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Key Words

Word Definition
Microeconomics The study of the behaviour of individuals or
groups within an economy, typically within a
market context
Basic Economic Problem Resources have to be allocated between
competing uses because wants are infinite
whilst resources are scarce
Choice Economic choices involve the alternative
uses of…

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Market Any convenient set of arrangements by
which buyers and sellers communicate to
exchange goods and services
Non-renewable Resources Raw materials, such as coal or oil, which
once exploited cannot be replaced
Non-sustainable Resources Resources which are being economically
exploited in such a way that it is being

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Real Values Values adjusted for the effects of inflation
(i.e. values at constant prices)
Ceteris Paribus The assumption that all other variables
within the model remain constant whilst one
change is being considered
Equilibrium The point where what is expected or planned
is equal to what is realised or…

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Demand Curve The line on a price-quantity diagram which
shows the level of effective demand at any
given price
Demand Or Effective Demand The quantity purchased of a good at any
given price, given that other determinants of
demand remain unchanged
Individual Demand Curve The demand curve for a…

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Substitute A good which can replace another to satisfy
a want
Elastic Demand Where the price elasticity of demand is
greater than 1. The responsiveness of
demand is proportionally greater than the
change in price. Demand is infinitely elastic if
price elasticity of demand is infinity
Inelastic Demand Where…

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of a change in price excluding the income
Direct Tax Levied directly to an individual or
organisation. Generally paid on incomes
Indirect Tax Usually levied on the purchase of goods and
services. It represents a tax on expenditure
Specific Tax A type of indirect tax. It is charged…

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Social Benefits By adding private benefits to external
we obtain social benefits
Free Rider A person or organisation which receives
benefits that others have paid for without
making any contribution themselves
Merit Good A good which is underprovided by the
market mechanism. A demerit good is one

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The production possibility frontier (PPF) shows the maximum potential output of an
Production at a point inside the PPF indicates an inefficient use of resources.
Growth in the economy will shift the PPF outwards.

An economy is a social organisation through which decisions about what, how and

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In a free market economy, resources are allocated through the spending decisions of
millions of different consumers and producers.
Resource allocation occurs through the market mechanism. The market determines
what is to be produced, how it is to be produced and for whom production is to take

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A change in demand will lead to a shift in the demand curve, a movement along the
supply curve and a new equilibrium price.
A change in supply will lead to a shift in the supply curve, a movement along the
demand curve and a new equilibrium price.


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