Unit 2 Key terms

1. Macroeconomics: Macroeconomics is the branch of economics that studies the

behavior and performance of an economy as a whole. It focuses on the aggregate
changes in the economy such as unemployment, growth rate, gross domestic
product and inflation.
2. Price Mechanism: The mechanism in which demand and supply fix the price.
3. Demand: Willingness and ability to buy a product at a price over a period of time.
4. Supply: the willingness and ability to sell a product
5. A contraction in demand: a fall in the quantity demanded caused by a rise in
the price of the product itself.
6. Extension in demand: a rise in the quantity demanded caused by a fall in the
price of the product itself.
7. contraction in supply: a fall in the quantity supplied caused by a fall in the price
of the product itself.
8. extension in supply: a rise in the quantity supplied caused by a rise in the price
of the product itself.
9. Shift in demand: Due to change in determinants other than price, demand curve
will shift to right hand and left hand side.
10. Shift in supply: Due to change in determinants other than price, supply curve
will shift to right hand and left hand side.
11. Equilibrium point: the point at which demand and supply are equal.
12. Equilibrium price: the price where demand and supply are equal.
13. Equilibrium quantity: the quantity at which demand and supply are equal.
14. Price elasticity of demand: a measure of the responsiveness of demand to a
change in price.
15. Elastic demand: It is when demand changes by a greater change than the price.
16. Inelastic demand: It is when demand changes by a smaller change than the
price.
17. Price elasticity of supply: a measure of the responsiveness of supply to a change
in price.
18. Elastic supply: It is when supply changes by a greater change than the price.
19. Inelastic supply: It is when supply changes by a smaller change than the price.
20. Market Economic System: A market economy is where the allocation of
resources is done by the market forces demand and supply,ie ; price mechanism or
market mechanism
21. Allocative efficiency: It occurs when firms produce those goods and services
which the consumers demand
22. Productive efficiency: A firm is said to be productively efficient when it
produces at the lowest possible cost per unit.

23.Dynamic Efficiency: It is when resources are used efficiently, over a period of

time.
24. Market failure: It occurs when market fails to produce the products that
consumers demand in right quantity at lowest possible price.
25.Third parties: Those not directly involved in producing or consuming a product.
26.Private costs: Costs borne by those directly consuming or producing a product.
27.Private benefits: Benefits received by those directly consuming or producing a
product.
28.External benefit: Benefit received by third parties.
29.Social benefit: Total benefit received by society of an economy.
30.External cost: Cost incurred by those not directly involved in producing or
consuming a product.
31.Social costs: Total costs incurred by society of an economy.
32.Merit goods: These goods are more beneficial than people think.
33.Demerit goods: These goods are more harmful than people think.
34.Public goods: These goods have non rivalry and non excludability characteristics.
35.Private goods: These goods have rivalry and excludability characteristics.
36.Monopoly: One seller for a product.
37. A mixed economy: an economy in which both the private and public sectors play
an important role.
38. Private sector:The private sector is the part of a country's economic system that
is run by individuals and companies, rather than the government. Most private
sector organizations are run with the intention of making profit.
39. Public sector:The public sector is that portion of an economic system that is
controlled by national, state or provincial, and local governments.
40. Mixed Economic System : A mixed economy is where the allocation of resources
is done by the market forces demand and supply and government.