1. Economics And Economies

Front 1

Production

Back 1

The transformation of inputs into outputs by firms in order to earn profit, or meet some other objective.

Hint 1

inputs, outputs, firms, profits, objectives

Front 2

Consumption

Back 2

The act of using goods and services to satisfy wants. This will normally involve purchasing the goods and services.

Hint 2

goods, services, satisfy

Front 3

Factors of production (or resources)

Back 3

The inputs into the production of goods and services: labour, land and raw materials, and capital.

Hint 3

inputs, production, labour, land, materials, capital

Front 4

Labour

Back 4

All forms of human input, both physical and mental, into current production.

Hint 4

human, input, physical, mental, production

Front 5

Land and raw materials

Back 5

Inputs into production that are provided by nature; e.g., unimproved land and mineral deposits in the ground.

Hint 5

inputs, production, nature, improved land, mineral deposits

Front 6

Capital

Back 6

All inputs into production that have themselves been produced; e.g., factories, machines and tools.

Hint 6

inputs, themselves produced

Front 7

Scarcity

Back 7

The excess of human wants over what can actually be produced to fulfill these wants.

Hint 7

excess, human wants, what can actually be produced

Front 8

Macroeconomics

Back 8

The branch of economics that studies economic aggregates (grand totals); e.g., the overall level of prices, output and employment in the economy.

Front 9

Aggregate demand

Back 9

The total level of spending in the economy.

Front 10

Aggregate supply

Back 10

The total amount of output in the economy.

Front 11

Microeconomics

Back 11

The branch of economics that studies individual units; e.g., households, firms and industries. It studies the interrelationships between these units in determining the pattern of production and distribution of goods and services.

Front 12

Inflation

Back 12

A general rise in the level of prices throughout the economy.

Front 13

(Annual) rate of inflation

Back 13

The percentage increase in the level of prices over a twelve-month period.

Front 14

Balance of trade

Back 14

Exports of goods and services minus imports of goods and services. If exports exceed imports, there is a 'balance of trade surplus' (a positive figure). If imports exceed exports, there is a 'balance of trade deficit' (a negative figure).

Front 15

Recession

Back 15

A period where national output falls for two or more successive quarters.

Front 16

Unemployment

Back 16

The number of people of working age who are actively looking for work, but are currently without a job (note that there is much debate about who should be counted as unemployed).

Front 17

Demand-side policy

Back 17

Government policy designed to alter the level of aggregate demand, and thereby the level of output, employment and prices.

Front 18

Supply-side policy

Back 18

Government policy that attempts to alter the level of aggregate supply directly.

Front 19

Opportunity cost

Back 19

The cost of any activity measured in terms of the best alternative foregone.

Front 20

Rational choices

Back 20

Choices that involve weighing up the benefit of any activity against its opportunity cost so that the decision maker successfully maximises their objective; i.e., happiness or profits.

Front 21

Marginal costs

Back 21

The additional cost of doing a little bit more (or 1 unit more if a unit can be measured) of an activity.

Front 22

Marginal benefits

Back 22

The additional benefits of doing a little bit more (or 1 unit more if a unit can be measured) of an activity.

Front 23

Rational decision making

Back 23

Doing more of an activity if its marginal benefits exceed its marginal costs.

Front 24

Economic efficiency

Back 24

A situation where each good is produced at the minimum cost, and where individual people and firms get the maximum benefit from their resources.

Front 25

Productive efficiency

Back 25

A situation where firms are producing the maximum output for a given amount of inputs, or producing a given output at the least cost.

Front 26

Allocative efficiency

Back 26

A situation where the current combination of goods produced and sold gives the maximum satisfaction for each consumer at their current levels of income.

Front 27

Equity

Back 27

A distribution of income that is considered to be fair or just. Note that an equitable distribution is not the same as an equal distribution, and that different people have different views on what is equitable.

Front 28

Production possibility curve

Back 28

A curve showing all the possible combinations of two goods that a country can produce within a specified time period with all its resources fully and efficiently employed.

Front 29

Increasing opportunity costs of production

Back 29

When additional production of one good involves ever-increasing sacrifices of another.

Front 30

Investment

Back 30

The production of items that are not for immediate consumption.

Front 31

Barter economy

Back 31

An economy where people exchange goods and services directly with one another without any payment of money. Workers would be paid with bundles of goods.

Front 32

Market

Back 32

The interaction between buyers and sellers.

Front 33

Centrally planned or command economy

Back 33

An economy where all the economic decisions are taken by the central authorities.

Front 34

Free-market economy

Back 34

An economy where all economic decisions are taken by individual households and firms with no government intervention.

Front 35

Mixed economy

Back 35

An economy where economic decisions are made partly by the government and partly through the market. In practice all economies are mixed.

Front 36

Informal sector

Back 36

The parts of the economy that involve production and/or exchange, but where there are no money payments.

Front 37

Subsistence production

Back 37

Where people produce things for their own consumption.

Front 38

Input-output analysis

Back 38

This involves dividing the economy into sectors, where each sector is a user of inputs and a supplier of outputs to other sectors. The technique examines how these inputs and outputs can be matched to the total resources available in the economy.

Front 39

Price mechanism

Back 39

The system in a market economy whereby changes in price in response to changes in demand and supply have the effect of making demand equal to supply.

Front 40

Equilibrium price

Back 40

The price where the quantity demanded equals the quantity supplied: the price where there is no shortage or surplus.

Front 41

Equilibrium

Back 41

A position of balance. A position from which there is no inherent tendency to move away.

Front 42

Mixed market economy

Back 42

A market economy where there is some government intervention.

Front 43

Relative price

Back 43

The price of one good compared with another (e.g., good X is twice the price of good Y).

Front 44

Economic model

Back 44

A formal presentation of an economic theory.

Front 45

Induction

Back 45

Constructing general theories on the basis of specific observations.

Front 46

Deduction

Back 46

Using a theory to draw conclusions about specific circumstances.

Front 47

Ceterus paribus

Back 47

Latin for 'other things being equal'. This assumption has to be made when making deductions from theories.

Front 48

Abduction

Back 48

Using pieces of evidence to develop a plausible explanation. This can then be tested by gathering more evidence.

Front 49

Positive statement

Back 49

A value-free statement which can be tested by an appeal to the facts.

Front 50

Normative statement

Back 50

A value judgement.