Cameroon GCE O-Level Economics key terms

The value of the next best alternative forgone when a choice is made. Because resources are scarce, choosing one use of them always means giving up another.

The condition where available resources are insufficient to satisfy all human wants at zero price. It forces individuals and societies to choose between competing uses of resources.

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

The resources used to produce goods and services: land, labour, capital and entrepreneurship. Each earns a reward, namely rent, wages, interest and profit respectively.

Man-made resources such as machines, tools, buildings and vehicles used to produce other goods and services. It is created by investment and earns interest as its reward.

The quantity of a good or service that consumers are willing and able to buy at a given price over a period of time. Effective demand requires both desire and purchasing power.

The quantity of a good or service that producers are willing and able to offer for sale at a given price over a period of time. It normally rises as price rises.

The price at which the quantity demanded equals the quantity supplied, so there is no tendency for price to change. It is set where the demand and supply curves intersect.

A maximum price fixed by government below the equilibrium price, often to protect consumers. It creates excess demand, shortages and black markets unless accompanied by rationing.

A minimum price fixed by government above the equilibrium price, often to protect producers. It creates excess supply, so surpluses may need to be bought up by the state.

The responsiveness of quantity demanded to a change in price, measured as the percentage change in quantity divided by the percentage change in price. Demand is elastic when this value exceeds one.

The responsiveness of quantity demanded to a change in consumers' income, measured in percentage terms. A positive value indicates a normal good; a negative value indicates an inferior good.

The responsiveness of quantity supplied to a change in price, measured as the percentage change in quantity supplied divided by the percentage change in price. Supply is more elastic when producers can adjust output quickly.

The total income a firm receives from selling its output, calculated as price multiplied by quantity sold. Whether it rises or falls after a price change depends on the elasticity of demand.

The principle that as more units of a variable factor are added to fixed factors, the extra output from each additional unit eventually falls. It explains rising marginal cost in the short run.

A cost that does not change with the level of output in the short run, such as rent on a factory or insurance premiums. It must be paid even when output is zero.

A cost that changes directly with the level of output, such as spending on raw materials and hourly labour. It is zero when production is zero.

The addition to total cost from producing one more unit of output. It typically falls at first and then rises as diminishing returns set in.

Total cost divided by the number of units produced, also called unit cost. It falls while fixed costs are spread over more output and rises once diminishing returns dominate.

The reductions in average cost that a firm enjoys as it expands its scale of output. They arise from specialisation, bulk buying, better machinery and improved access to finance.

The increases in average cost that appear when a firm grows too large, caused by management difficulties, poor communication and weakened worker motivation. They make further expansion costly.

A market structure with many small buyers and sellers, a homogeneous product, free entry and exit, and perfect information, so each firm is a price taker. Real markets rarely meet all these conditions.

A market with a single seller of a product that has no close substitutes, protected by barriers to entry. The monopolist is a price maker and can restrict output to raise price.

A market dominated by a few large firms whose decisions are interdependent, so each must consider rivals' reactions. Products may be differentiated and non-price competition is common.

The practice of charging different prices to different buyers for the same product, for reasons not related to cost. It requires market separation and limited resale between groups.

The reward paid to labour for its services, determined by the interaction of demand for and supply of labour in a labour market. It may be influenced by trade unions and minimum wage laws.

An association of workers formed to protect their interests through collective bargaining over pay and conditions, and sometimes through industrial action. It can raise wages by restricting labour supply.

The reward for lending money or for the use of capital over time, usually expressed as a percentage of the amount borrowed. It compensates the lender for postponing consumption and for risk.

The reward earned by the entrepreneur, calculated as total revenue minus total cost. It signals where resources should move and rewards risk-taking and enterprise.

Anything generally accepted as a medium of exchange, a unit of account, a store of value and a standard for deferred payment. Its acceptability rests on law and public confidence.

A financial institution that accepts deposits from the public and lends to households and firms for profit. It creates credit through lending out a proportion of deposits.

The institution that manages a country's money supply, issues currency, supervises banks and holds foreign reserves. It acts as lender of last resort and implements monetary policy.

The use of instruments such as interest rates, reserve requirements and open market operations by the central bank to control money supply and credit. It aims at price stability and growth.

The total market value of all final goods and services produced within a country's borders in a year. It measures output by location of production, regardless of ownership.

The total value of final goods and services produced by a country's citizens and firms, whether at home or abroad, in a year. It equals GDP plus net factor income from abroad.

The total money value of all goods and services produced in an economy over a period, usually a year. It can be measured by the output, income or expenditure approach.

A sustained rise in the general price level of goods and services in an economy. It reduces the purchasing power of money and is often measured by a consumer price index.

The study of government revenue and expenditure and how they affect the economy. It covers taxation, public borrowing and the provision of public goods and services.

A tax levied on the income or wealth of individuals and firms, such as personal income tax or company tax. It is generally progressive but may discourage work and enterprise.

A tax charged on goods and services rather than on income, such as value added tax or excise duty. It is collected by sellers and can be regressive in its effects.

A situation where government planned expenditure exceeds its expected revenue in a given year. It is usually financed by borrowing, which adds to the national debt.

A record of all economic transactions between a country's residents and the rest of the world in a year. It comprises the current account, the capital account and the financial account.

The difference between the value of a country's visible exports and visible imports of goods over a period. A surplus means exports exceed imports; a deficit means the opposite.

The price of one currency expressed in terms of another. It is determined by demand and supply in a floating system or fixed by the authorities in a managed system.

A deliberate reduction in the official value of a country's currency in terms of other currencies under a fixed exchange rate system. It makes exports cheaper and imports dearer.

An improvement in the living standards of a population, involving rising income per head together with better health, education and reduced inequality. It is broader than mere economic growth.

The rate at which the number of people in a country increases over time, through natural increase and migration. Rapid growth can strain resources and slow development.

The situation where people who are willing and able to work at the going wage cannot find jobs. It may be frictional, structural, seasonal or caused by deficient demand.