BSEH SS Economics key terms

The condition in which available resources are limited relative to the unlimited wants of people, forcing choices about what to produce, how to produce it, and for whom.

The value of the next best alternative forgone when a choice is made; it measures what must be given up to obtain one more unit of something.

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

The addition to total satisfaction from consuming one extra unit of a good, holding consumption of other goods constant; it usually falls as consumption rises.

The principle that as a consumer takes more units of a good in a given period, the extra satisfaction from each additional unit becomes smaller.

The inverse relationship stating that, other things equal, quantity demanded of a good rises when its price falls and falls when its price rises.

The percentage change in quantity demanded divided by the percentage change in price; it shows how responsive buyers are to a price change.

The percentage change in quantity demanded divided by the percentage change in consumer income; positive for normal goods, negative for inferior goods.

A good whose demand increases when consumers' income rises, so its income elasticity of demand is positive.

A good whose demand falls when consumers' income rises because buyers switch to better substitutes, giving a negative income elasticity of demand.

A curve showing all combinations of two goods that give a consumer the same total satisfaction, so the consumer is equally happy with any point on it.

The amount of one good a consumer will give up to obtain one more unit of another good while staying on the same indifference curve.

A straight line showing all combinations of two goods a consumer can buy by spending a given income fully at given prices.

The short-run principle that as more units of a variable input are added to fixed inputs, marginal product first rises, then falls, and eventually becomes negative.

The extra output produced by employing one additional unit of a variable input while other inputs stay fixed.

The long-run relationship between the scale of all inputs and output: increasing, constant, or decreasing returns as every input is raised proportionally.

The addition to total cost from producing one more unit of output; it equals the change in total cost divided by the change in quantity.

A curve showing the quantity of a good producers are willing to sell at each price, other things equal; it normally slopes upward.

The percentage change in quantity supplied divided by the percentage change in price; it measures how responsive sellers are to a price change.

A market structure with many small sellers of an identical product, free entry and exit, and no single firm able to influence price.

A market with a single seller of a product that has no close substitutes and with strong barriers preventing new firms from entering.

A market with many sellers offering differentiated products that are close but not perfect substitutes, so each firm has some price-setting power.

The price and quantity at which quantity demanded equals quantity supplied, so there is no tendency for the price to change.

The market value of all final goods and services produced within a country's domestic territory during a given period, usually a year.

The market value of all final goods and services produced by a country's residents in a year, whether produced at home or abroad.

The difference between factor incomes earned by a country's residents from abroad and factor incomes earned by foreigners within the country.

The total factor income earned by the normal residents of a country in a year, that is, net national product at factor cost.

The income households actually have available for spending or saving after direct taxes are paid and transfer payments are received.

The ratio of the total money supply to the monetary base, showing how much deposits expand from each extra unit of reserve money.

The share of a bank's net demand and time liabilities that must be held as cash reserves with the central bank.

The interest rate at which the central bank lends short-term funds to commercial banks against government securities, used as a policy tool.

The relationship showing how household consumption spending varies with the level of disposable income, usually written as C = a + bY.

The fraction of each additional unit of income that households spend on consumption; it lies between zero and one.

The number by which an initial change in investment is multiplied to give the final change in national income; it equals 1 divided by one minus the marginal propensity to consume.

The excess of total government expenditure over total receipts excluding borrowings, showing how much the government must borrow.

The excess of revenue expenditure over revenue receipts; it measures the gap the government must fill from capital receipts or borrowing.

The reduction in private investment that may occur when heavy government borrowing raises interest rates and absorbs funds available to firms.

A systematic record of all economic transactions between a country's residents and the rest of the world in a year, covering current and capital accounts.

The excess of payments on goods, services, income, and transfers over receipts from them in the current account of the balance of payments.

The price of one currency expressed in terms of another currency, determined in the foreign exchange market by demand and supply.

A fall in the value of a country's currency in terms of foreign currencies under a floating exchange rate system, making exports cheaper.

The removal or relaxation of government controls on economic activity, such as licensing, trade restrictions, and price regulation, to let markets operate more freely.

The transfer of ownership and management of public sector enterprises to private individuals or firms, often through sale of government equity.

The growing integration of a country's economy with the world economy through trade, capital flows, technology, and movement of people.

A composite measure of average achievement in health, education, and standard of living, used to compare development across countries beyond income alone.

A measure of the average change over time in the prices paid by households for a fixed basket of consumer goods and services.

The percentage change in the general price level over a period, usually measured by comparing a price index with its earlier value.

The cost advantage that arises as output expands, so average cost per unit falls when production is carried out on a larger scale.

The monetary base consisting of currency held by the public plus reserves of commercial banks held with the central bank.