Scarcity
The demand for a good or service is greater than the availability of the good or service.
Economics / DEFINITIONS
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Opportunity Cost
The value of the next best alternative forgone when making a decision.
Demand
The willingness and ability to purchase a good or service at a given price over a period of time.
PED
Price elasticity of demand measures the responsiveness of quantity demanded given a change in price.
PED Formula
%Change on QD/%Change in P.
Unitary PED
Unitary elasticity means that a given percentage change in price leads to an equal percentage change in quantity demanded.
YED
Income elasticity of demand measures the responsiveness of quantity demanded given a change in incomes.
YED Formula
% change in Quantity demanded/% change in Income.
Subsidy
A sum of money granted by the state or a public body to help an industry or business keep the price of a commodity or service low.
Relative poverty
Relative poverty is the level of poverty that changes based on context– it is relative to the economic climate.
Absolute poverty
Absolute poverty (also called extreme poverty) is the lack of sufficient resources to secure basic life necessities, including amongst others safe drinking water, food, or sanitation.
Equilibrium
This is when supply meets demand AKA market clearing price.
Excess Demand
Excess Demand occurs when the Price of a good is lower than the Equilibrium Price, meaning more consumers will want to buy the good than suppliers are willing to sell. The difference between the Quantity Demanded (QD) and the Quantity Supplied (QS) is the Excess Demand.
Excess Supply
Refers to a situation in which the quantity of a good or service that is being offered for sale exceeds the quantity that is being demanded by consumers at the current price.
Supply
Supply is the amount that sellers are willing and able to sell at any given price.
Factors affecting demand (PIRATES)
Population, Income, Related goods, Advertisement, Taste, Expectation, Seasonal.
Normal Goods
As income increases, demand for these types of goods increase.
Inferior Goods
As income increases, demand for these types of goods decreases.
Factors affecting supply (PINTS WC)
Productivity, Indirect tax, Number of firms, Technology, Subsidy, Weather/External shocks, Cost of production.
PES
PES measures the responsiveness of QS given a change in price.
Unitary Elastic Supply
A unitary elastic supply has a change in supply which is equal to the change in price. E.g. 10% change in price leads to a 10% change in supply.
Factors affecting PES (PSSST B)
Production lag, Stock, Substitutability of Factors of production, Spare capacity, Time, Barriers to entry.
Market Failure
Market failure occurs when the free market fails to allocate resources to the best interests of society.
Positive Externality
This occurs when the consumption or production of a good causes a benefit to a third party.
Negative Externality
This occurs when the consumption or production of a good causes a negative consequence to a third party.
Public Goods
Non-excludable and non-rival, and they are underprovided in a free market because of the free-rider problem.
Allocative Efficiency
An efficient market whereby all goods and services meet the needs and wants of society.
Externalities
Externality is the cost or benefit a third party receives from an economic transaction.
Economy
The state of a country/region in terms of the production and consumption of goods and services
GDP
GDP is the market value of all finished goods and services produced within a country (in a year)
Recession
a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.
CPI
The Consumer Price Index measures the overall change in consumer prices based on a representative basket of goods and services over time.
Inflation
Sustained increase in the general level of prices (fall in the value of money)
Deflation
Deflation occurs when there is a fall in the general level of prices and usually comes along with recessions.
Cost-Push Inflation
Caused by the rising cost of inputs/raw materials/commodities
Demand-Pull Inflation
Caused by the rising demand of goods/services – Sellers increase their prices
Aggregate Demand
The total demand for goods and services within a country
Interest Rates
The cost of borrowing and the reward for saving
Shoe-Leather Costs
The costs that people incur to minimise their cash holdings during times of high inflation.
Menu Costs
Menu costs are the costs incurred by a business when it changes the prices it offers to its customers
Balance of Payments
A record of all financial transactions between economic agents of the UK and all other countries
Unemployment
Unemployment occurs when a person who is of working age is actively searching for employment is unable to find work
Structural Unemployment
Caused by decline of demand for goods/services in a specific industry (e.g. Lower demand for coal)
Frictional Unemployment
Caused by the time people take to move between jobs e.g. Graduates or people just changing jobs
Seasonal Unemployment
Demand for certain goods changes in different seasons
Cyclical Unemployment
Unemployment which follows the economic cycle e.g. In a recession more are unemployed than in a boom due to low aggregate demand in the whole economy
Voluntary Unemployment
You choose to not work for a period of time
National Output (O)
the value of the flow of goods and services from firms to households
National expenditure (E)
the value of spending by households on goods and services
National Income (Y)
The value of income paid by firms to households in return for land, labour and capital
Budget Deficit
Government spending is more than what they receive in tax.
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
Monetary Policy
Changes to interest rates, money supply and exchange rate by the central bank to influence AD
Fiscal Policy
Fiscal policy involves government spending and taxation
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