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Definition of Economics Terms

Consumers People or firms who need and want goods and services

Resources (factors of production) used to make goods and services

Land natural resources used in productionLabour human effort (productive effort)

Capital human-made resources

Entrepreneurs organize and combine resources in firms to produce goods and services

Production making goods and services from resources

Producers use resources to make goods and services to satisfy consumers needs and wa nts

Durable consumer goods last a long time (furniture, electrical items)

Non-durable consumer goods used up quickly (foods and liquids)

Capital goods (and semi-finished goods or components) are used up in production

Trade producers and consumers trade to obtain goods and services they need and want

Scarcity lack of resources

Basic economic problem limited (scarce) resources satisfying unlimited wants

Opportunity cost forgoing of the next best alternative

Resource allocation choosing how best to use limited productive resources to satisfy as manyneeds and wants as possible and maximize economic welfare

Aim of economics is to find most efficient allocation of resources

Economic system determines how scarce resources are allocated

Market economic system decisions of consumers and producers determine what goods andservices are produced and who they are produced for

Price mechanism allocates scarce resources to most profitable uses in a market system

Price signals used by producers to determine what is profitable

Market failure scarce resources allocated to uses that are wasteful, inefficient or harmful to peopleand/or the environment

Mixed economic system mixture of market and fixed economic systems

Mixed economic system has both private and public sector

Private sector private individuals and firms

Public sector government organizations

Market demand total effective demand of all consumers willing and able to buy that product

Complementary goods in joint demand with another product. Eg. petrol and cars

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Substitutes compete and satisfy the same consumer demand. Eg. 2 brands of soft drinks

Equilibrium market demand equal to market supply

Market price price at equilibrium. It is stable as consumers are willing and able to buy exactly thesame amount that firms are willing and able to supply

Disequilibrium market demand is equal not market supply

Price elasticity of demand measures the responsiveness of demand to changes in prices

Price elasticity of supply measures the responsiveness of supply to changes in prices

Price elastic small increase in price causes large contraction in quantity demanded and a fall insales revenue

Price inelastic quantity demanded contracts very little and sales revenue rises following a smallincrease in price of a product

Disposable income amount of income left to spend or save after taxes on income they have beenpaid

Demand for normal goods tend to rise as incomes rise

Demand for inferior goods tend to fall as incomes fall