VCE Economics key terms

The value of the next best alternative given up when a choice is made, reflecting that scarce resources used for one purpose cannot be used for another.

The condition where limited resources are insufficient to satisfy all wants, forcing individuals, businesses and governments to make choices about allocation.

A curve showing the maximum combinations of two goods an economy can produce with all resources fully and efficiently employed; points inside indicate inefficiency and points beyond are unattainable.

The principle that, all else equal, quantity demanded falls as price rises and rises as price falls, producing a downward-sloping demand curve.

The principle that, all else equal, quantity supplied rises as price rises, producing an upward-sloping supply curve reflecting producers' willingness to sell.

The market price at which quantity demanded equals quantity supplied, leaving no shortage or surplus and giving no incentive for price to change.

A situation where quantity demanded exceeds quantity supplied at a given price, usually below equilibrium, creating a shortage that tends to push prices upward.

A situation where quantity supplied exceeds quantity demanded at a given price, usually above equilibrium, creating a surplus that tends to push prices downward.

A measure of how responsive quantity demanded is to a change in price, calculated as percentage change in quantity divided by percentage change in price.

A measure of how responsive quantity supplied is to a change in price, influenced by factors such as production time, spare capacity and storage ability.

Products that can replace one another for a similar purpose, so a price rise in one tends to increase demand for the other.

Products consumed together, so a price rise in one tends to reduce demand for the other because they are used as a pair.

A situation where an unregulated market allocates resources inefficiently, producing too much or too little of a good relative to the socially optimal quantity.

A cost of production or consumption borne by third parties not involved in the transaction, such as pollution, causing the market to overproduce the good.

A benefit from production or consumption enjoyed by third parties not involved in the transaction, such as vaccination, causing the market to underproduce the good.

A good that is non-rival and non-excludable, meaning one person's use does not reduce availability to others and users cannot easily be charged.

The condition where resources are distributed among goods and services in line with consumer preferences, achieved where marginal benefit to consumers equals marginal cost of production.

The total market value of all final goods and services produced within a country's borders over a period, used as a headline measure of economic activity.

Gross domestic product adjusted to remove the effects of price changes, so changes reflect movements in the actual volume of output produced.

An increase in the volume of goods and services produced by an economy over time, commonly measured as the percentage change in real GDP.

A sustained increase in the general level of prices over time, reducing the purchasing power of money and typically measured by changes in a consumer price index.

A statistical measure tracking the price of a representative basket of goods and services bought by households, used to estimate the rate of inflation.

The percentage of the labour force that is without work but actively seeking and available for employment, expressed as a share of the total labour force.

The sum of employed and unemployed people aged 15 and over who are actively participating in or seeking paid work.

A situation where workers are employed but want and are available to work more hours than they currently have.

The recurring fluctuation of economic activity around its long-term trend, moving through expansion, peak, contraction and trough phases.

A period of significant decline in economic activity, often defined practically as two consecutive quarters of negative growth in real GDP.

The level of wellbeing enjoyed by people, reflecting material factors such as income and consumption plus non-material factors such as health, education and environment.

A composite measure combining life expectancy, education and income indicators to compare average wellbeing across countries beyond purely economic output.

The quantity of goods and services a given amount of money can buy, falling when prices rise faster than nominal incomes.

The total planned expenditure on goods and services in an economy at a given price level, comprising consumption, investment, government spending and net exports.

The total volume of goods and services producers are willing and able to supply at a given price level, influenced by costs, capacity and productivity.

Spending by households on goods and services, typically the largest component of aggregate demand and influenced by income, confidence and interest rates.

Spending by businesses on capital goods such as machinery, equipment and buildings, adding to productive capacity and influenced by interest rates and expected returns.

The output produced per unit of input such as labour hour, a key determinant of long-run growth, competitiveness and rising real incomes.

The ratio of export prices to import prices, indicating how many imports a given volume of exports can purchase.

The part of the balance of payments recording trade in goods and services, plus primary income and secondary income flows, between residents and the rest of the world.

The price of one currency expressed in terms of another, affecting the competitiveness of exports and the cost of imports.

The use of government taxation and spending to influence aggregate demand, resource allocation and income distribution in the economy.

Action by a central bank to influence the cost and availability of credit, primarily by adjusting the target cash rate to manage inflation and economic activity.

The interest rate set by the central bank for overnight loans between financial institutions, which flows through to other interest rates in the economy.

A situation where government expenditure exceeds government revenue in a given period, requiring borrowing and adding to public debt.

Features of the budget, such as progressive income tax and welfare payments, that automatically dampen fluctuations in economic activity without new policy decisions.