Definitions

Economics
A social science that analyses the production, distribution and consumption of goods and services. It
studies how individuals and societies choose to use the scarce resources that nature and previous
generations have provided
1)
Microeconomics
A study on the behaviour of individuals and organizations in particular markets
2)
Macroeconomics
A study on the operation of the economy as a whole
3)
Scarcity
- A situation whereby human wants/ needs are forever greater than the supply of time, goods and resources
4)
Choice
Making the optimum use of the resources available
5)
Opportunity cost
The value of the benefit lost

In terms of the next best alternative foregone when a choice is made
6)
Wants
- Desires for the consumption of goods and services
7)
Needs
- The minimum which is necessary for a person to survive as a human being
8)
Standard of living
- The quantity of goods and services consumed by an individual or a household.
9)
Land
Gifts of nature, e.g. the various types of trees, minerals and crops
10)
Labour
People who provide the physical and mental effort to make goods and services
11)
Capital
Any man-made aid such as machines to facilitate further production of goods
12)
Entrepreneurship
Business know-how, the creative ability of individuals to seek profits by combining the other factors
of production to produce goods and services, risk takers
13)
Human Capital
The knowledge and skills that people obtain from education, on-the-job training and work experience






14)
Scarcity problem
What, how and for whom to produce?
15)
Ceteris Paribus
All else equal. A device that is used to analyse the relationship between 2 variables while the values of other
variables are remained unchanged
16)
Economic system
A network of organisations used by a society to resolve the basic problem of what, how and for whom to
produce
17)
Free-market system
A system whereby all economic decisions are taken by individual households and firms with no
government intervention
18)
Price Mechanism
The system in a market economy whereby changes in prices in response to changes in demand and
supply have the effect of making demand equal to supply
19)
Productively Efficient
The output of the economy is being produced at the lowest cost
20)
Allocatively Efficient
The resources are being allocated to the production of the goods and services that the society values most
21)
Centrally planned system
Government plans and makes almost all economic decisions for the benefit of the society
22)
Mixed economic system
The market is allowed to operate freely as long as it does not create problems to the society. Where market
fails, government will intervene.
23)
Production Possibility Frontier (PPF)
A curve that shows the maximum combination of outputs for 2 types of products that an economy can
produce using all the available resources fully and efficiently
24)
Positive Statement
Objective statement that can be tested or rejected by referring to the available evidence
25)
Normative Statement
Express an opinion about what ought to tube
26)
Specialisation
- The production of a limited range of goods by an individual, firm or country in co-operation with others so that
together a complete range of goods is produced

27)
Division of Labour
The splitting of the production process into number of simpler processes and making each process the task
of 1 worker
28)


Market
Any arrangement where buyers and sellers determine the price and quantity of goods and services to be
exchanged at ascertain period
29)
Demand
The choice-making behaviour of consumers. It is the quantity of goods and services that consumers are
willing to buy at different prices at a specific time
30)
The law of demand
When price increases, the quantity demanded will reduce, vice versa ceteris paribus
31)
Supply
The choice-making behaviour of producers, suppliers or firms. It is the quantity of goods and services that
they are willing to sell at different prices at a specific time
32)
The law of supply
When price increases, quantity supplied will increase, vice versa ceteris paribus
33)
Shortage
A market situation whereby quantity demanded is more than the quantity supplied
34)
Surplus
A market situation whereby quantity supplied is more than the quantity demanded
35)
Equilibrium
A market situation whereby quantity demanded equals quantity supplied
36)
Perfect competition
A market structure with many buyers, many sellers, producing a homogenous product, and it is easy to
enter or leave the market
37)
Monopoly
A market structure with a single seller and many buyers. The firm produces a unique product and the entry
of competitors is impossible
38)
Monopolistic competition
a market structure that exists when large number of sellers produce goods that are very similar tone
another but perceived to be different by the buyers.
39)
Oligopoly
A market structure characterized by a few sellers producing a homogenous or differentiated product, with
difficult entry and exit of the market


53)
Recovery
An upturn showing an expansion in the economy after experiencing a recession
54)
Gross Domestic Product

(GDP)
The market value of legal goods and services produced within the borders of a nation in ascertain period,
usually one year.
55)
Gross National Product (GNP)
The market value of goods and services produced by the nationals or citizens of a particular country in a
certain period irrespective of where they offer their services
56)
Gross National Income (GNI)
The total income received by citizens no matter where they are
57)
Consumer Price Index (CPI)
An index that measures changes in the average price of consumer goods and services
58)
Producer Price Index (PPI)
An index that measures prices at the wholesale level
59)
Per capita

Income
The average income received by an individual person or citizen
60)
Productivity
The amount of output that can be produced by worker in an hour
61)
Monetary policy
A policy to affect the aggregate demand by altering the supply or cost of money (i.e. rate of interest)
62)
Fiscal policy
A policy to affect the aggregate demand by altering the balance between government expenditure and
taxation
63)
Market Failure
the circumstances in which distortions prevent the invisible hand from allocating resources efficiently /
whenever free market, left to its own devices and free from any form of government intervention fails to make
the optimum use of scarce resources
64)
Externalities
Third party (or spill over) effects arising from the production/consumption of goods and services for which no
appropriate compensation is paid
65)
Merit / Demerit Good
A good that is better/ worse for the person than the person realises

66)
Moral Hazard
occurs when the party with more information about its actions or intentions has a tendency or incentive to
behave inappropriately from the perspective of the party with less information
67)
Adverse selection
occur when a product or service is selected by only a certain group of people who offer the worst return
forth company.
68)
International Trade
The exchange of goods and services between two countries based on specialization such that substantial
mutual benefits are realised
69)

Absolute advantage
The ability of a country to produce a good with fewer resources than another country
70)
Comparative advantage
The ability of a country to produce well at a lower opportunity cost
71)
Free trade
said to take place between countries when there arena barriers to trade put in place by governments or
international organizations.
72)
Protectionism
The putting into place of trade barriers by governments or international organizations to restrict imports into
country.
73)
Tariff
A tax charged on imported goods
74)
Quota
A physical limit on the numbers or value of goods that can be imported into a country in a given year
75)
Embargoes
The most extreme form of quota since it places physical limit on imports of zero
76)
Terms of trade
The ratio of the average price of exports to the average price of imports
77)
Economic Integration
A process whereby countries coordinate and link their economic activities
78)
Trading bloc
a group of countries that join together in some form of agreement in order to increase trade between
themselves and/or to gain economic benefits from cooperation on some level

79)
Preferential Trading Areas (PTA)
A trading block that gives preferential access to certain products from certain countries
80)
Free Trade Areas
No internal tariffs among members, but each country imposes its own external tariffs to the third country
81)
Customs Union
No internal tariffs and common external tariffs
82)
Common Markets
A custom union with common policies on product regulation, free movement of goods, services, capital and
labour. (Customs union plus labour mobility)
83)
Unemployed
an individual without a paid job, who is available to start working within a fortnight and has either looked for
work at some time in the previous 4 weeks or been waiting to start a job already obtained.
84)
Cost-push inflation
Inflation caused by increases in the costs of production in the economy
85)
Demand-pull inflation
Inflation which is caused by excess demand in the economy
86)
Indexation
adjusting the value of economic variables such as wages or the rate of interest in line with inflation.
87)
Inflation
refers to a situation in a country where there is a persistent and continuous increase in the general price
levels.
88)
Economies of scale
Reductions in average cost of production by increasing the size of output being produced
89)
Balance of Payments
A statement of all the international transactions of a country with the rest of the world over a period of time,
usually a year.