NCEA Level 3 Economics flashcards
NCEA Level 3 Economics · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Opportunity cost
- The value of the next best alternative forgone when a choice is made; it is the true cost of any decision and is reflected in the slope of a production possibility curve.
- Production possibility curve
- A graph showing the maximum combinations of two goods that can be produced with given resources and technology; points on the curve are productively efficient, inside are inefficient, outside are unattainable.
- Circular flow model
- A model showing the flow of money, goods, services, and factors of production between households and firms; injections (investment, government spending, exports) and withdrawals (saving, taxes, imports) affect national income.
- Multiplier
- The ratio of the change in equilibrium national income to the initial change in autonomous expenditure; in a simple model k = 1/(1 - MPC), where MPC is the marginal propensity to consume.
- Ceteris paribus
- A Latin phrase meaning 'all other things being equal'; used in economics to isolate the effect of one variable by holding all other influences constant.
- Real vs nominal
- Nominal values are measured in current prices; real values are adjusted for inflation using a price index, allowing meaningful comparison over time.
- Law of demand
- The principle that, ceteris paribus, as the price of a good rises, the quantity demanded falls; this gives the demand curve its downward slope.
- Price elasticity of demand
- The responsiveness of quantity demanded to a change in price, calculated as %Δ quantity demanded / %Δ price; demand is elastic if |PED| > 1, inelastic if < 1.
- Price elasticity of supply
- The responsiveness of quantity supplied to a change in price, calculated as %Δ quantity supplied / %Δ price; supply is more elastic in the long run as producers can adjust all inputs.
- Income elasticity of demand
- The responsiveness of quantity demanded to a change in consumer income, calculated as %Δ quantity demanded / %Δ income; positive for normal goods, negative for inferior goods.
- Cross elasticity of demand
- The responsiveness of quantity demanded of one good to a change in the price of another, calculated as %Δ quantity demanded of good A / %Δ price of good B; positive for substitutes, negative for complements.
- Consumer surplus
- The difference between what consumers are willing to pay and what they actually pay; on a supply and demand diagram, it is the area below the demand curve and above the market price.
- Producer surplus
- The difference between the price a producer receives and the minimum price they would accept; on a diagram, it is the area above the supply curve and below the market price.
- Deadweight loss
- The loss of economic efficiency that occurs when equilibrium is not Pareto optimal, such as from taxes, monopolies, or externalities; it is the area of welfare lost relative to the competitive outcome.
- Negative externality
- A cost imposed on third parties not involved in a transaction, such as pollution from production; it leads to overproduction relative to the social optimum and can be corrected by a tax or regulation.
- Positive externality
- A benefit enjoyed by third parties not involved in a transaction, such as education or vaccination; it leads to underproduction relative to the social optimum and can be encouraged by subsidies.
- GDP
- Gross Domestic Product: the total market value of all final goods and services produced within a country's borders in a given period, calculated as C + I + G + (X - M).
- Real GDP growth rate
- The percentage change in real GDP from one period to the next, calculated as (real GDP_t - real GDP_{t-1}) / real GDP_{t-1} × 100; it measures economic growth.
- Inflation rate
- The percentage change in the consumer price index (CPI) over a period, calculated as (CPI_t - CPI_{t-1}) / CPI_{t-1} × 100; it measures the rate of increase in the general price level.
- Demand-pull inflation
- Inflation caused by excess aggregate demand relative to the economy's productive capacity; it is often described as 'too much money chasing too few goods'.
- Cost-push inflation
- Inflation caused by increases in the costs of production, such as rising wages or oil prices, which shift the aggregate supply curve to the left and raise the price level.
- Unemployment rate
- The percentage of the labour force that is unemployed and actively seeking work, calculated as (unemployed / labour force) × 100.
- Frictional unemployment
- Short-term unemployment that occurs when people are between jobs or entering the labour force; it is a normal part of a dynamic economy and is not necessarily a policy concern.
- Structural unemployment
- Unemployment caused by a mismatch between the skills of workers and the requirements of available jobs, often due to technological change or deindustrialisation; it is not solved by demand stimulus alone.
- Phillips curve
- A curve showing the short-run inverse relationship between inflation and unemployment; in the long run, it is vertical at the natural rate of unemployment (NAIRU), so there is no permanent trade-off.
- Fiscal policy
- The use of government spending and taxation to influence aggregate demand and economic activity; expansionary policy increases spending or cuts taxes, while contractionary policy does the opposite.
- Monetary policy
- The use of interest rates and money supply by a central bank to influence aggregate demand and inflation; in New Zealand, the Reserve Bank sets the official cash rate (OCR).
- Official cash rate
- The interest rate set by a central bank (in New Zealand, the Reserve Bank) to influence short-term interest rates and the economy; changes in the OCR are transmitted to other interest rates and the exchange rate.
- Supply-side policies
- Policies designed to increase the productive capacity of the economy, such as education, infrastructure, and deregulation; they shift the long-run aggregate supply curve to the right and can reduce inflationary pressure.
- Balance of payments
- A record of all economic transactions between a country and the rest of the world, comprising the current account (goods, services, income, transfers) and the capital and financial account; the accounts sum to zero.
- Exchange rate
- The price of one currency in terms of another; an appreciation raises the value of a currency, making exports dearer and imports cheaper, which tends to reduce net exports.
- Terms of trade
- The ratio of a country's export prices to its import prices, calculated as (index of export prices / index of import prices) × 100; an improvement means a country can buy more imports for a given quantity of exports.