to unlimited
wants.
6. Factors of production – anything that is useful in the production of goods
and services.
7. Land – natural resources in an economy.
8. Labour – human resources available in an economy.
9. Capital – a man made aid to production.
10.Entrepreneur – organises production and is willing to take risks.
11.Production – the process of creating goods and services in an economy.
12.Consumption – the process by which consumers satisfy their wants.
13.Opportunity cost – the costs expressed in terms of the best alternative
forgone.
14.Short run – time period when a firm can only change some and not all
factor inputs.
15.Long run – time period when all factors of production are variable.
16.Positive statement – one that is based on empirical or actual evidence.
17.Normative statement – one that subjective about what should happen.
18.Market – where buyers and sellers get together to trade.
19.Specialisation – the process by which individuals, firms and economies
concentrate on producing those goods and services where they have
advantage over others.
20.Division of labour – where a manufacturing process is split into a
sequence of individual tasks.
21.Economic structure – the way in which an economy is organised in terms
of sectors.
22.Economic system – the means by which choices are made in an economy.
23.Market economy – one where most decisions are taken through market
forces.
24.Command OR planned economy – one where resource allocation
decisions are taken by the central body.
25.Mixed economy – one where market forces and the government, private
and public sectors are involved in resource allocation decisions.
26.Market mechanism – where decisions on price and quantity are made on
basis of demand and supply alone.
27.Production possibility curve – a simple representation of the maximum
level of output that an economy can achieve when using its existing
resources in full.
28.Reallocation of resources – when resources are deliberately moved from
one product to another.
29.Factor mobility – the ease by which factor of production can be moved
around.
30.Economic growth – represented by a shift outwards of the production
possibility curve.
31.Capital consumption – the capital required to replace that which is worn
out.
32.Investment – the creation of capital goods.
33.Developing economy – one that has a low income per head.
34.Money – anything that is generally acceptable as a means of payment.
35.Near money – non-cash assets that can be quickly converted into cash.
36.Liquidity – the extent to which there is an adequate supply of assets that
can be turned into cash.
37.Liabilities – debt obligations.
38.Private goods – consumed by someone and not available to anyone else.
39.Excludability – where it is possible to exclude one from consumption.
40.Rivalry – when consumption by one person reduces availability for others.
41.Very long run – time period when al key inputs are variable.
42.Public goods – one that is non excludable and non rival and for which it is
usually difficult to charge a direct price.
43.Non excludable – where it is not possible to stop all benefiting from
consumption.
44.Non rival – as more consume, the benefit to those already consuming is
not diminished.
45.Quasi-public goods – goods that some but not all the characteristics of
public goods.
46.Free riders – someone who doesn’t pay to use a public good.
47.Merit goods – one that has positive side effects when consumed.
48.Demerit goods – one that has adverse side effects when consumed.
49.Information failure – where people do not have full or complete
information.
50.Paternalism – a situation where society knows best and has some right to
make a value judgement.
51.Moral hazard – the tendency for people who are insured or otherwise
protected to take greater risks.
52.Adverse selection – where information failure results in someone who is
unsuitable obtaining insurance.
53.Price mechanism – the means of allocating resources in a market
economy.
54.Market – where buyers and sellers get together to trade.
55.Demand – the quantity of a product that consumers are willing and able to
buy at different prices.
56.Notional demand – this demand is speculative and not always backed up y
the ability to pay.
57.Effective demand – demand that is supported by the ability to pay.
58.Demand curve – represents the relationship between the quantity
demanded and price of the product.
59.Market demand – the total amount demanded by consumers.
60.Demand schedule – the data from which a demand curve is drawn.
61.Normal goods – one whose demand increases as income increases.
62.Inferior goods –one whose demand decreases as income increases.
63.Substitute – an alternative good.
64.Complement – a good consumed with another.
65.Joint demand – when two goods are consumed together.
66.Supply – the quantity of a product that producers are willing and able to
sell at different prices.
67.Supply curve – represents the relationship between the quantity supplied
and price of the product.
68.Supply schedule – the data from which a supply curve is drawn.
69.Subsidy – a payment made by a government to producers to reduce
market prices.
70.Elasticity – a numerical measure of responsiveness of 1 variable following
a change in another variable, ceteris paribus.
71.Elastic – where the relative change in demand or supply is greater than the
change in price.
72.Inelastic –where the relative change in demand or supply is less than the
change in price.
73.Price elasticity of demand (PED) – a numerical measure of responsiveness
of the quantity demanded to a change in price.
74.Perfectly inelastic – where a change in price has no effect on quantity
demanded.
75.Perfectly elastic – where all that is produced is sold at a given price.
76.Unit elasticity – where change in price is relatively the same as change in
the quantity demanded giving a numerical value of 1.
77.Income elasticity of demand (YED) – a numerical measure of the
responsiveness of the quantity demanded following a change in income.
78.Cross elasticity of demand (ZED) – a numerical measure of the
responsiveness of the quantity demanded for one product following a
change in the price of another related product.
79.Price elasticity of supply (PES) – a numerical measure of responsiveness
of the quantity supplied to a change in price.
80.Equilibrium – a situation where there is no tendency for change.
81.Equilibrium price – the price where demand and supply are equal, where
the market clears.
82.Equilibrium quantity – the amount that is traded at the equilibrium price.
83.Disequilibrium – a situation where demand and supply are not equal.
84.Change in demand – where there is a shift in demand curves due to
change in factors other than the price of the particular product.
85.Specific tax – an indirect tax that is fixed per unit purchased.
86.Ad valorem tax – a tax that is charged as a given percentage of the price.
87. Joint supply – when 2 items are produced together.
88. Transmission of preferences – the automatic way in which the market
allows the preferences of consumers to be made known to producers.
89. Consumer surplus – the difference between the value a consumer places
on units consumed and the payment needed to actually purchase than
product.
90. Producer surplus –m the difference between the price a producer is
willing to accept and what is actually paid.
91. Market failure – where the free market does not make the best use of
scarce resources.
92. Regulation – various means by which government seeks to control
production and consumption.
93. Taxes – charges imposed by governments on income, profit and some
types of consumer goods and services to fund their expenditure.
94. Maximum price – a price that is fixed, the market price must not exceed
this price.
95. Minimum price – a price that is fixed, the market price must not go below
this price.
96. Canons of taxation – Adam Smith’s criteria for a good tax.
97. Direct tax – one that taxes the incomes of people and firms and cannot be
avoided.
98. Indirect tax – a tax that is levied on goods and services.
99. Incidence – the extent to which the tax burden is borne by the producer or
consumer or both.
100. Proportional tax – one that takes the same proportion or percentage from
all those who have to pay.
101. Progressive tax – a tax that takes a higher percentage from those with
higher incomes.
102. Regressive tax – a tax that takes a greater percentage from those on
lower incomes.
103. Transfer payment – a hand out or payment made by the government to
certain members of the community.
104. Nationalisation – when governments take over private sector businesses
and transfer them to the public sector.
105. Privatisation – the sale of the state owned, public sector enterprise to the
private sector.
106. Macroeconomy – the economy as a whole.
107. Aggregate demand (AD) – the total spending on an economy’s goods
and services at a given price level in a given time period.
108. Aggregate supply (AS) – the total output (real GDP) that producers in an
economy are willing and able to supply at a given price level in a given
time period.
109. Short run aggregate supply (SRAS) – the total output of an economy
that will be supplied when there has not been enough time for the prices of
factors of production to change.
110. Long run aggregate supply (LRAS) – the total output of a country
supplied in the period when prices of factors of production have fully
adjusted.
111. Keynesians – followers of the economist John Maynard Keynes who
maintain that government intervention is needed to achieve full
employment.
112. New classical economists – economists who think that the LRAS curve
is vertical and that the economy will move towards full employment
without government intervention.
113. Macroeconomic equilibrium – the output and price level achieved when
AD equals AS.
114. Inflation – a sustained rise in the economy’s price level.
115. Creeping inflation – a low rate of inflation.
116. Hyperinflation – an exceptionally high rate of inflation which may result
in people losing confidence in the currency.
117. Consumer price index – an index that shows the average change in
prices of a representative basket of products purchased by households.
118. Money values – values at the prices operating at that time.
119. Real values – values adjusted for inflation.
120. Cost-push inflation – inflation caused by increases in costs of
production.
121. Demand –pull inflation – inflation caused by increases in aggregate
demand (AD) but not matched by equivalent increases in aggregate supply
(AS).
122. Monetarists – economists who consider that inflation is caused by
excessive growth in the money supply.
123. Menu costs – costs to firms of having to change prices due to inflation.
124. Shoe leather costs – cots of moving money around in search of the
highest interest rates.
125. Fiscal drag – the income of people and firms being pushed into higher
tax brackets as a result of inflation.
126. Inflationary noise – confusion over relative prices caused by inflation.
127. Deflation – a sustained fall in the price level.
128. Disinflation – a fall in the inflation rate.
129. Balance of payments – a record of a country’s economic transactions
with the rest of the world over a year.
130. Current account – within the balance of payments, a record of the trade
in goods, trade in services, investment income and current transfers.
131. Capital account – within the balance of payments, a record of capital
transfers and the acquisition and disposal of non-produced, non-financial
assets.
132. Financial account – within the balance of payments, a record of the
transfer of financial assets between the country and the rest of the world.
133. Net errors and omissions – a figure included to ensure the balance of
payments balances.
134. Exchange rate – the price of one currency in terms of another.
135. Trade weighted exchange rate – the price of one currency against a
basket of currencies.
136. Real effective exchange rate – a currency’s value in terms of its real
purchasing power.
137. Floating exchange rate – an exchange rate that is determined by the
market forces of demand and supply.
138. Fixed exchange rate – an exchange rate that is set by the government
and is maintained by the central bank.
139. Hot money flows – flows of money moved around the world to take
advantage of changes in interest rates and exchange rates.
140. Managed float – where the exchange rate is influenced by the state
government.
141. Depreciation – a decrease in the international price of a currency caused
by market forces.
142. Devaluation – a decision by the government to lower the international
price of a currency.
143. J-curve effect – a fall in the exchange rate causing an increase in a
current account deficit before it reduces it due to the time it takes for
demand to respond.
144. Appreciation – an increase in the international price of a currency
caused by market forces.
145. Revaluation – a decision by the government to raise the international
price of its currency.
146. Terms of trade – a numerical measure of the relationship between export
and import prices.
147. Absolute advantage – used in context of international trade, a situation
where, for a given set of resources, one country can produce more of a
particular product than another country.
148. Comparative advantage – used in context of international trade, a
situation where a country can produce a product at a lower opportunity
cost than another country.
149. Free trade – international trade not restricted by tariffs and other
protectionist measures.
150. Trading possibility curve – a diagram showing the effects of a country
specialising and trading.
151. Trade bloc – a regional group of countries that have entered into trade
agreements.
152. Free trade area – a trade bloc where member governments agree to
remove trade restrictions amongst themselves.
153. Customs union – a trade bloc where there is free trade between member
countries and a common external tariff on imports from non-members.
154. Economic union – a trade bloc where there is free trade between
member countries, a common external tariff and same economic policies,
which may include a common currency.
155. Trade creation – where a high-cost domestic production is replaced by
more efficiently produced imports from within the customs union.
156. Trade diversion – where trade with a low-cost country outside a customs
union is influenced by higher-cost products supplied from within.
157. Protectionism – protecting domestic producers from foreign
competition.
158. Tariff – a tax imposed on imports or exports.
159. Quota – a limit on imports or exports.
160. Exchange control – restrictions on the purchase of foreign currency.
161. Voluntary export restrains – a limit placed on imports reached with the
agreement of the supplying country.
162. Embargo – a ban on imports and/or exports.
163. Infant industries – new industries that have a low output and a high
average cost.
164. Dumping – selling products in the foreign market at below their cost of
production.
165. Fiscal policy – the use of taxation and government spending to influence
aggregate demand (AD).
166. Discretionary fiscal policy – deliberate changes in taxation and
government spending.
167. Automatic stabilisers – changes in government spending and taxation
that occur to reduce fluctuations in aggregate demand (AD) without any
alteration in government policies.
168. Budget – an annual statement in which a government outlines plans for
its spending and tax revenue.
169. Cyclical budget deficit – a budget deficit caused by changes in economic
activity.
170. Structural budget deficit – a budget deficit caused by an imbalance
between government spending and taxation.
171. Monetary policy – the use of interest rates, direct control of the money
supply and the exchange rate to influence aggregate demand (AD).
172. Interest rate – the price of borrowing money and the reward for saving.
173. Money supply – the total amount of money in a country.
174. Supply side policy – measures designed to increase aggregate supply
(AS).
175. Expenditure switching policy – policy measures, designed to encourage
people to switch from buying foreign-produced products to domestically
produced products.
176. Expenditure dampening OR reducing policy – policy measures designed
to reduce imports and increase exports by reducing demand.