Economics - Key Terms

1. Needs Something essential to survival. 24. Merger Agreed coming together of

two firms.
2. Wants Something you would like to have, but is not
essential to survival. 25. Takeover When one firm seeks to take control of
another.
3. Resources Something used to produce output.
26. Integration This occurs when two firms come together
4. Productivity Output per worker per period of time.
through either a merger or a takeover.

27. Internal When one firm grows in size and so

5. Opportunity The next best alternative foregone when
economies of benefits from lower average costs.
cost making a choice.
scale

6. Market Where buyers and sellers meet to exchange

28. External When a whole industry grows in size, so a
goods and services.
economies of firm within that industry benefits from lower

7. Market Where all resources are allocated by private scale average costs.
economy individuals and groups.
29. Factors of Resources comprising land, labour, capital
8. Planned Where all resources are allocated by the production and enterprise.
economy government.
30. Economic Growth in output of the economy over
9. Mixed Where some resources are allocated by the growth time.
economy government, and other resources are allocated
31. Gross domestic The total value of goods and services
by private individuals and groups.
product produced in the country in a year.
10. Public The government sector of the economy, where

32. GDP per capita GDP divided by the total population.

sector organisations are owned and run by the

government. 33. Full When all those able and willing to work
11. Private The sector of the economy where firms are employment are in paid employment at the current
sector owned and run by private individuals and wage rate.

groups - their main aims is profit maximisation. 34. Unemployment When workers who are able and willing to
12. Surplus When more is produced than is required. The work and unable to find employment.
surplus can be exchanged for money or other 35. Claimant count Measures unemployment according to the
goods/services. number of people claiming

13. Competitive A market situation in which there are a large unemployment-related benefits.
market number of buyers and sellers. 36. Labour Force A survey of a sample of households,

Survey counting people as unemployed if they are

14. Monopoly A situation where there is only one firm selling
actively seeking work but do not have a
in a market.
job.

15. Monopoly When a firm has more than 25% of the market
37. Inflation A sustained rise in the general price level
power share.
over time.
16. Demand The quantity buyers are willing and able to
38. Price stability The general level of prices is kept constant
buy at a given price in a given period of time.
or grows at an acceptably low rate over

17. Inferior Goods for which the demand falls when time.
goods income rises.
39. Rate of The rate at which the general price level

18. Supply The quantity a producer is willing and able to 19. Ad A tax placed on a good
produce at a given price in a given period. valorem or a service which is tax a
 percentage of the price. inflation rises over time.

20. Output The number of goods or services produced by 40. Consumer The official measure of the rate of inflation.
a firm. Prices Index

21. Fixed costs Costs that do not vary with output 41. Monetary Inflation caused by growth in the
inflation economy's money supply.
42. Demand-pull Inflation caused by excess demand in the
inflation economy.

22. Variable Costs that vary directly with output. 43. Cost-push Inflation caused by a rise in costs in the
costs inflation economy.

23. Production The process of combining scarce resources to 44. Hyperinflation A rate of inflation so high that the value of
make an output. money becomes close to worthless.
45. Tax A compulsory payment to the government. 66. Globalisation An expansion of world trade in goods and
services leading to greater international
46. Direct tax A tax on income or wealth
interdependence.
47. Indirect tax A tax on spending, often defined as a tax on

67. Multinational A company that has operations all over

goods and services.
company the world.
48. External cost The negative impact of an economic

68. Specialisation Being better than someone else at

transaction on a party who is not directly
providing a good or service, in terms of
involved in the transaction.
the quantity of output and lower cost.
49. Demerit good A good or service whose consumption is

69. Absolute When a country is able to provide a good

considered unhealthy or undesirable due to
advantage or service using fewer resources and at a
its bad effects on the consumers.
lower cost than another country.
50. Distribution How incomes are shared out among the
70. International The exchange of goods and services
of income people of the country.
trade across international boundaries.
51. Redistribution A policy to reduce the inequalities of income

71. Free trade An absence of tariffs, quotas and

of income so that incomes are distributed more evenly.
regulations designed to reduce or prevent
52. Inequalities Incomes are distributed unevenly so some trade among nations.
of income people have a much higher income than
72. Protection Where an action is taken that reduces
others.
international trade.
53. Transfer Benefits to citizens which are paid out of tax
73. Tariff A tax placed on imports to increase the
payments revenues.
price and reduce the quantity demanded.
54. Regressive Takes a greater proportion of incomes from
74. Single market The economies of different countries can
tax lower incomes.
be treated as one when a firm is
55. Proportional Takes the same proportion of income from considering its domestic market.
tax all income levels.
75. Customs union A group of countries, such as the EU, have
56. Progressive Takes a greater proportion of income from free trade between members, but a
tax higher incomes. common external barrier.

57. Market failure When the market (through demand and 76. Current account The balance of trade in goods or services
supply) fails to allocate resources in the best + net investment incomes from overseas
interests of society as a whole. assets.
58. Fiscal policy A policy uses taxation and government 77. Balance of The export of goods from the primary and
spending to try and achieve the objectives of trade in goods secondary sectors - the import of these
the government. goods

59. Balanced Government spending is equal to tax 78. Balance of The export of tertiary sector services - the
budget revenue. trade in import of these services.
60. Budget Government spending is greater than tax services

deficit revenue. 79. Exchange rate How much of one currency needs to be
61. Budget Tax revenue is greater than government given up to buy one unit of another
surplus spending. currency.

62. Multiplier A process by which an original change in 80. Floating Where the prices of two currencies are
effect incomes in the economy leads to a total exchange rate decided by market forces.
change in incomes which is a multiple of the 81. Fixed exchange Where the central bank of a country tries
original change. rate to decide on the price of a currency.
63. Interest rate The reward for saving and the cost of 82. International The ability of companies to compete with
borrowing. competitiveness companies from other countries.

64. Monetary A policy aimed at affecting the total supply 83. Foreign direct The investment by foreign companies in
policy of money in the economy investment the production of goods and services in
65. Supply-side Policies that increase the ability of the another country.
policy economy to supply more goods and 84. Absolute On a world basis is defined as having less
services. poverty than $1.25 a day to live on.