Economic Terms

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Material Living Standards

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Refers to the economic well being of individuals as affected by per captia consumption of goods and services and incomes per year

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Non-Material Living Standards

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Refers to the quality of life and how it could affected by intangible ideas such as amount of leisure time, happiness, life expectancy, crime rates. This tends to be personal

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Living Standards

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How well-off a nation is overall. it can be broken down into material and non material living standards

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Relative Scarcity

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The idea how there are not enough resources to satisfy everyone's needs and wants.

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Opportunity Cost

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The benefit forgone by a decision not to direct resources into the next best alternative use.

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Resource Allocation

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Making decisions about how scarce natural, capital and labour resources are to be used in production.

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Efficient Allocation Of Resources

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When productive inputs are used to maximise the satisfaction of society's needs, wants and living standards

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Preconditions for the Market System

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There are many buyers and sellers, there is consumer sovereignty (no government intervention), products in the market are identical, there is an ease of entry for business, who have a good knowledge of the market.

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Pure Competition

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A market structure where: there are many buyers, strong competition between firms, no product differentiation, an easy of entry and firms are price takers (business cannot set prices). An example is a coffee shop.

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Monopolistic Competition

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A market structure where: there are many sellers, strong competition between firms, some product differentiation and there is moderate ease of entry for new firms. Examples are the many shoes brands, clothing brands

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Oligopoly

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A market structure where: there are several sellers, some product differentiation and fairly difficult to enter and exit for new firms (as large amount of money are needed). Examples are like the big banks. Note that when prices go up in this area, no new producers enter.

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Pure Monopoly

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A market structure where: there are only one seller, there is weak competition between firms, product differentiation is not important, entry and exit is difficult and the firms are "price makers" (they set the price for the consumers). Examples include public transport and taxis.

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Law Of Demand

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States that the amount of the good or service demanded varies inversely with price. In other words, when demand goes up price goes down (expansion) OR when demand goes down, prices go up (contraction)

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Law Of Supply

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States that the amount of the good or service supplied varies directly with the price. In other words, when supply goes up, prices go up (expansion) OR when supply goes down, prices go down (contraction).

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Equilibrium Price

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Occurs in a market at the price where the quantity demanded and the quantity supplied are exactly equal. This is the price in which consumers and suppliers agree with.

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Elasticty

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Responsiveness of the demand or supply of a product that is relatively responsive to changes in the price. In other words: "How much and how will prices changes when demand or supply changes?".

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Market Failure

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Occurs when the price system used resources inefficiently in ways that reduce the overall standard of society's needs and wants, and hence lowering well-being and living standards.

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Externalities

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Costs or benefits that arise from economic activities of firms and households that are passed onto third parties who are not involved in the transaction of the original activity.

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Government Failure

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Occurs when government intervenes in the free operation of markets, which results in inefficiency, reduce the satisfaction of society's needs and wants and lowering living standards.