Economics Definition

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Opportunity Cost

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Opportunity cost is the cost of any action or decision, measured by the highest valued or next best alternative forgone.

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Production Possibility Curve (PPC)

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The PPC shows the maximum attainable combinations of output that a country can produce within a specified time period, with all its resources fully and efficiently employed and at a given state of technology.

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Market

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A market is a set of arrangements by which buyers and sellers are in contact to exchange goods and services.

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Demand

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Demand for a good refers to the quantity that consumers are willing and able to buy at different prices, in a specific time period, ceteris paribus.

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Law of Demand

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The Law of Demand states that the quantity demanded of a good during a specified time period is inversely related to its prices, ceteris paribus.

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Substitutes (Goods in competitive demand)

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Substitutes are different goods that can satisfy the same want and are considered by consumers to be alternatives to each other.

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Complements (Goods in joint demand)

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Complements are different goods that are consumed together in order to generate satisfaction.

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Normal Good

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A normal good is one where the demand will increase as income increases, and decreases as income decreases.

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Inferior Good

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An inferior good is one where the demand will fall as income increases. Hence the demand for inferior good is negatively related to income.

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Supply

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Supply of a good refers to the quantity which producers are willing and able to make available for sale at various prices, in a specified period of time, ceteris paribus.

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Law of Supply

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The Law of Supply states that the quantity supplied of a good during a specific time period is directly related to its price, ceteris paribus.

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Goods in Competitive Supply

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Goods in competitive supply are those that are produced using the same resources.

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Goods in Joint Supply

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Goods in joint supply are two goods where the production of one leads to the production of the other.

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Equilibrium Price

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The equilibrium price is defined as the price level at which the quantity demanded by consumers is equal to the quantity supplied by producers.

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Consumer Surplus

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Consumer surplus is the difference between what a person would have been prepared to pay and what he actually pays. It measures the economic well-being of consumers.

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Producer Surplus

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Producer surplus is the price received from the sale of a good over and above the cost producing it. It measures the economic well-being of producers.

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Price Elasticity of Demand (PED)

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The PED is the degree of responsiveness of the quantity demanded of a good to a change in its price, ceteris paribus.

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Price Elasticity of Supply (PES)

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The PES is the degree of responsiveness of the quantity supplied of a good to a change in its price, ceteris paribus.

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Subsidies

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Subsidies are payments by the government to firms, typically on a per unit of output basis, which aim at lowering production costs and thus the market price while raising output.

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Demand for Labour

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The demand for labour refers to the total number of man-hours that firms are wiling and able to employ at each and every wage rate, ceteris paribus.

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Supply for Labour

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The supply of labour refers tot he total number of man-hours that labour is willing and able to supply at each and every wage rate, ceteris paribus.

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Market Failure

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Market failure is the term to cover all circumstances in which equilibrium in free unregulated markets fail to achieve an efficient allocation of scarce resources.

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Rivalry in Consumption

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Rivalry in consumption refers to the fact that the consumption of the good by one individual reduces the amount of benefit that is available to others.

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Excludability

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Excludability refers to the ability to exercise private property rights, preventing other people from using it or consuming its benefits.

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Positive Externalities

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Positive externalities arising from an economic activity are the benefits to third parties that are not taken into account by those who undertake the activity.

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Merit Goods

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Merit goods are those goods are services that the government deems are socially desirable and produces positive externalities.

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Negative Externalities

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Negative externalities arising from an economic activity are the cost to third parties that are not taken into account by those who undertake the activity.

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Demerit Goods

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Demerit goods are those goods and services that the government deems are socially undesirable and produces negative externalities.

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Regulations

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Regulations refer to the use of legal intervention to force consumers and producers to behave in certain ways.

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Economic Growth

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Economic growth refers to the increase in the real output of a country (actual growth) and/or the increase in the country's productive capacity - potential output of goods and services an economy can produce (potential growth).

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Inclusive Growth

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Inclusive growth represents growth that generates decent jobs, give opportunities for all segments of society, and distributes the income and non-income gains from prosperity more equally across society.

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Recession

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A recession is defined as a period in which there is a decline in GDP for two or more consecutive quarters.

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Inflation

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Inflation is defined as a sustained increase in the general price level within an economy.

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External Stability

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External stability refers to a country's ability to pay in its overseas transactions.

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Gross Domestic Product (GDP)

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GDP measures the value of all final goods and services produced within the geographical boundaries of a country in a specific time period, usually one year.

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Nominal GDP

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Nominal GDP refers to a country's gross domestic product that is measured at current year prices.

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The Circular Flow of Income Model

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The Circular Flow of Income Model is a simple and visual model that explains how the economy is organised and how participants in the economy interact with one another. It shows how national income (national output or national expenditure) can increase or decrease as a result of changes in the various flows.

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Savings

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Savings is income that households choose not to spend but to put aside for the future.

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Transfer Payment

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Transfer payment is money transferred from one person or group to another without production taking place.