Maharashtra HSC Economics key terms

The branch of economics that studies individual units such as a single consumer, a single firm, or one market, focusing on how prices and quantities are decided in isolation rather than for the whole economy.

The basic economic problem that human wants are unlimited while the resources available to satisfy them are limited, so choices must be made about what to produce and for whom.

The value of the next best alternative given up when a choice is made. It is measured in terms of the alternative forgone, not in money, and applies to individuals, firms and governments alike.

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

A Latin phrase meaning 'other things remaining constant'. Economists use it to isolate the effect of one variable on another, for example the effect of price on quantity demanded when income and tastes do not change.

The want-satisfying power of a good or service. It is subjective and differs from person to person and from time to time; the same cup of tea may give more satisfaction to a thirsty person than to a refreshed one.

The addition to total utility obtained from consuming one more unit of a commodity in a given period. It is the change in total utility divided by the change in quantity consumed.

As a consumer takes more units of a commodity in a given period, the extra satisfaction from each additional unit keeps falling, though total utility may still rise until marginal utility becomes zero.

A consumer maximises satisfaction by allocating limited income so that the marginal utility of the last rupee spent on each good is equal. If one good gives more utility per rupee, spending shifts towards it.

The situation in which a consumer, given income and prices, buys the combination of goods that gives maximum satisfaction and has no reason to rearrange spending. In indifference curve analysis it is where the budget line touches the highest attainable indifference curve.

A curve on a diagram joining all combinations of two goods that give a consumer the same total satisfaction, so the consumer is indifferent between them. Such curves slope downward and are convex to the origin.

The number of units of one good a consumer is willing to give up to obtain one more unit of another good while remaining at the same level of satisfaction. It is the slope of an indifference curve.

The quantity of a commodity that a consumer is willing and able to buy at a given price during a given period. Want alone is not demand; ability and willingness to pay must both be present.

Other things being equal, the quantity demanded of a commodity rises when its price falls and falls when its price rises. This inverse relationship gives the demand curve its downward slope.

The degree of responsiveness of quantity demanded to a change in the commodity's own price, measured as the percentage change in quantity demanded divided by the percentage change in price. Values range from zero to infinity.

The responsiveness of quantity demanded to a change in consumer income, measured as the percentage change in quantity demanded divided by the percentage change in income. It is negative for inferior goods.

An inferior good for which quantity demanded rises when price rises, because the income effect of the price change outweighs the substitution effect. It is a rare exception to the law of demand.

The quantity of a commodity that a producer is willing and able to offer for sale at a given price during a given period. Supply refers to a schedule of quantities at different prices, not a single fixed amount.

Other things being equal, quantity supplied rises with price and falls when price falls, because higher prices make production more profitable. This direct relationship makes the supply curve slope upward.

The price at which quantity demanded equals quantity supplied, so there is neither excess demand nor excess supply and the price has no tendency to change. Above it a surplus pushes price down; below it a shortage pushes price up.

The technical relationship showing the maximum output obtainable from given quantities of inputs such as labour and capital, with technology held constant. It may be studied in the short run or the long run.

In the short run, as more units of a variable input are added to fixed inputs, marginal product first rises, then falls, and may finally become negative. It explains the typical shape of short-run cost curves.

The stage of production in which each additional unit of a variable input adds less to total output than the previous unit, because at least one input is fixed. It is the reason marginal cost eventually rises.

The change in output when all inputs are increased in the same proportion in the long run. Output may rise more than proportionately (increasing), equally (constant) or less than proportionately (decreasing).

Cost that a firm must bear even when output is zero, such as rent on a factory or insurance. It does not vary with the level of output in the short run and is also called supplementary cost.

Cost that changes directly with the level of output, such as spending on raw materials and casual labour. It is zero when nothing is produced and rises as production expands.

The addition to total cost from producing one more unit of output. It is the change in total cost divided by the change in quantity and is not affected by fixed costs.

A market form with many buyers and sellers, a homogeneous product, free entry and exit, and perfect knowledge, so that each firm is a price taker facing a horizontal demand curve. The firm's price equals marginal revenue.

A market with a single seller of a product that has no close substitutes and with strong barriers to entry. The firm is a price maker and can earn abnormal profit in the long run.

A market form with many sellers of differentiated products, free entry and exit, and some control over price through branding or product features. Firms compete through advertising as well as price.

A market dominated by a few large sellers whose decisions are interdependent, so each firm must consider rivals' reactions. Prices tend to be sticky, and collusion or price leadership may appear.

Charging different prices to different buyers for the same product or for slightly different costs of service, possible only when markets can be separated and resale prevented. It is common under monopoly.

The total money value of all final goods and services produced by a country's residents during a year, counted once to avoid double counting. It is a flow concept, not a stock.

The market value of all final goods and services produced within a country's geographical boundaries in a year, regardless of who produces them. It excludes income earned abroad by residents.

Gross national product minus depreciation on fixed capital. It measures the value of output available after setting aside an amount to replace worn-out machinery and buildings.

Anything generally accepted as a medium of exchange, a measure of value, a store of value and a standard of deferred payment. In modern economies currency and bank deposits together make up money supply.

The apex monetary institution of a country, in India the Reserve Bank of India, which issues currency, acts as banker to government and banks, controls credit and manages foreign exchange reserves.

The rate at which the central bank lends short-term funds to commercial banks against government securities. Raising it makes credit costlier and is used to control inflation.

A financial institution that accepts deposits from the public, lends to borrowers and creates credit in the process. Its main liabilities are deposits and its main assets are loans and investments.

The excess of total government expenditure over total receipts other than borrowings in a year. It shows how much the government must borrow and is a key indicator of fiscal health.

The study of government revenue and expenditure, including taxation, public borrowing and public spending, and how these affect the economy. It deals with the budget of the public sector.

An annual statement of the estimated receipts and expenditure of the government, presented before the legislature. It is broadly divided into revenue account and capital account.

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

A systematic record of all economic transactions between residents of a country and the rest of the world in a year, comprising the current account and the capital account. It always balances in accounting terms.

The price of one currency expressed in terms of another, determined in the foreign exchange market under a floating system or fixed by the central bank. It influences exports and imports.

A composite index ranging from 0 to 1 that combines life expectancy, education and per capita income to compare development across countries. It goes beyond income to reflect well-being.

A broad, long-term improvement in living standards that includes rising income along with better health, education and reduced inequality. It is wider than economic growth, which means only a rise in output.

The cost advantages a firm gains as its output expands, such as better use of machinery and bulk purchase discounts, which lower average cost in the long run. Internal economies arise within a firm; external ones arise from industry growth.