Key terminology

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Economic Problem
how to allocate scarce resources among alternative uses
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a group of people whose spending decisions are connected
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the study of how households and firms make
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Factor of production
the resource inputs that are available in an economy
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tangible products
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intangible products
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natural resources in an economy
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the quantity and quality of human resources
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man-made aids to production
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the willingness of an entrepreneur to take risks and organise production
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someone who bears the risks of the business and who organises production
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Factor Endowment
the stock of factors of production
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the output of goods and services
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a situation where there are insufficient resources to meet all wants
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the selection of appropriate alternatives
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Opportunity cost
the cost of the next best alternative foregone
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the concentration by a worker or workers, firm region or whole economy on a narrow range of goods and services
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the process by which goods and services are traded
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a payment by a governing body to encourage the production or consumption of a product
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Division of Labour
the specialisation of labour where the production process is broken down into separate tasks
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output, or production of a good or service, per worker
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Production Possibility Curve
this shows the maximum quantities of different combinations of output of two products, given current resources and state of technology
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the calculation involved in deciding on whether to give up one good for another
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Economic Growth
change in the production potential of an economy
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Productive Potential
the maximum output that an economy is capable of producing
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Economic System
the way in which production is organised in a country or group of countries
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Market Economy
an economic system whereby resources are allocated through the market forces of demand and supply
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Price System
a method of allocating resources by the free movement of prices
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Command economy
an economic system in which most resources are state owned and also allocated centrally
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Mixed Economy
an economic system in which resources are allocated through a mixture of the market and direct public sector involvment
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Aggregate Demand
the total demand for a country's goods and services at a given price level and in a given time period
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Aggregate Supply
the total amount that producers in an economy are willing and able to supply at a given price level in a given time period
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Allocative efficiency
where consumer satisfaction is maximised
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Arithmetic Mean
the sum of the items divided by the number of items
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Asymmetric information
information not equally shared between two parties
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Automatic Stabilisers
forms of government spending and taxation that change automatically to offset fluctuations in economic activity
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Average Propensity to Consume
the proportion of disposable income spend. It is consumer expenditure divided by disposable income
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Average Propensity to Save
the proportion of disposable income saved. It is saving divided by disposable income
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Balance of Payments
a record of money flows coming in and out of a country
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Capacity Utilisation
the extent to which firms are using their capital goods
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Ceterus Paribus
assuming all other variables remain unchanged
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Circular Flow of Income
the movement of spending and income throughout the economy
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goods for which there is joint demand
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Consumer Confidence
how optimistic consumers are about future economic prospects
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Consumer Price Index
a measure of changes in the prices of a representative basket of consumer goods and services
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Corporation Tax
a tax on firms' profits
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Cost-push Inflation
increases the price level caused by increases in the cost of production
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Cross elasticity of Demand
the responsiveness of demand for one product in relation to a change in the price of another product
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Current Account Deficit
when more money is leaving the country than entering it, as a result of sales of its exports, income and current transfers going abroad
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Cyclical unemplyment
unemployment arising from a lack of aggregate demand
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a sustained fall in the general price level
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Demand-pull Inflation
increases in the price level caused by increases in aggregate demand
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Demerit Goods
their consumption is more harmful than is actually realised
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Direct Taxes
one that taxes the income of people and firms that cannot be avoided
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Economic Cycle
the tendency for economic activity to fluctuate outside its trend growth rate moving from a boom to a recession
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a group of people whose spending decisions are connected

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Factor of production


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