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Key Terms Glossary

70 essential IGCSE Economics definitions — search, filter, and master every term.

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A6 terms

absolute advantage

Unit 1
When a country can produce a good using fewer resources than another country.

A country can have absolute advantage in everything but still benefits from trade based on comparative advantage.

Example:The US may produce both cars and wheat with fewer resources than Mexico, but Mexico has comparative advantage in one.

absolute poverty

Unit 1
Living below the income level needed to afford basic necessities (food, water, shelter).

The World Bank defines this as living on less than $2.15 per day (2022 figure).

Example:A family in sub-Saharan Africa surviving on $1.50 per day is in absolute poverty.

ageing population

Unit 1
A rising proportion of elderly people in the population, caused by improved healthcare and falling birth rates.

Increases the dependency ratio — fewer workers supporting more dependants. Puts pressure on pensions and healthcare spending.

Example:Japan has one of the oldest populations — over 28% are aged 65+.

appreciation

Unit 1
An increase in the value of a currency relative to other currencies in a floating exchange rate system.

Makes imports cheaper and exports more expensive. Can worsen the current account but reduces imported inflation.

Example:If £1 goes from $1.20 to $1.40, the pound has appreciated — UK goods are now more expensive for Americans.

automatic stabilisers

Unit 6
Tax and benefit changes that occur automatically with the economic cycle without any deliberate policy decision.

In recession: tax revenue falls (less income to tax) + benefit spending rises → automatic fiscal stimulus. In boom: reverse happens.

Example:Progressive income tax automatically collects more in booms (dampening demand) and less in recessions (supporting demand).

average total cost

Unit 3
The cost per unit of output: ATC = TC ÷ Output.

ATC is U-shaped: falls initially (spreading fixed costs) then rises (diseconomies of scale).

Example:If TC = £1500 and output = 100, ATC = £15 per unit.
B5 terms

balance of payments

Unit 1
A record of all financial transactions between a country and the rest of the world over a period of time.

The current account includes trade in goods, services, investment income, and transfers.

Example:If the UK exports £300bn but imports £350bn, it has a current account deficit of £50bn.

barriers to entry

Unit 3
Factors that prevent new firms from entering a market and competing with existing firms.

Include economies of scale, patents, brand loyalty, high capital requirements, and control of resources.

Example:Developing a new commercial aircraft costs £10bn+ — only Boeing and Airbus can afford to compete.

birth rate

Unit 1
The number of live births per 1,000 people per year.

High in developing countries due to lack of contraception, cultural factors, need for farm labour, high infant mortality.

Example:Niger has a birth rate of about 45 per 1,000; Japan has about 7 per 1,000.

brain drain

Unit 1
The emigration of skilled and educated workers from developing to developed countries.

Reduces the quality of human capital in the home country, slowing development. But remittances sent home can help.

Example:Doctors leaving Nigeria to work in the UK reduces Nigeria's healthcare capacity.

budget deficit

Unit 4
When government spending exceeds government revenue — the government must borrow to cover the gap.

Deficits are financed by selling government bonds. Persistent deficits accumulate into national debt.

Example:During COVID-19, the UK deficit hit £322bn (15% of GDP) due to massive furlough and healthcare spending.
C15 terms

capital

Unit 1
Man-made goods used in the production of other goods and services (NOT money).

Capital earns INTEREST as its reward. Capital includes machinery, factories, tools — but NOT financial capital.

Example:A delivery truck, a computer in an office, or an oven in a bakery are all capital goods.

capital intensive

Unit 2
Production that uses a high proportion of capital (machines/technology) relative to labour.

Suitable when labour is expensive, high precision is needed, or mass production is required.

Example:Car assembly plants with robots, oil refineries, and automated warehouses.

central bank

Unit 2
The government's bank and the banker to commercial banks — it sets monetary policy, issues currency, and acts as lender of last resort.

In the UK this is the Bank of England. It is independent from government to avoid political manipulation of interest rates.

Example:The Bank of England sets the Bank Rate and can create money through quantitative easing.

collective bargaining

Unit 2
The process by which trade union representatives negotiate with employers on behalf of all union members over wages, hours, and conditions.

Gives workers more bargaining power than negotiating individually — employer cannot replace all union members at once.

Example:The RMT union negotiating train drivers' pay with Network Rail on behalf of all its members.

commercial bank

Unit 2
A profit-making financial institution that accepts deposits, makes loans, and provides payment services to individuals and firms.

Commercial banks create most of the money supply through lending — when they make a loan, new money is created.

Example:Barclays, HSBC, Lloyds, and NatWest are all UK commercial banks.

comparative advantage

Unit 1
When a country can produce a good at a lower opportunity cost than another country.

Even if one country is better at producing everything (absolute advantage), trade still benefits both if they specialise in their comparative advantage.

Example:If the UK can produce financial services at a lower opportunity cost than France, it should specialise in finance.

competitive market

Unit 4
A market with many buyers and sellers, similar products, low barriers to entry, and no single firm can influence price.

Competition keeps prices low, quality high, and drives innovation. Firms earn only normal profit in the long run.

Example:The UK supermarket sector: Tesco, Sainsbury's, Asda, Lidl, Aldi all competing on price and quality.

conglomerate merger

Unit 3
A merger between two firms in completely unrelated industries — pure diversification.

Spreads risk across different markets but management may lack expertise in the new industry.

Example:Virgin Group operates in airlines, trains, media, telecoms, and healthcare — all unrelated.

consumer price index

Unit 1
A weighted index measuring changes in the price of a typical household's basket of ~700 goods and services.

The basket is updated yearly. Weights reflect spending patterns. Limitations: ignores individual differences, quality changes, housing costs.

Example:If the CPI basket costs £100 in Year 1 and £102.50 in Year 2, inflation is 2.5%.

cost-push inflation

Unit 5
Inflation caused by rising production costs being passed on to consumers as higher prices.

Caused by rising wages, commodity prices, exchange rate depreciation (making imports expensive), or supply chain disruptions.

Example:The 2022 Ukraine war cut European gas supplies — energy costs surged, pushing up prices of all goods.

crowding out

Unit 6
When increased government borrowing leads to higher interest rates, which reduces private sector investment.

Government competes with private firms for loans → interest rates rise → firms borrow less → investment falls, partially offsetting the stimulus.

Example:If government borrows heavily to fund spending, banks may charge higher rates to businesses, reducing private investment.

current account

Unit 1
The section of the balance of payments recording trade in goods, services, investment income, and transfers.

A deficit means imports > exports (money leaving). A surplus means exports > imports (money entering).

Example:The UK typically has a current account deficit because it imports more goods than it exports.

current account deficit

Unit 1
When the value of imports and outflows exceeds the value of exports and inflows on the current account.

May indicate uncompetitive industries, over-reliance on imports, or a strong currency making exports expensive.

Example:The UK importing £350bn but exporting only £300bn has a current account deficit of £50bn.

current account surplus

Unit 1
When the value of exports and inflows exceeds the value of imports and outflows on the current account.

May indicate competitive industries, weak currency, or low domestic demand reducing imports.

Example:Germany consistently runs a current account surplus due to strong manufacturing exports.

cyclical unemployment

Unit 5
Unemployment caused by insufficient aggregate demand during a recession — also called demand-deficient unemployment.

Occurs across all sectors when the economy contracts. Cured by expansionary fiscal or monetary policy to boost demand.

Example:During the 2008 financial crisis, unemployment rose across all sectors as consumer spending collapsed.
D13 terms

death rate

Unit 1
The number of deaths per 1,000 people per year.

Low in developed countries due to better healthcare, nutrition, and sanitation. Falling death rates in developing countries cause rapid population growth.

Example:Sierra Leone has a high death rate due to poor healthcare; Japan has a low death rate.

deflation

Unit 4
A sustained decrease in the general (average) price level over time — a negative inflation rate.

Demand-side deflation (recession) is dangerous — causes spending delays and debt spirals. Supply-side deflation (efficiency) is beneficial.

Example:Japan experienced demand-side deflation for two decades — consumers kept delaying purchases expecting lower prices.

demand

Unit 1
The quantity of a good or service that consumers are willing and able to buy at a given price in a given time period.

Demand requires BOTH willingness AND ability to pay. Just wanting something isn't demand.

Example:If the price of a phone falls from £800 to £500, the quantity demanded increases.

demand-pull inflation

Unit 4
Inflation caused by aggregate demand growing faster than the economy's productive capacity — too much money chasing too few goods.

Caused by expansionary fiscal/monetary policy, rising consumer confidence, or currency depreciation boosting export demand.

Example:After COVID lockdowns ended, pent-up consumer demand was released faster than supply could recover — prices surged.

demerit goods

Unit 2
Goods that are harmful to consumers and/or society but are over-consumed because people underestimate the harm.

The government discourages consumption through taxation, bans, advertising restrictions, or regulation.

Example:Cigarettes and alcohol are demerit goods — taxes make them more expensive to reduce consumption.

dependency ratio

Unit 1
The ratio of dependants (under 15 + over 65) to the working-age population (15-64).

A high dependency ratio means more people depend on fewer workers for economic support.

Example:If 40% of the population are dependants and 60% are working age, the dependency ratio is high.

depreciation

Unit 1
A decrease in the value of a currency relative to other currencies in a floating exchange rate system.

Makes exports cheaper and imports more expensive. Can improve the current account but may cause imported inflation.

Example:If £1 goes from $1.40 to $1.20, the pound has depreciated — UK exports are now cheaper for Americans.

derived demand

Unit 2
Demand for a factor of production that arises from (derives from) the demand for the product it helps to produce.

Labour is not demanded for its own sake but because firms need workers to produce goods that consumers want.

Example:If demand for new houses rises, demand for construction workers (labour) rises — derived demand.

direct tax

Unit 6
A tax paid directly from income or wealth to the government — the payer cannot pass it on to someone else.

Examples: income tax, corporation tax, capital gains tax. Can be made progressive to reduce inequality.

Example:UK income tax: 0% up to £12,570, 20% on next bracket, 40% above £50,270, 45% above £125,140.

diseconomies of scale

Unit 3
The cost disadvantages (higher average costs) that occur when a firm becomes too large.

Caused by communication problems, coordination difficulties, and worker motivation issues in very large organisations.

Example:A multinational corporation may find it hard to coordinate operations across 50 countries, raising costs.

disinflation

Unit 4
When the inflation rate is positive but falling — prices still rising but at a slower rate.

Not the same as deflation. Disinflation = slowing inflation (e.g. 5% to 3%). Deflation = negative inflation.

Example:UK inflation fell from 11% in Oct 2022 to 2% by mid-2024 — this was disinflation, not deflation.

division of labour

Unit 2
Breaking the production process into separate tasks, each performed by different workers.

Increases output per worker, reduces training costs, but can lead to boredom and dependency on others.

Example:Adam Smith's pin factory: 10 workers specialising in steps could produce 48,000 pins/day vs 20 each working alone.

dumping

Unit 1
Selling goods in a foreign market at a price below the cost of production, or below the domestic price.

Used to destroy foreign competition and gain market share. Countries may impose anti-dumping tariffs in response.

Example:China accused of dumping cheap steel in European markets, undercutting local steelmakers.
E12 terms

economic development

Unit 1
An improvement in living standards and well-being, including better healthcare, education, freedom, and reduced poverty.

Development is broader than growth — a country can have GDP growth but still have poor living standards.

Example:A country building schools, hospitals, and clean water systems is experiencing economic development.

economic goods

Unit 1
Goods that are scarce, require resources to produce, and have an opportunity cost.

Most goods are economic goods because they use up scarce resources in their production.

Example:A loaf of bread requires wheat (land), bakers (labour), ovens (capital) to produce.

economic growth

Unit 6
An increase in the real GDP of a country over time — the economy is producing more goods and services.

Short-run growth: using idle resources. Long-run growth: expanding productive capacity (PPC shifts outward).

Example:Benefits: higher incomes, more jobs, more tax revenue. Costs: environmental damage, inequality, inflation risk.

economic growth

Unit 1
An increase in real GDP over time — the economy produces more goods and services.

Growth can occur without development if the benefits are not widely shared or if inequality worsens.

Example:Oil-rich nations may have high GDP growth but poor living standards for most citizens.

economic problem

Unit 1
Resources are finite but human wants are infinite, so choices must be made.

Every individual, firm, and government faces this problem — they cannot have everything they want.

Example:A student with £20 must choose between buying a textbook or going to the cinema.

economies of scale

Unit 3
The cost advantages (lower average costs) that a firm gains as it increases its scale of production.

Types: technical (specialised machinery), purchasing (bulk buying), financial (cheaper borrowing), managerial (specialist managers), marketing (spreading ad costs).

Example:Tesco buys millions of items in bulk and gets huge discounts that a corner shop cannot access.

elastic demand

Unit 2
When the percentage change in quantity demanded is greater than the percentage change in price (PED > 1).

Demand is elastic when goods have close substitutes, are luxuries, or take up a large proportion of income.

Example:Coca-Cola has elastic demand because consumers can easily switch to Pepsi if the price rises.

embargo

Unit 1
A complete ban on trade with a particular country or on specific goods.

The most extreme form of protectionism. Often used for political or security reasons rather than economic.

Example:The US embargo on Cuba banned almost all trade and travel for decades.

enterprise

Unit 1
The factor of production that involves organising the other three factors and taking financial risk.

Entrepreneurs earn PROFIT as their reward. They combine land, labour, and capital to create businesses.

Example:Someone who starts a café, risking their savings to rent premises, hire staff, and buy equipment.

equilibrium

Unit 2
The price and quantity where demand equals supply — the market clears with no surplus or shortage.

At equilibrium, there is no pressure for the price to change. Any other price creates excess demand or excess supply.

Example:If demand for apples equals supply at £1 per apple, £1 is the equilibrium price.

exchange rate

Unit 1
The price of one currency expressed in terms of another currency.

Determined by supply and demand for currencies in the foreign exchange market. Affects import/export prices.

Example:If £1 = $1.30, a British tourist in the US gets $1.30 for every pound they exchange.

externality

Unit 2
A cost or benefit that affects a third party who is not directly involved in the economic transaction.

Negative externalities (pollution) are overproduced. Positive externalities (education) are underproduced by the market.

Example:Vaccination benefits not just the person vaccinated but also others who are less likely to catch the disease (positive externality).
F10 terms

factors of production

Unit 1
The four inputs used to produce goods and services: land, labour, capital, and enterprise.

Every good or service requires some combination of these four factors to be produced.

Example:A restaurant needs a building (land), chefs and waiters (labour), kitchen equipment (capital), and a business owner (enterprise).

fiscal policy

Unit 5
Government use of taxation and government spending to influence aggregate demand and achieve macroeconomic aims.

Expansionary: ↑spending and/or ↓taxes to boost AD. Contractionary: ↓spending and/or ↑taxes to reduce AD.

Example:The UK furlough scheme during COVID was expansionary fiscal policy — government spent £70bn+ to maintain incomes.

fixed costs

Unit 3
Costs that do not change with the level of output — they must be paid even if nothing is produced.

Examples include rent, insurance, salaries of permanent staff, loan repayments.

Example:A shop pays £2000/month rent whether it sells 1 item or 1000 items.

fixed exchange rate

Unit 1
An exchange rate set and maintained by the government or central bank at a specific value against another currency.

Provides stability and certainty for trade but requires large foreign currency reserves to defend the fixed rate.

Example:Hong Kong fixes its dollar to the US dollar at approximately HK$7.80 = US$1.

floating exchange rate

Unit 1
An exchange rate determined by the forces of supply and demand in the foreign exchange market, without government intervention.

Adjusts automatically to economic conditions but can be volatile, creating uncertainty for businesses.

Example:The UK pound floats freely — its value changes daily based on trade flows, interest rates, and speculation.

foreign aid

Unit 1
Financial or material assistance given by one country or organisation to another, usually from developed to developing nations.

Can be bilateral (country to country), multilateral (through organisations like the UN), tied (with conditions), or untied.

Example:The UK giving £50 million to build schools in sub-Saharan Africa.

foreign direct investment

Unit 1
Investment by a firm in one country into business interests in another country, involving ownership or control.

FDI brings capital, technology, and jobs to the host country but profits may be sent back to the home country.

Example:Toyota building a car factory in the UK is Japanese FDI into Britain.

free goods

Unit 1
Goods that are not scarce, have no opportunity cost, and are naturally available in unlimited supply.

Very few goods are truly 'free' — if something becomes scarce it stops being a free good.

Example:Sunlight and fresh air (in unpolluted areas) are free goods.

free trade

Unit 1
International trade without government-imposed barriers such as tariffs, quotas, or regulations.

Free trade allows countries to specialise in what they produce most efficiently (comparative advantage).

Example:The EU is a free trade area — member countries trade with each other without tariffs.

frictional unemployment

Unit 5
Short-term unemployment that occurs when people are between jobs — searching for a new position.

Normal and inevitable in a healthy economy. Can be reduced by better job matching (online platforms, job centres).

Example:A graduate spending a few weeks job hunting after university before starting their first role.
G5 terms

geographical mobility

Unit 1
The ability of a factor of production to move between locations.

Land has very low geographical mobility (you can't move a coal mine). Labour mobility depends on housing costs, family ties.

Example:A worker may not be able to move from London to Manchester due to high house prices.

gini coefficient

Unit 1
A number between 0 and 1 measuring income inequality. 0 = perfect equality, 1 = perfect inequality.

The higher the Gini coefficient, the more unequal income distribution is. Used alongside the Lorenz curve.

Example:South Africa has a Gini of ~0.63 (very unequal); Sweden has ~0.25 (more equal).

globalisation

Unit 1
The increasing interconnection and interdependence of the world's economies through trade, investment, and technology.

Has been driven by lower trade barriers, cheaper transport, internet communication, and MNC expansion.

Example:An iPhone is designed in the US, manufactured in China, with components from Japan and South Korea.

government budget

Unit 4
A statement of planned government spending (expenditure) and planned government revenue (mainly taxation) over a financial year.

Budget deficit: spending > revenue. Budget surplus: revenue > spending. The accumulated total of past deficits = national debt.

Example:UK 2023/24: Revenue ~£1,096bn, Spending ~£1,219bn, Deficit ~£123bn.

gross domestic product

Unit 6
The total value of all final goods and services produced within a country's borders in a given time period (usually one year).

Real GDP adjusts for inflation; nominal GDP does not. GDP per capita (GDP ÷ population) measures average living standards.

Example:If UK GDP grows from £2 trillion to £2.06 trillion, economic growth is 3%.
H2 terms

horizontal merger

Unit 3
A merger between two firms at the same stage of production in the same industry.

Reduces competition, increases market share, and allows economies of scale through rationalisation.

Example:Two rival supermarket chains merging to form one larger chain.

human development index

Unit 1
A composite measure of development using three indicators: life expectancy, education (mean/expected years of schooling), and GNI per capita.

HDI gives a score from 0 to 1 — closer to 1 means more developed. It's better than GDP alone because it considers health and education.

Example:Norway has an HDI of 0.96 (very high development); Niger has 0.39 (low development).
I8 terms

indirect tax

Unit 2
A tax placed on the producer of a good or service, which raises the cost of production.

Shifts the supply curve to the left, increasing price and decreasing quantity. Used to discourage consumption of demerit goods.

Example:A tax on cigarettes increases the price, discouraging smoking (correcting market failure).

indirect tax

Unit 6
A tax levied on goods and services — the burden can be passed on to the consumer in higher prices.

Examples: VAT (20% in UK), excise duties on fuel/alcohol/tobacco. Tends to be regressive — hits poor harder proportionally.

Example:When you buy £100 trainers, £20 is VAT that the shop collects and sends to HMRC.

inelastic demand

Unit 2
When the percentage change in quantity demanded is less than the percentage change in price (PED < 1).

Demand is inelastic when goods are necessities, are addictive, or have no close substitutes.

Example:Petrol has inelastic demand — even if prices rise, people still need to drive to work.

inequality

Unit 1
Uneven distribution of income or wealth within a population.

Causes include differences in education, skills, inheritance, discrimination, and government policy. Measured by Gini coefficient and Lorenz curve.

Example:The top 1% of earners in some countries hold more wealth than the bottom 50% combined.

infant industry argument

Unit 1
New industries need temporary protection from foreign competition until they grow large enough to achieve economies of scale.

The most widely accepted argument for protectionism. But protection may become permanent and create inefficiency.

Example:South Korea protected its car industry (Hyundai, Kia) in the 1960s-80s until they became globally competitive.

inflation

Unit 4
A sustained increase in the general (average) price level over time.

Measured using the Consumer Price Index (CPI). Causes include demand-pull (too much demand) and cost-push (rising costs).

Example:If the CPI rises from 100 to 103 in a year, the inflation rate is 3%.

interest rate

Unit 6
The price of borrowing money or the return on saving — set by the central bank as the Bank Rate.

Affects spending through multiple channels: mortgages, business loans, savings incentive, exchange rate, and asset prices.

Example:A family's £250,000 mortgage at 2% costs £1,061/month. At 6% it costs £1,611/month — 52% more.

international specialisation

Unit 1
When a country concentrates on producing goods and services it can make most efficiently, based on comparative advantage.

Leads to higher world output, lower prices, and greater variety for consumers. But creates dependency.

Example:Saudi Arabia specialises in oil production; Switzerland specialises in financial services and watches.
L4 terms

labour

Unit 1
The human physical and mental effort used in production of goods and services.

Labour earns WAGES as its reward. The quality of labour depends on education and training.

Example:Doctors, factory workers, teachers, and software engineers all provide labour.

labour intensive

Unit 2
Production that uses a high proportion of labour relative to capital.

Suitable when labour is cheap, the product requires human skill/judgment, or demand is small/variable.

Example:Handmade furniture, personal care services, teaching, and agriculture in developing countries.

land

Unit 1
All natural resources used in production — not just soil, but minerals, forests, water, oil, etc.

Land earns RENT as its factor reward. Land is geographically immobile.

Example:Oil reserves, farmland, rivers, and forests are all classified as 'land'.

lorenz curve

Unit 1
A graph showing income distribution — the further from the 45° line of equality, the more unequal.

The diagonal line represents perfect equality. The area between the Lorenz curve and the line of equality is used to calculate the Gini coefficient.

Example:If the bottom 50% of the population earns only 10% of total income, the Lorenz curve bows far from the diagonal.
M13 terms

managed float

Unit 1
An exchange rate mostly determined by market forces but with occasional government intervention to prevent extreme fluctuations.

Combines flexibility of floating rates with some stability. Most countries use this system in practice.

Example:The Bank of England may buy or sell pounds to smooth out sharp currency movements.

market economic system

Unit 2
An economy where resources are allocated by the price mechanism through supply and demand, with no government intervention.

Also called free market or capitalist economy. Prices act as signals — if demand rises, price rises, attracting more supply.

Example:If consumers want more electric cars, prices rise, firms increase production — the market allocates resources.

market failure

Unit 2
When the free market fails to allocate resources efficiently, leading to a misallocation.

Causes include externalities, public goods, merit/demerit goods, monopoly power, and factor immobility.

Example:A factory polluting a river imposes costs on society (negative externality) — the market has failed.

maximum price

Unit 2
A legal price ceiling set by the government below the equilibrium price to make a good more affordable.

Creates a shortage because quantity demanded exceeds quantity supplied at the lower price.

Example:Rent controls in cities — the government caps rent at £800/month when equilibrium is £1200.

medium of exchange

Unit 2
Money's function of being accepted in payment for goods and services, eliminating the need for barter.

This is the most important function — it allows specialisation and trade to occur efficiently.

Example:A dentist earns money from patients, then uses that money to buy bread — no need to find a baker with a toothache.

merit goods

Unit 2
Goods that are beneficial to society but are under-consumed because people underestimate their private benefits.

The government encourages consumption through subsidies, advertising, or making them compulsory (e.g., education).

Example:Healthcare and education are merit goods — people may not consume enough without government intervention.

microfinance

Unit 1
Small loans given to people in developing countries who cannot access normal banking services.

Helps people start small businesses, become self-sufficient, and escape poverty. Often targeted at women.

Example:Grameen Bank in Bangladesh provides microloans to help villagers start small enterprises.

minimum price

Unit 2
A legal price floor set by the government above the equilibrium price to protect producers.

Creates a surplus because quantity supplied exceeds quantity demanded at the higher price.

Example:The minimum wage is a minimum price for labour — set above the equilibrium wage.

mixed economic system

Unit 2
An economy where resources are allocated by both the market (private sector) and the government (public sector).

Most real-world economies are mixed — the government intervenes where the market fails.

Example:The UK has private companies but also government-provided healthcare (NHS) and education.

monetary policy

Unit 6
Central bank use of interest rates, money supply, and exchange rates to influence economic activity.

Lower rates encourage borrowing/spending (expansionary). Higher rates discourage borrowing (contractionary). Independent of government.

Example:Bank of England raised rates from 0.1% to 5.25% (2021-2023) to fight 11% inflation.

money

Unit 2
Anything widely accepted as payment for goods and services that serves as a medium of exchange, store of value, unit of account, and standard of deferred payment.

Without money, trade relies on barter which requires a double coincidence of wants — hugely inefficient.

Example:Notes, coins, and bank deposits are all forms of money accepted in the UK economy.

monopoly

Unit 3
A market structure with a single firm (or dominant firm with >25% market share) that controls supply.

High barriers to entry protect the monopolist. Can set high prices and restrict output, but may invest in R&D.

Example:A water company may be the only supplier in a region — consumers have no alternative.

multinational corporation

Unit 1
A company that operates (produces goods/services) in more than one country.

MNCs bring benefits (jobs, investment, technology) but also costs (profit repatriation, exploitation, environmental damage).

Example:Apple, Toyota, and Unilever are all MNCs operating in dozens of countries worldwide.
N4 terms

national debt

Unit 4
The accumulated total of all past government budget deficits minus past surpluses.

UK national debt exceeds £2.7 trillion (~100% of GDP). High debt means large interest payments crowding out other spending.

Example:UK debt interest payments reached ~£110bn/year in 2023/24 — larger than the education budget.

natural increase

Unit 1
The difference between the birth rate and the death rate — population growth excluding migration.

If birth rate > death rate, population grows naturally. If death rate > birth rate, population declines.

Example:Birth rate 30, death rate 10 = natural increase of 20 per 1,000.

needs

Unit 1
Goods and services essential for survival.

These are things humans require to stay alive — food, water, shelter, and clothing.

Example:Clean drinking water is a need; a smartphone is a want.

net migration

Unit 1
The difference between immigration (people moving in) and emigration (people moving out).

Positive net migration increases population; negative net migration decreases it.

Example:If 500,000 immigrants enter and 200,000 emigrate, net migration is +300,000.
O3 terms

occupational mobility

Unit 1
The ability of a factor of production to change its use or occupation.

Barriers include lack of skills, cost of retraining, and time needed to retrain.

Example:A coal miner cannot easily become a software engineer without extensive retraining.

opportunity cost

Unit 1
The value of the next best alternative forgone when making a choice.

Because resources are scarce, choosing one option means giving up the next best option. It's always SPECIFIC.

Example:If a government builds a hospital instead of a school, the opportunity cost is the school that wasn't built.

optimum population

Unit 1
The population size that produces the highest GDP per capita given available resources and technology.

Overpopulation means too many people for resources (GDP per capita falls). Underpopulation means resources are underused.

Example:Bangladesh may be overpopulated (dense, limited land); Canada may be underpopulated (vast resources, small population).
P14 terms

phillips curve

Unit 6
An inverse relationship between unemployment and inflation — low unemployment leads to higher inflation and vice versa.

When unemployment is low, workers demand higher wages → firms raise prices → inflation rises. A key policy trade-off.

Example:UK 2022: unemployment fell to 3.5% (historic low) and wage growth surged to 8%+, fuelling inflation above 11%.

poverty cycle

Unit 1
A self-reinforcing cycle where poverty leads to low education, poor health, low productivity, low income — and back to poverty.

Breaking the cycle requires intervention such as education, healthcare, microfinance, or foreign aid.

Example:A child born into poverty cannot afford school → gets low-skilled job → earns low income → their children face the same.

price elasticity of demand

Unit 2
A measure of how responsive the quantity demanded of a good is to a change in its price.

PED = % change in quantity demanded ÷ % change in price. Always negative (inverse relationship). If |PED| > 1, demand is elastic.

Example:Luxury goods like designer bags tend to have elastic demand — a 10% price rise might cut demand by 30%.

price elasticity of supply

Unit 2
A measure of how responsive the quantity supplied of a good is to a change in its price.

PES = % change in quantity supplied ÷ % change in price. Always positive. If PES > 1, supply is elastic.

Example:Digital music has very elastic supply — streaming platforms can instantly supply more copies.

primary product dependency

Unit 1
When a developing country relies heavily on exporting raw materials or agricultural products.

Makes the economy vulnerable to price fluctuations, has low value-added, and limits economic diversification.

Example:Zambia depends heavily on copper exports — when copper prices fall, the whole economy suffers.

privatisation

Unit 4
The transfer of ownership from the public sector (government) to the private sector.

Aims to increase efficiency through profit motive and competition, but may create private monopolies.

Example:British Telecom was privatised in 1984 — now BT, a private company listed on the stock exchange.

production possibility curve

Unit 1
A diagram showing the maximum possible output combinations of two goods when all resources are fully and efficiently employed.

Points on the curve = efficient. Inside = inefficient/unemployed resources. Outside = unattainable with current resources.

Example:A country can produce 100 cars and 0 trucks, or 0 cars and 80 trucks, or combinations along the curve.

productivity

Unit 3
Output per unit of input — a measure of efficiency. Labour productivity = total output ÷ number of workers.

Higher productivity means more output from the same resources. Improved by better technology, education, and management.

Example:If 10 workers produce 500 units, productivity is 50 units/worker. After training, they produce 700 = 70 units/worker.

profit

Unit 4
The difference between total revenue and total cost: Profit = TR - TC.

Normal profit is the minimum to keep a firm in the industry. Supernormal profit exceeds this and attracts new entrants.

Example:If TR = £10,000 and TC = £7,000, profit = £3,000.

profit repatriation

Unit 1
When MNCs send profits earned in a host country back to their home country.

Reduces the economic benefit of MNC presence as money leaves the host economy instead of being reinvested locally.

Example:A US-owned factory in Vietnam sends its profits back to American shareholders rather than reinvesting in Vietnam.

progressive taxation

Unit 1
A tax where the rate increases as income rises — higher earners pay a larger percentage.

Used to redistribute income from rich to poor and reduce inequality.

Example:UK income tax: 0% on first £12,570, 20% up to £50,270, 40% above that.

protectionism

Unit 1
Government policies that restrict international trade to protect domestic industries from foreign competition.

Methods include tariffs (taxes on imports), quotas (limits on quantity), subsidies to domestic firms, and embargoes.

Example:The US imposing a 25% tariff on imported steel to protect American steel producers.

public goods

Unit 2
Goods that are non-excludable (cannot prevent people from using them) and non-rivalrous (one person's use does not reduce availability for others).

The free market will not provide public goods because of the free-rider problem — people can benefit without paying.

Example:Street lighting and national defence are public goods — everyone benefits regardless of whether they pay taxes.

purchasing power parity

Unit 1
An exchange rate adjustment that accounts for differences in the cost of living between countries.

PPP allows fairer comparison of living standards by considering what money can actually buy in each country.

Example:$1 buys more in India than in the UK — PPP adjusts for this, giving a more accurate comparison.
Q2 terms

quantitative easing

Unit 6
When a central bank creates new money electronically to buy assets (usually government bonds) from financial institutions.

Used when interest rates are near zero and cannot be cut further. Increases money supply and lowers long-term rates.

Example:Bank of England created £875bn through QE between 2009 and 2021 to stimulate the economy.

quota

Unit 1
A physical limit on the quantity of a good that can be imported into a country.

Quotas restrict supply, raising the price of imported goods and protecting domestic producers. No revenue for government unlike tariffs.

Example:A country limiting car imports to 50,000 per year to protect its own car industry.
R3 terms

real gdp per capita

Unit 1
Total real GDP divided by the population — average output per person, adjusted for inflation.

Allows comparison of living standards between countries and over time. But ignores inequality, unpaid work, and quality of life.

Example:If a country has GDP of $1 trillion and population of 50 million, GDP per capita is $20,000.

recession

Unit 6
Two or more consecutive quarters of negative real GDP growth — the economy is shrinking.

Causes unemployment, business failures, rising government deficit, and potential long-term 'scarring' of productive capacity.

Example:COVID-19 caused UK GDP to fall 9.8% in 2020 — the worst recession in 300 years.

relative poverty

Unit 1
Having significantly less income than the average in a particular country — being poor compared to others around you.

Someone in relative poverty in the UK may still be able to afford food and shelter, but cannot afford what is considered normal.

Example:A family earning £15,000 in the UK may be in relative poverty if the median income is £30,000.
S12 terms

scarcity

Unit 1
The fundamental economic problem: resources are limited but human wants are unlimited.

Because there are not enough resources to satisfy all wants, choices must be made about how to allocate them.

Example:A government has limited tax revenue but must choose between spending on healthcare or education.

shortage

Unit 2
When quantity demanded exceeds quantity supplied at a given price (excess demand).

A shortage occurs when the price is below equilibrium. Firms will raise prices due to high demand.

Example:If concert tickets are priced at £20 but people would pay £50, there's a shortage.

specialisation

Unit 2
When a worker, firm, region, or country concentrates on producing a narrow range of goods or services.

Leads to higher productivity through practice, but creates dependency and may cause boredom.

Example:A car factory worker who only fits windshields all day becomes very fast and skilled at that one task.

stagflation

Unit 1
When inflation and recession (or high unemployment) occur simultaneously — the worst of both worlds.

Particularly difficult for policymakers: raising rates to fight inflation worsens unemployment; cutting rates to fight unemployment worsens inflation.

Example:The UK in the 1970s experienced stagflation due to oil price shocks — high inflation AND rising unemployment.

store of value

Unit 2
Money's function of holding its value over time, allowing saving and future spending.

Inflation erodes this function — if prices rise rapidly, money buys less in the future than today.

Example:You can save £100 today and spend it next month. With hyperinflation, that £100 might only buy a loaf of bread.

structural unemployment

Unit 5
Long-term unemployment caused by a mismatch between workers' skills and the skills demanded by employers.

Often caused by industrial decline, technological change, or globalisation. Requires retraining to solve — not just more demand.

Example:Coal miners in Wales who lost jobs when mines closed but lacked skills for new tech or service sector jobs.

subsidy

Unit 2
A payment by the government to producers to lower costs of production and encourage output.

Subsidies shift the supply curve to the right, reducing price and increasing quantity. They can correct market failure for merit goods.

Example:The government subsidises solar panel production to encourage renewable energy use.

subsidy to domestic producers

Unit 1
A payment from the government to domestic firms to lower their costs and help them compete with imports.

Makes domestic goods cheaper relative to imports without directly taxing imports. A hidden form of protectionism.

Example:EU agricultural subsidies help European farmers compete with cheaper imports from developing countries.

supply

Unit 2
The quantity of a good or service that producers are willing and able to sell at a given price in a given time period.

Higher prices incentivise firms to supply more because they can earn greater revenue.

Example:If the price of coffee beans rises, farmers are willing to grow and sell more coffee.

supply-side policy

Unit 6
Government policies aimed at increasing the productive capacity and efficiency of the economy.

Includes education/training, deregulation, lower taxes, privatisation, infrastructure investment. Works slowly but can achieve multiple aims.

Example:South Korea's massive investment in education transformed it from a poor to a rich country over 50 years.

surplus

Unit 2
When quantity supplied exceeds quantity demanded at a given price (excess supply).

A surplus occurs when the price is above equilibrium. Firms will lower prices to sell excess stock.

Example:If bread is priced at £3 but equilibrium is £2, shops will have unsold bread — a surplus.

sustainable development

Unit 1
Economic development that meets present needs without compromising the ability of future generations to meet their own needs.

Requires balancing economic growth with environmental protection and social well-being.

Example:Using renewable energy instead of fossil fuels, replanting forests, protecting biodiversity.
T8 terms

tariff

Unit 1
A tax imposed on imported goods to make them more expensive than domestically produced alternatives.

Tariffs raise the price of imports, encouraging consumers to buy domestic products instead. Revenue goes to the government.

Example:A 20% tariff on imported cars means a £20,000 foreign car now costs £24,000.

total cost

Unit 3
The sum of all fixed costs and variable costs at a given level of output: TC = FC + VC.

Total cost always rises as output increases because variable costs increase with each additional unit produced.

Example:If a bakery has £1000 fixed costs and £500 variable costs for 100 loaves, total cost = £1500.

total revenue

Unit 4
The total income a firm receives from selling its output: TR = Price × Quantity sold.

How TR responds to price changes depends on PED. Elastic demand: lower price raises TR. Inelastic: lower price reduces TR.

Example:A coffee shop sells 500 cups at £3.50 each. TR = £3.50 × 500 = £1,750 per day.

trade in goods

Unit 1
Exports and imports of physical (tangible) products — also called visible trade.

Includes manufactured goods, raw materials, food, and fuel. Many countries have a deficit in goods trade.

Example:The UK imports cars from Germany and exports pharmaceuticals — both are trade in goods.

trade in services

Unit 1
Exports and imports of intangible services — also called invisible trade.

Includes financial services, tourism, insurance, transport, and consulting. The UK has a surplus in services.

Example:A foreign tourist spending money in London is a UK service export. A UK citizen's holiday in Spain is a service import.

trade union

Unit 3
An organised association of workers that collectively negotiates with employers for better wages, conditions, and job security.

Unions use collective bargaining to shift power toward workers. Can call industrial action (strikes) as ultimate sanction.

Example:The RMT union representing rail workers in pay negotiations, sometimes calling strikes.

trading bloc

Unit 1
A group of countries that agree to reduce or eliminate trade barriers between members.

Types include free trade areas (no internal tariffs), customs unions (common external tariff), and common markets (free movement of factors).

Example:The EU is a customs union and common market; USMCA (formerly NAFTA) is a free trade area.

transfer payments

Unit 1
Money given by the government to individuals without receiving goods or services in return.

Used to reduce poverty and inequality by providing income support to vulnerable groups.

Example:Unemployment benefits, pensions, child benefit, housing allowance.
U1 term

unemployment

Unit 5
When people of working age are not in paid work but are actively seeking work and available to start.

Types: frictional (between jobs), structural (skills mismatch), cyclical (recession). Unemployment rate = unemployed ÷ labour force × 100.

Example:UK unemployment rate in 2023 was ~4.2%, meaning about 1.4 million people were unemployed.
V2 terms

variable costs

Unit 4
Costs that change directly with the level of output — they rise as more is produced.

Examples include raw materials, energy for production, wages of hourly workers, packaging.

Example:A cake shop uses more flour, eggs, and butter as it bakes more cakes — these are variable costs.

vertical merger

Unit 3
A merger between two firms at different stages of the supply chain in the same industry.

Backward vertical: merging with a supplier. Forward vertical: merging with a distributor. Secures the supply chain.

Example:A brewery buying a hop farm (backward) or a chain of pubs (forward).
W4 terms

wage determination

Unit 2
The process by which wages are set through the interaction of labour demand (from firms) and labour supply (from workers).

Higher demand for labour or lower supply pushes wages up. Bargaining power, skills, and government policy also matter.

Example:Software engineers earn high wages because demand is high (tech boom) and supply is limited (years of training needed).

wage-price spiral

Unit 1
A self-reinforcing cycle where rising wages lead to higher costs, higher prices, and further wage demands.

Workers demand higher wages to keep up with inflation → firms raise prices to cover costs → workers demand even more → spiral.

Example:UK 1970s: powerful unions won large wage increases → firms raised prices → more strikes for higher wages → inflation hit 25%.

wants

Unit 1
Goods and services that are desired but not essential for survival.

Wants are unlimited — humans always desire more than they can afford.

Example:Designer clothing, holidays, the latest phone — all are wants, not needs.

world trade organization

Unit 1
An international body that promotes free trade by negotiating agreements, settling disputes, and reducing trade barriers.

Has 164 member countries. Aims to make trade flows as smooth and predictable as possible.

Example:The WTO rules that a country's tariff on steel is unfair, requiring it to be removed.