WACE Economics ATAR key terms

The value of the next best alternative given up when a choice is made. Because resources are limited, choosing one option always means forgoing another, and this sacrifice is the true cost of the decision.

The condition where wants are unlimited but the resources available to satisfy them are finite. Scarcity forces individuals, firms and governments to make choices about how resources are allocated.

The way a society decides what to produce, how to produce it and for whom. In a market economy this is largely determined by price signals, while governments may intervene to change outcomes.

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

The process by which the interaction of demand and supply determines prices and quantities in a market. Rising prices encourage more supply and discourage demand, guiding resources toward goods consumers value most.

The quantity of a good or service consumers are willing and able to buy at each price over a period of time. Demand reflects both desire and the purchasing power to act on it.

The principle that, all else being equal, as the price of a good rises the quantity demanded falls, and as price falls quantity demanded rises. This inverse relationship produces a downward-sloping demand curve.

The quantity of a good or service producers are willing and able to offer for sale at each price over a period. Supply depends on costs of production, technology and the prices of related goods.

The principle that, all else being equal, firms offer more of a good at higher prices and less at lower prices. Higher prices can cover rising marginal costs and raise potential profit, encouraging greater output.

The price at which the quantity demanded equals the quantity supplied, leaving no shortage or surplus. It is also called the market-clearing price because the market is balanced at that level.

A situation where quantity demanded exceeds quantity supplied at the current price, usually because the price is set below equilibrium. It creates a shortage and typically puts upward pressure on price.

A measure of how responsive quantity demanded is to a change in price, calculated as the percentage change in quantity demanded divided by the percentage change in price. Demand is elastic when this value exceeds one in magnitude.

A measure of how responsive quantity supplied is to a change in price, found by dividing the percentage change in quantity supplied by the percentage change in price. Supply is more elastic when firms can adjust output quickly.

Goods that can replace one another for the same purpose, so that a rise in the price of one increases demand for the other. Their cross elasticity of demand is positive.

Goods used together, so that a rise in the price of one tends to reduce demand for the other. Their cross elasticity of demand is negative, as with cars and fuel.

A maximum price set by government, often below equilibrium, to keep a good affordable. It typically causes excess demand, shortages and possibly black markets unless accompanied by rationing or extra supply.

A minimum price set by government, often above equilibrium, to support producers' incomes. It usually creates excess supply, meaning surpluses that government may need to buy or otherwise manage.

A situation where the free market fails to allocate resources efficiently, producing too much or too little of a good relative to the socially optimal level. Causes include externalities, public goods and imperfect information.

A cost or benefit from production or consumption that falls on third parties not involved in the transaction. Negative externalities lead to overproduction; positive externalities lead to underproduction in a free market.

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 prevented from enjoying it. Markets tend to underprovide such goods, so government often supplies them.

A sustained rise in the general price level over time, reducing the purchasing power of money. It is commonly measured by the percentage change in a consumer price index.

A statistical measure tracking the cost of a fixed basket of goods and services bought by a typical household. Percentage changes in the index are used to estimate the rate of inflation.

The situation of people who are willing and able to work, are actively seeking work, but cannot find a job. The unemployment rate expresses these people as a percentage of the labour force.

The proportion of the working-age population that is either employed or actively looking for work. It indicates how many people are engaged with or seeking entry to the labour market.

A situation where workers are employed but want more hours, or are in jobs that do not fully use their skills. It reveals unused capacity in the labour market that the unemployment rate alone does not capture.

The total market value of all final goods and services produced within a country's borders in a given period. It is a standard measure of the size and growth of an economy.

Nominal values are measured at current prices, while real values are adjusted for inflation to reflect actual purchasing power. Comparing real values over time shows genuine changes in output or income.

An increase in the real value of goods and services produced by an economy over time, usually measured as growth in real gross domestic product. Sustained growth raises living standards.

The amount of output produced per unit of input, such as output per hour worked. Rising productivity allows more to be produced with the same resources and is a key driver of long-run growth.

The use of government spending and taxation to influence the level of economic activity. Expansionary fiscal policy increases spending or cuts taxes; contractionary policy does the opposite.

Actions by a central bank to influence interest rates and the money supply in order to manage inflation and economic activity. Lowering interest rates tends to stimulate spending and borrowing.

A situation where a government's expenditure exceeds its revenue in a given year. Deficits require borrowing and add to the stock of public debt over time.

Features of the budget, such as progressive taxes and welfare payments, that automatically dampen economic fluctuations without new policy decisions. They reduce spending in booms and support incomes in downturns.

A record of all economic transactions between residents of a country and the rest of the world over a period. It has a current account covering trade and income flows, and a capital and financial account.

The part of the balance of payments recording trade in goods and services, plus income flows and transfers between countries. A deficit means a country is paying out more than it receives on these items.

The price of one currency expressed in terms of another. Movements in the exchange rate change the relative cost of exports and imports and therefore affect trade flows and inflation.

Appreciation is a rise in a currency's value against another currency; depreciation is a fall. Appreciation makes exports dearer and imports cheaper, while depreciation does the reverse.

The ability of a country to produce a good at a lower opportunity cost than another country. Specialising according to comparative advantage allows gains from trade even if one country is more efficient at everything.

The ratio of a country's export prices to its import prices, usually expressed as an index. An improvement means each unit of exports buys more imports, raising real income from trade.

The ratio of a country's export prices to its import prices, usually expressed as an index. An improvement means each unit of exports buys more imports, raising real income from trade.