Listen & Learn

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

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

Goods and services essential for survival.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Uneven distribution of income or wealth within a population.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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