New Zealand Scholarship Economics key terms

The value of the next best alternative forgone when a choice is made. It underlies every economic decision because resources are scarce and can be put to competing uses.

The condition where limited resources cannot satisfy all wants simultaneously. It forces choice, creates opportunity cost, and is the central problem economics addresses.

A curve showing the maximum combinations of two goods an economy can produce with given resources and technology. Points inside are inefficient; outward shifts reflect growth.

Decision-making that compares the additional benefit of one more unit with its additional cost. Rational agents act when marginal benefit exceeds marginal cost, up to the point where they are equal.

The relationship between the price of a good and the quantity consumers are willing and able to buy, other things equal. It is typically downward sloping.

The relationship between the price of a good and the quantity producers are willing and able to sell, other things equal. It is typically upward sloping.

The price and quantity where quantity demanded equals quantity supplied. At this point there is no shortage or surplus and no pressure for the price to change.

The responsiveness of quantity demanded to a change in price, measured as percentage change in quantity divided by percentage change in price. It determines how revenue responds to price changes.

The responsiveness of demand for one good to a change in the price of another. Positive values indicate substitutes; negative values indicate complements.

The responsiveness of demand to a change in consumer income. Positive values indicate normal goods; values above one indicate luxuries; negative values indicate inferior goods.

The difference between what consumers are willing to pay and what they actually pay. It is the area below the demand curve and above the price, up to the quantity traded.

The difference between the price producers receive and the minimum they would accept. It is the area above the supply curve and below the price, up to the quantity traded.

A situation where resources are distributed so that marginal benefit equals marginal cost for every good. Total surplus is maximised and no one can be made better off without harming another.

The loss of total surplus that occurs when quantity traded differs from the efficient level, often due to taxes, subsidies, monopoly or externalities. It measures welfare that no one captures.

The division of the burden of a tax between buyers and sellers. It depends on relative elasticities: the less elastic side bears the larger share regardless of who legally pays.

A payment by government to producers or consumers that lowers the effective price. It raises quantity traded but usually creates deadweight loss unless it corrects a market failure.

A cost or benefit from production or consumption that falls on third parties not involved in the transaction. Negative externalities lead to overproduction; positive externalities to underproduction.

A good that is non-rival and non-excludable, meaning one person's use does not reduce availability and non-payers cannot easily be excluded. Markets tend to underprovide such goods.

The incentive for individuals to benefit from a good without paying for it, particularly when the good is non-excludable. It leads to underprovision of public goods and collective action difficulties.

A situation where free markets fail to allocate resources efficiently, for example due to externalities, public goods, market power or imperfect information. It provides a rationale for government intervention.

A situation where one party in a transaction knows more than the other. It can cause adverse selection and moral hazard, leading to inefficiency or market collapse.

A tendency for people to take greater risks or act less carefully when they are insured or shielded from the consequences of their actions. It arises from information asymmetry.

A situation where asymmetric information causes the mix of participants in a market to worsen, such as higher-risk individuals being more likely to buy insurance.

Charging different prices to different consumers for the same good, based on differences in willingness to pay rather than cost. It requires market power and an ability to segment customers.

A market with a single seller and no close substitutes, protected by barriers to entry. The firm faces the market demand curve and typically produces below the efficient quantity.

A market dominated by a few large firms whose decisions are interdependent. Strategic behaviour, collusion and barriers to entry are central features.

A framework for analysing strategic interaction where each player's outcome depends on the choices of others. Key concepts include Nash equilibrium and dominant strategies.

A set of strategies where no player can improve their payoff by unilaterally changing strategy, given the strategies of others. It is a central solution concept in game theory.

A strategy that yields a better payoff than any other strategy regardless of what opponents do. When every player has one, the outcome is a dominant-strategy equilibrium.

The ability to produce a good at a lower opportunity cost than another producer. It explains why specialisation and trade can raise total output even when one party is absolutely more productive.

The rate at which one good exchanges for another in trade, or the ratio of export prices to import prices. Favourable terms of trade mean a country gains more from trade.

A tax on imported goods. It raises domestic prices, protects local producers and reduces consumer surplus, typically creating deadweight loss.

The total market value of final goods and services produced within a country's borders in a given period. It is a primary measure of economic activity but omits distribution and non-market output.

An increase in a country's productive capacity, commonly measured as growth in real GDP per capita. It can arise from more resources or from higher productivity.

A sustained increase in the general price level, reducing the purchasing power of money. It is often measured by the percentage change in a consumer price index.

The proportion of the labour force that is willing and able to work but does not have a job. Types include frictional, structural, cyclical and seasonal unemployment.

A curve depicting the short-run trade-off between inflation and unemployment. The relationship is unstable and shifts with expectations and supply shocks.

Central bank actions to influence interest rates, money supply and credit conditions, usually aimed at price stability and output stabilisation. It operates mainly through the official cash rate.

Government use of taxation and spending to influence aggregate demand and the economy. It can be expansionary or contractionary and operates through the government budget balance.

The reduction in private investment or consumption that occurs when government borrowing raises interest rates or absorbs scarce resources. It can weaken the effect of expansionary fiscal policy.