Cameroon GCE O-Level Economics flashcards
Cameroon GCE O-Level Economics · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Opportunity cost
- The value of the next best alternative forgone when a choice is made because resources are scarce. It is measured in real terms rather than in money.
- Production possibility curve
- A curve showing the maximum combinations of two goods an economy can produce with all resources fully and efficiently employed. Points inside show inefficiency, points outside are unattainable.
- Normative statement
- A statement based on value judgement about what ought to be. It cannot be tested against facts, unlike a positive statement, and involves opinion such as fairness.
- Law of demand
- The principle that, other things being equal, quantity demanded rises as price falls and falls as price rises, giving a downward-sloping demand curve.
- Market equilibrium
- The price at which quantity demanded equals quantity supplied. At this price there is neither shortage nor surplus and the market clears.
- Price ceiling
- A maximum legal price set below equilibrium. It creates excess demand, queues, rationing and black markets because suppliers offer less than buyers want.
- Price elasticity of demand
- The percentage change in quantity demanded divided by the percentage change in price. Values above one in absolute terms mean demand is elastic.
- Income elasticity of demand
- The percentage change in quantity demanded divided by the percentage change in income. It is positive for normal goods and negative for inferior goods.
- Tax incidence
- The division of the burden of an indirect tax between buyers and sellers. The side of the market with more inelastic behaviour bears the larger share.
- Law of diminishing returns
- In the short run, as more units of a variable input are added to fixed inputs, marginal product eventually falls, raising marginal cost.
- Marginal cost
- The addition to total cost from producing one more unit, calculated as change in total cost divided by change in output. It cuts average cost at its minimum.
- Economies of scale
- Falls in long-run average cost as a firm expands output. They may be internal, arising within the firm, or external, arising from growth of the whole industry.
- Perfect competition
- A market with many buyers and sellers, a homogeneous product, free entry and perfect information. Firms are price takers earning only normal profit in the long run.
- Monopoly
- A market with a single seller, no close substitutes and high barriers to entry. The firm is a price maker and maximizes profit where marginal revenue equals marginal cost.
- Kinked demand curve
- An oligopoly model in which rivals match price cuts but ignore price rises, so demand is elastic above the current price and inelastic below it, making price rigid.
- Shut-down point
- The output level at which price equals minimum average variable cost. Below this price a competitive firm loses less by stopping production in the short run.
- Marginal revenue product
- The extra revenue a firm gains by employing one more unit of labour, equal to marginal product multiplied by the price of output. Firms hire until it equals the wage.
- Economic rent
- Payment to a factor of production above its transfer earnings, that is, above the minimum needed to keep it in its present use.
- Liquidity preference
- The desire to hold wealth as money rather than interest-bearing assets, driven by transactions, precautionary and speculative motives, determining the interest rate.
- Credit creation
- The process by which commercial banks create deposits when granting loans. Maximum creation equals the initial deposit multiplied by one over the reserve ratio.
- Lender of last resort
- A central bank function of lending to commercial banks facing temporary liquidity shortages, thereby preventing bank failures and maintaining confidence in the system.
- Quantity theory of money
- The Fisher equation MV = PT, stating that money supply times velocity equals the price level times transactions. If velocity and output are stable, more money raises prices.
- Gross domestic product
- The total market value of final goods and services produced within a country's borders in a period, regardless of who owns the factors of production.
- Value added
- The difference between a firm's revenue from sales and the cost of intermediate inputs. Summing value added across firms avoids double counting in national income.
- Investment multiplier
- The ratio of the change in national income to the change in an injection. It equals one divided by one minus the marginal propensity to consume.
- Progressive tax
- A tax in which the average rate rises as taxable income rises, so higher earners pay a larger proportion of their income. Personal income tax is usually progressive.
- Budget deficit
- A situation where government expenditure exceeds revenue in a given year. It is financed by borrowing, drawing on reserves or selling assets.
- Fiscal policy
- The use of government taxation and spending to influence aggregate demand, output and employment. Expansionary policy raises demand; contractionary policy reduces it.
- Comparative advantage
- The ability of a country to produce a good at a lower opportunity cost than another country, which forms the basis for mutually beneficial specialisation and trade.
- Balance of payments
- A systematic record of all economic transactions between residents of a country and the rest of the world, comprising the current, capital and financial accounts.
- Marshall-Lerner condition
- The condition that a currency depreciation improves the trade balance only if the sum of the price elasticities of export and import demand exceeds one.
- Human Development Index
- A composite development measure combining income per head, life expectancy and education. It captures welfare better than income alone.