Economics

Main Economic groups and factors of production

Consumer - A person or organisation that directly uses a good or service.

Good - A tangible product, i.e. a product that can be seen or touched.

Government - A political authority that decides how a country is run and manages its operation.

Producer - A person, company or country that makes, grows or supplies goods and/or services.

Service - An intangible product, i.e. a product that cannot be seen or touched.

Production - The total output of goods and services produced by a firm or industry in a time period.

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Main Economic groups and factors of production

Factors of Production - The resources in an economy that can be used to make goods and services, e.g. land, labour, capital and enterprise.

Labour - The factor of production that is concerned with the workforce of an economy in terms of both the physical and mental effort involved in production.

Land - The factor of production that is concerned with the natural resources of an economy, such as farmland and mineral deposits.

Capital - The factor of production that relates to the human-made aids to production.

Enterprise - The factor of production that takes a risk in organising the other three factors of production. The individual who takes this risk is an entrepreneur.

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The basic economic problem

Scarce Resources - When there is an insufficient amount of something to satisfy all wants.

Unlimited Wants - The infinite desire for something.

Need - Something a consumer has to have to survive.

Want - Something a consumer would like to have, but which is not essential for survival.

Economic Problem - How to best use limited resources to satisfy the unlimited wants of people.

Opportunity Cost - The next best alternative given up when making a choice.

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The basic economic problem

Economic Choice - An option for the use of selected scarce resources.

Economic Sustainability - The best use of resources in order to create responsible development or growth, now and into the future.

Social Sustainability - The impact of development or growth that promotes improvement in the quality of life for all, now and into the future.

Enviromental Sustainability - The impact of development or growth where the effect on the environment is small and possible to manage, now and into the future.

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The Role of Markets

Market - A way of bringing together buyers and sellers to buy and sell goods and services.

Market Economy - An economy in which scarce resources are allocated by the market forces of supply and demand.

Primary Sector - The direct use of natural resources, such as the extraction of basic materials and goods from land and sea.

Secondary Sector - All activities in an economy that are concerned with either manufacturing or construction.

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The Role of Markets

Tertiary Sector - All activities in an economy that involve the idea of service.

Factor Market - Market in which the services of the factors of production are bought and sold.

Product Markets - Market in which final goods or services are offered to consumers, businesses and the public sector.

Exchange - The giving up of something that the individual or firm has, in return for something they wish to have but do not possess.

Specialisation - The process by which individuals, firms, regions and whole economies concentrate on producing those products that they are best at producing.

Division of labour- Where workers specialise in or concentrate on, one area of the production process.

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Demand

Demand - The willingness and ability to purchase a good or service at the given price in a given time period.

Individual Demand - The demand for a good or service by an individual consumer.

Law of Demand - For most products the quantity demanded varies inversely with its price.

Market Demand - The total demand for a good or service, found by adding together all individual demands.

Movement along the Demand Curve - When the price changes, leading to a movement up or down the existing demand curve.

Shift of the Demand Curve - A complete movement of the existing demand curve either outward (to the right) or inward (to the left).

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Demand

Elastic Demand - When the percentage change in quantity demanded is greater than the percentage change in price.

Inelastic Demand - When the percentage change in quantity demanded is less than the percentage change in price.

Price Elasticity of Demand (PED) - The responsiveness of quantity demanded to a change in the price of the product.

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Supply

Law of Supply - For most products the quantity supplied varies directly with its price.

Supply - The ability and willingness of firms to provide goods and services at each price in a given time period.

Individual Supply - The supply of a good or service by an individual producer.

Market Supply - The total supply of a good or service as a result of adding together all individual producers supplies.

Movement along the supply curve - When the price changes, leading to a movement up (expansion) or down (contraction) on the existing supply curve.

Shift the supply curve - The complete movement of the existing supply curve either outward (to the right) or inward (to the left).

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Supply

Elastic Supply - When the percentage change in quantity supplied is greater than the percentage change in price.

Inelastic Price - When the percentage change in quantity supplied is less than the percentage change in price.

Price Elasticity of Supply (PES) - the responsiveness of quantity supplied to a change in the price of the product.

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Price

Price - The sum of money you have to pay for a good or service. It is determined by the interaction of supply and demand.

Efficiency - The optimal production and distribution of scarce resources.

Equilibrium price and quantity - Where the quantity supplied exactly matches the quantity demanded.

Allocation of Resources - How scarce resources are distributed among producers, and how scarce goods and services are allocated among consumers.

Determination of Price - The interaction of the free market forces of demand and supply to establish the general level of price for a good or service.

Market Forces - Factors that determine price levels and the availability of goods and services in an economy without government intervention. 

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Competition

Competition - Where different firms are trying to sell a similar product to a consumer. 

Monopoly - A sole of producer or seller of a good or service.

Oligopoly - Where a small number of firms control the large majority of market share.

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Production

Profit - The amount of money a producer has left after all the costs have been paid, i.e. when total revenue is greater than total cost.

Productivity - One measure of the degree of efficiency in the use of factors of production in the production process. It is measured in terms of output per unit of input. Total Output Divided by Total Input.

Average Cost (AC) - The cost of producing a unit (unit cost of production).

Total Cost (TC) - All the costs of the firm added together.

Total Revenue (TR) - The total income of a firm from the sale of its goods and services.

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Production

Average Revenue (AR) - The revenue per unit sold.

Loss - When a firm's revenue is less than its costs, i.e. TR < TC.

Economies of scale - The cost of the advantages a firm can gain by increasing the scale of production, leading to a fall in average costs.

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The Labour Market

Labour Market - Where workers sell their labour and employers buy the labour: it consists of households' supply of labour and firms' demand for labour.

Supply of Labour - The total number of people who are willing and eligible to supply their labour, including the unemployed.

Gross Pay - The amount of money that an employee earns before any deductions are made.

Income Tax - A tax levied directly of a personal income i.e. a tax on a person's wages.

National Insurance - A contribution paid by workers, and their employers, towards the cost of state benefits.

Net pay - The amount of money that an employee is left with after deductions are made from the gross income.

Pension - A fixed amount paid at regular intervals to a person (usually retired), or their surviving dependents.

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The Role of Money and Financial Market

Money - Anything that is generally accepted as a means of payment for goods and services.

Medium of Exchange - Anything that sets the standard of value of goods and services acceptable to all parties involved in a transaction.

Financial Sector - Consists of financial organisations and their products, and involves the flow of capital. 

Investment - The purchase of capital goods that are used to produce future goods and services. Also, an asset purchased to provide an income in the future and/ or to be sold at a profit.

 

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The Role of Money and Financial Markets

Rate of interest/ interest rate - The cost of borrowing money, i.e. that which is paid to the lender. It is also the reward for saving. 

Building Society - A mutual financial institution that is owned by its members. Its primary objectives are to receive deposits from its members and to lend money for members to purchase property.

Mortgage - An agreement with a financial institution to borrow money to purchase property.

Insurance Company - Financial institution that guarantees compensation for specified loss, damage, illness or death in return for an agreed premium.

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Economic Growth

Economic Growth - Growth in GDP (value of output) over time.

Gross Domestic Product (GDP) - The total value added of goods and services produced in the country in a year.

GDP per capita - GDP divided by the population.

Boom - A period of high economic activity and high levels of unemployment.

Recession - A period of when the country's GDP falls for two (or more) consecutive quarters.

Labour Force (or Workforce) - The number of people who work in a country.

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Low Unemployment

Employment - The use of labour in the economy to produce goods and services.

Unemployment - Occurs when workers able and willing to work at the current wage rates are unable to find employment.

Claimant Count - The method of measuring unemployment according to the number of people who are claiming unemployment-related benefits.

Level of Unemployment - The number of people in the working population who are unemployed.

Rate of Unemployment - The percentage of the country's workforce that is unemployed.

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Low Unemployment

Frictional Unemployment - Unemployment caused by time lags when workers move between jobs.

Seasonal Unemployment - Unemployment caused by a fall in demand during a particular season.

Structural Unemployment - Unemployment caused by a fall in demand during a particular season.

Cyclical Unemployment - Unemployment caused by a lack of demand in the economy.

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Fair Distribution of Income

Distribution of Income - How incomes are shared between individuals and households. 

Income - The reward for the service provided by a factor of production, including labour.

Wealth - The market value of all the assets owned by a person, group or country at a specific point in time. Wealth is a stock of assets, e.g. money, houses, and land, whereas income is a flow overtime.

Gross Income - Income received before any taxes are taken or benefits given.

Net Income - Income available after the effect of direct taxes and benefits, often called disposable income.

Distribution of Wealth - How wealth is shared out between individuals and households.

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