Definitions

Economics A social science that analyses the production, distribution and consumption of goods and services. It studies how individuals and societies choose to use the scarce resources that nature and previous generations have provided 1) Microeconomics a study on the behaviour of individuals and organizations in particular markets 2) Macroeconomics a study on the operation of the economy as a whole 3) Scarcity - a situation whereby human wants/ needs are forever greater than the supply of time, goods and resources 4) Choice Making the optimum use of the resources available 5) Opportunity cost The value of the benefit lost in terms of the next best alternative foregone when a choice is made 6) Wants - Desires for the consumption of goods and services 7) Needs - the minimum which is necessary for a person to survive as a human being 8) Standard of living - the quantity of goods and services consumed by an individual or a household. 9) Land gifts of nature, e.g. the various types of trees, minerals and crops 10) Labour People who provide the physical and mental effort to make goods and services 11) Capital any man-made aid such as machines to facilitate further production of goods 12) Entrepreneurship business know-how, the creative ability of individuals to seek profits by combining the other factors of production to produce goods and services, risk takers 13) Human Capital the knowledge and skills that people obtain from education, on-the-job training and work experience

14) Scarcity problem what, how and for whom to produce? 15) Ceteris Paribus All else equal. A device that is used to analyse the relationship between 2 variables while the values of other variables are remained unchanged 16) Economic system a network of organisations used by a society to resolve the basic problem of what, how and for whom to produce 17) Free-market system a system whereby all economic decisions are taken by individual households and firms with no government intervention 18) Price Mechanism the system in a market economy whereby changes in prices in response to changes in demand and supply have the effect of making demand equal to supply 19) Productively Efficient The output of the economy is being produced at the lowest cost 20) Allocatively Efficient The resources are being allocated to the production of the goods and services that the society values most 21) Centrally planned system government plans and makes almost all economic decisions for the benefit of the society 22) Mixed economic system the market is allowed to operate freely as long as it does not create problems to the society. Where market fails, government will intervene. 23) Production Possibility Frontier (PPF) A curve that shows the maximum combination of outputs for 2 types of products that an economy can produce using all the available resources fully and efficiently 24) Positive Statement Objective statement that can be tested or rejected by referring to the available evidence 25) Normative Statement express an opinion about what ought to be 26) Specialisation - The production of a limited range of goods by an individual, firm or country in co-operation with others so that together a complete range of goods is produced

27) Division of Labour the splitting of the production process into a number of simpler processes and making each process the task of 1 worker 28) Market any arrangement where buyers and sellers determine the price and quantity of goods and services to be exchanged at a certain period 29) Demand the choice-making behaviour of consumers. It is the quantity of goods and services that consumers are willing to buy at different prices at a specific time 30) The law of demand when price increases, the quantity demanded will reduce, vice versa ceteris paribus 31) Supply the choice-making behaviour of producers, suppliers or firms. It is the quantity of goods and services that they are willing to sell at different prices at a specific time 32) The law of supply when price increases, quantity supplied will increase, vice versa ceteris paribus 33) Shortage a market situation whereby quantity demanded is more than the quantity supplied 34) Surplus a market situation whereby quantity supplied is more than the quantity demanded 35) Equilibrium a market situation whereby quantity demanded equals quantity supplied 36) Perfect competition a market structure with many buyers, many sellers, producing a homogenous product, and it is easy to enter or leave the market 37) Monopoly a market structure with a single seller and many buyers. The firm produces a unique product and the entry of competitors is impossible 38) Monopolistic competition a market structure that exists when a large number of sellers produce goods that are very similar to one another but perceived to be different by the buyers. 39) Oligopoly a market structure characterized by a few sellers producing a homogenous or differentiated product, with difficult entry and exit of the market

40) Aggregate demand the total spending on goods and services made in an economy in a given time period 41) Aggregate supply the total amount of output that firms in an economy are willing and able to supply at different price levels in a given period of time 42) Economic growth the ability of nations to produce greater amounts of goods and services in a certain period of time, usually one year 43) Inflation a situation in which the overall or general price levels are persistently increasing 44) Hyperinflation the rate of inflation is exceptionally high 45) Disinflation a condition where price increases are slowing down. i.e. the inflation rate is declining 46) Deflation a situation where prices are actually declining 47) Stagflation a situation whereby the economy is slowing down but general price levels are increasing rapidly 48) Unemployment - a condition whereby people between 16 and 64 years old who have been looking for jobs within the last four weeks have not been able to find one 49) Business cycle periodic rises and falls that occur in economies over time. It has four phases; viz boom, recession, depression and recovery 50) Boom a period reflecting an expanding economy with rapid economic growth. Normally characterised by full employment of resources to meet the high aggregate demand 51) Recession a downturn in the business cycle showing a decline in economic growth. Characterised by two or more consecutive quarters of decline in GDP. 52) Depression the phase of the business cycle showing persistent negative economic growth at its worst state after experiencing a recession

53) Recovery an upturn showing an expansion in the economy after experiencing a recession 54) Gross Domestic Product (GDP) the market value of legal goods and services produced within the borders of a nation in a certain period, usually one year. 55) Gross National Product (GNP) the market value of goods and services produced by the nationals or citizens of a particular country in a certain period irrespective of where they offer their services 56) Gross National Income (GNI) The total income received by citizens no matter where they are 57) Consumer Price Index (CPI) an index that measures changes in the average price of consumer goods and services 58) Producer Price Index (PPI) an index that measures prices at the wholesale level 59) Per capita income the average income received by an individual person or citizen 60) Productivity the amount of output that can be produced by a worker in an hour 61) Monetary policy a policy to affect the aggregate demand by altering the supply or cost of money (i.e. rate of interest) 62) Fiscal policy a policy to affect the aggregate demand by altering the balance between government expenditure and taxation 63) Market Failure the circumstances in which distortions prevent the invisible hand from allocating resources efficiently / whenever a free market, left to its own devices and free from any form of government intervention fails to make the optimum use of scarce resources 64) Externalities third party (or spillover) effects arising from the production/consumption of goods and services for which no appropriate compensation is paid 65) Merit / Demerit Good a good that is better/ worse for the person than the person realises

66) Moral Hazard occurs when the party with more information about its actions or intentions has a tendency or incentive to behave inappropriately from the perspective of the party with less information 67) Adverse selection occur when a product or service is selected by only a certain group of people who offer the worst return for the company. 68) International Trade the exchange of goods and services between two countries based on specialization such that substantial mutual benefits are realised 69) Absolute advantage the ability of a country to produce a good with less resources than another country 70) Comparative advantage the ability of a country to produce a good at a lower opportunity cost 71) Free trade said to take place between countries when there are no barriers to trade put in place by governments or international organizations. 72) Protectionism The putting into place of trade barriers by governments or international organizations to restrict imports into a country. 73) Tariff a tax charged on imported goods 74) Quota a physical limit on the numbers or value of goods that can be imported into a country in a given year 75) Embargoes the most extreme form of quota since it places a physical limit on imports of zero 76) Terms of trade the ratio of the average price of exports to the average price of imports 77) Economic Integration a process whereby countries coordinate and link their economic activities 78) Trading bloc a group of countries that join together in some form of agreement in order to increase trade between themselves and/or to gain economic benefits from cooperation on some level

79) Preferential Trading Areas (PTA) a trading block that gives preferential access to certain products from certain countries 80) Free Trade Areas no internal tariffs among members, but each country imposes its own external tariffs to the third country 81) Customs Union no internal tariffs and common external tariffs 82) Common Markets a custom union with common policies on product regulation, free movement of goods, services, capital and labour. (customs union plus labour mobility) 83) Unemployed an individual without a paid job, who is available to start working within a fortnight and has either looked for work at some time in the previous 4 weeks or been waiting to start a job already obtained. 84) Cost-push inflation inflation caused by increases in the costs of production in the economy 85) Demand-pull inflation inflation which is caused by excess demand in the economy 86) Indexation adjusting the value of economic variables such as wages or the rate of interest in line with inflation. 87) Inflation refers to a situation in a country where there is a persistent and continuous increase in the general price levels. 88) Economies of scale reductions in average cost of production by increasing the size of output being produced 89) Balance of Payments A statement of all the international transactions of a country with the rest of the world over a period of time, usually a year.