MATSEC SEC Economics key terms

The basic economic problem that resources are limited while people's wants are unlimited, so choices must be made about how to allocate what is available.

The value of the next best alternative given up when a choice is made, measured by what is sacrificed rather than by money paid.

The inputs used to produce goods and services: land, labour, capital and enterprise, each earning a corresponding reward of rent, wages, interest and profit.

A curve showing the maximum combinations of two goods an economy can produce when all resources are fully and efficiently employed; points inside show inefficiency.

Man-made resources such as machinery, tools, buildings and equipment used to produce other goods and services, as distinct from land and labour.

The quantity of a good or service consumers are willing and able to buy at a given price over a period of time, other things being equal.

The principle that, all else equal, quantity demanded falls as price rises and rises as price falls, giving a downward-sloping demand curve.

The quantity of a good or service producers are willing and able to offer for sale at a given price over a period of time, other things being equal.

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

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

Products that can replace each other in use, so a rise in the price of one increases demand for the other; examples include tea and coffee.

Products consumed together, so a rise in the price of one reduces demand for the other; examples include printers and ink cartridges.

A good for which demand increases when consumers' incomes rise, such as restaurant meals or branded clothing.

A good for which demand falls when consumers' incomes rise, because buyers switch to better alternatives, such as cheaper own-brand food products.

A situation where the free market fails to allocate resources efficiently, producing too much or too little of a good compared with the social optimum.

A cost or benefit arising from production or consumption that falls on third parties not involved in the transaction and is not reflected in the market price.

A good that is non-rival and non-excludable, meaning one person's use does not reduce availability to others and users cannot easily be prevented from consuming it.

A good or service, such as education or healthcare, that society judges people should consume more of than the free market would provide, often subsidised or supplied by government.

The total market value of all final goods and services produced within a country's borders in a given period, usually a year or a quarter.

An increase in a country's real output of goods and services over time, usually measured as a rise in real gross domestic product.

A sustained rise in the general price level of an economy over time, which reduces the purchasing power of money.

The situation of people who are willing and able to work, are actively seeking work, but cannot find a job at the going wage rate.

The part of the population that is either employed or actively seeking work, excluding those who are too young, retired, studying full time or otherwise unavailable.

The use of government spending and taxation to influence the level of economic activity, redistribute income and manage the government budget.

The use of interest rates and the money supply by a central bank to influence spending, output and the rate of inflation.

A situation where a government's spending exceeds its revenue from taxes and other sources in a given year, requiring borrowing.

The total accumulated amount a government owes to lenders at a point in time, built up from past borrowing to cover budget deficits.

A record of all a country's transactions with the rest of the world, covering trade in goods and services, income flows and financial transfers.

The price of one currency expressed in terms of another, which determines how much foreign currency is needed to buy domestic money.

Goods and services bought from abroad by residents of a country, which represent an outflow of spending from the domestic economy.

Goods and services sold to buyers abroad by domestic producers, which bring income into the country and add to aggregate demand.

Spending by firms on capital goods such as machinery, factories and technology, undertaken to expand future production capacity.

A market structure with a single seller supplying a product that has no close substitutes, giving the firm substantial control over price.

A market dominated by a small number of large firms whose decisions are interdependent, often leading to price competition or collusion.

Splitting production into separate tasks performed by different workers, which raises output per worker through specialisation and repetition.

Concentration on producing a limited range of goods or services, or one stage of production, so that output is more efficient and can be traded.

The level of material wellbeing enjoyed by people, usually assessed through real income per head, access to goods and services, and quality-of-life indicators.