LC Economics key terms

The condition in which available resources are insufficient to satisfy all human wants at a zero price, forcing individuals and societies to choose between competing uses.

The value of the next best alternative forgone when a choice is made; measured as the benefit that would have been obtained from the option not selected.

The inputs used to produce goods and services: land (natural resources), labour (human effort), capital (man-made aids to production) and enterprise (risk-taking and organisation).

A curve showing the maximum combinations of two goods an economy can produce when all resources are fully and efficiently employed, given fixed technology.

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.

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

The price and quantity at which quantity demanded equals quantity supplied, so that there is no tendency for the price to change unless demand or supply shifts.

A legally imposed maximum price, set below equilibrium to protect consumers; it typically creates excess demand and may require rationing or non-price allocation.

A legally imposed minimum price, set above equilibrium to support producers' incomes; it typically creates excess supply, which may be bought up or stored by government.

The additional satisfaction gained from consuming one more unit of a good or service in a given period, usually falling as consumption rises.

The principle that adding successive units of a variable input to fixed inputs eventually yields smaller and smaller increases in output.

Falls in long-run average cost as a firm's output expands, arising from specialisation, bulk buying, spreading fixed costs and improved technology.

Rises in long-run average cost as output grows beyond an optimal size, typically caused by management, coordination and communication problems in large organisations.

A market model with many small price-taking firms, homogeneous products, free entry and exit, and perfect information, yielding normal profit in long-run equilibrium.

A market with a single seller, or one dominant enough to set price, protected by barriers to entry such as patents, licences or large sunk costs.

The total market value of final goods and services produced within a country's borders in a given period, before deduction of capital consumption.

A model showing money and real flows between households and firms, plus injections (investment, government spending, exports) and withdrawals (saving, taxes, imports).

Recurring fluctuations of economic activity around its long-run trend, passing through recovery, boom, slowdown and recession phases.

Nominal figures are measured at current prices; real figures are adjusted for inflation, usually by deflating with a price index, so they reflect changes in output or purchasing power.

A weighted average of the prices of a representative basket of household goods and services, used to measure changes in the cost of living over time.

A sustained rise in the general price level, reducing the purchasing power of money; it may be demand-pull, cost-push or caused by excessive monetary growth.

The price of borrowing money, expressed as a percentage of the amount borrowed per period; central banks use policy rates to influence spending and inflation.

A national monetary authority that issues currency, sets or influences interest rates, supervises banks and acts as lender of last resort.

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

A shortfall occurring when government expenditure exceeds government revenue in a given year, financed by borrowing and adding to public debt.

The accumulated stock of outstanding government borrowing, owed to domestic and foreign holders of government bonds and other securities.

A tax taking a larger proportion of income from higher earners than from lower earners, such as graduated income tax; it tends to reduce income inequality.

The number of people actively seeking work expressed as a percentage of the labour force, which comprises the employed plus the unemployed.

The proportion of the working-age population that is either employed or actively seeking work.

The uneven distribution of income among households, often measured by the Gini coefficient or by comparing shares of income received by different quintiles.

A minimum income or consumption level deemed necessary to meet basic needs; households below it are classified as living in poverty.

Shifts in the size and age structure of a population caused by birth rates, death rates and migration, affecting labour supply and public spending.

A systematic record of all economic transactions between residents of a country and the rest of the world, comprising the current account and the financial account.

The price of one currency expressed in terms of another; it may be fixed by authorities or determined by demand and supply in foreign exchange markets.

The ability of a country to produce a good at a lower opportunity cost than a trading partner, which is the basis for mutually beneficial specialisation and trade.

The growing integration of national economies through trade, investment, migration and information flows, driven by lower transport costs and reduced trade barriers.

A value expressed relative to a chosen base period set equal to 100, allowing comparison of changes over time in prices, output or other variables.