NCEA L2 Economics key terms

The situation where resources are limited but human wants are unlimited, so choices must be made about how to allocate those resources among competing uses.

The value of the next best alternative forgone when a choice is made; what you give up to get something else.

A situation where gaining more of one thing requires giving up some of another, so a balance must be struck between competing objectives.

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

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

The principle that, all else equal, as the price of a good rises the quantity demanded falls, and as price falls quantity demanded rises.

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

The principle that, all else equal, as the price of a good rises the quantity supplied rises, because higher prices make production more profitable.

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

A situation where quantity demanded exceeds quantity supplied at the current price, usually pushing the price upward toward equilibrium.

A situation where quantity supplied exceeds quantity demanded at the current price, usually pushing the price downward toward equilibrium.

Goods that can be used in place of one another, so a rise in the price of one increases demand for the other.

Goods that are used together, so a rise in the price of one reduces demand for the other because they are consumed jointly.

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.

A measure of how much demand for one good responds to a change in the price of another good; positive for substitutes and negative for complements.

A measure of how responsive demand is to a change in consumer income; positive for normal goods and negative for inferior goods.

A good for which demand increases when consumer income rises, so its income elasticity of demand is positive.

A good for which demand falls when consumer income rises, because consumers switch to preferred alternatives, giving a negative income elasticity of demand.

The amount a firm receives from selling its output, calculated as price multiplied by quantity sold; its change when price moves depends on elasticity.

The difference between what consumers are willing to pay for a good and what they actually pay, representing the benefit buyers gain from a transaction.

The difference between the price producers actually receive and the minimum price they would be willing to accept, representing the benefit sellers gain.

A market outcome where resources are distributed so that marginal benefit to consumers equals marginal cost of production, maximising total welfare.

The loss of total welfare that occurs when a market produces a quantity different from the allocatively efficient level, such as after a tax or monopoly.

A tax on spending, such as GST or an excise duty, that raises the price paid by consumers and shifts the supply curve upward.

A payment from government to producers or consumers that lowers the effective price and shifts the supply curve downward, encouraging more output.

A maximum legal price set below equilibrium, which causes a shortage because quantity demanded exceeds quantity supplied at that price.

A minimum legal price set above equilibrium, which causes a surplus because quantity supplied exceeds quantity demanded at that price.

A situation where a free market produces an inefficient allocation of resources, so total welfare is not maximised without intervention.

A cost or benefit of 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 non-payers cannot easily be excluded.

A good or service that society believes should be consumed more than the free market provides, such as education or healthcare, often because of positive externalities.

A good or service that society believes is over-consumed in a free market because it creates negative effects for individuals or third parties.

A sustained increase in the general price level of goods and services in an economy over time, reducing the purchasing power of money.

A statistical measure that tracks the average change over time in the prices paid by households for a representative basket of goods and services.

The situation where people who are willing and able to work cannot find jobs, measured as a proportion of the labour force.

The total number of people who are employed or actively seeking work, used as the base for calculating the unemployment rate.

An increase in the real value of goods and services produced by an economy over a period, usually measured by changes in real gross domestic product.

The total market value of all final goods and services produced within a country's borders in a given period, used as a measure of national output.