IGCSE Economics Definitions

CARTEL

A formal agreement between a group of powerful producers to control the market supply and price of their product. OPEC (the Organization of the Petroleum Exporting Countries) is one of the most widely known examples of a cartel.

ECONOMIC RECESSION

A general slowdown in the rate of economic growth in an economy following an economic boom. Officially, it is usually associated with prolonged period of negative growth in real GDP.

COMPLEMENTS

A good or service that is in joint demand with another, for example, cars and petrol, or milk and coffee.

CONTRACTIONARY FISCAL POLICY

A government macroeconomic policy that involves cutting public expenditure and/or increasing total taxation to reduce aggregate demand if an economy is overheating with the general level of prices rising rapidly.

DEMAND SIDE POLICY

A government policy designed to manage aggregate demand in the economy in order to control the level of price inflation, employment and output.

BASIC WAGE

A guaranteed level of earnings for an employee, excluding any overtime or performance related pay.

CONTESTABLE MARKET

A market in which a monopoly prices and acts competitively because there are low entry barriers which means new firms can easily enter the market to compete.

CONSUMER PRICE INDEX (CPI)

A measure of inflation based on changes in the average price of a basket of goods and services purchased by a 'typical' household and which expresses these average prices as an index number series.

BIRTH RATE

A measure of the number of babies born per period per 1,000 people in a population.

ADULT LITERACY RATE

A measure of the number of people of working age as a proportion of the total population in a country who are able to read and write.

DEATH RATE

A measure of the number of people who die per period per 1 000 people in a population

DEPENDENCY RATIO

A measure that contrasts the number of people in the dependent population of a country with the working population in the same country.

ECONOMIC RECOVERY

A period following an economic recession in an economic cycle during which aggregate demand, output, employment and incomes begin to rise.

ECONOMIC BOOM

A period following economic recovery in an economic cycle, characterized by an economy working at full or near-full capacity with a low level of unemployment and aggregate demand, sales and profits at or near their peak, and often accompanied by rising inflation.

DEMAND-PULL INFLATION

A persistent increase in the general level of prices resulting from a continued excess of demand over supply.

ENTREPRENEUR

A person with enterprise and the willingness to take the risks and decisions necessary to organize scarce resources into firms to produce goods and services.

DIVIDEND

A portion of the profit of a company that is paid to its shareholders for each share they own.

CAPITAL INTENSIVE

A production process that employs a significant amount of capital equipment relative to labour.

EXCLUSIVE DEALING

A restrictive agreement between a powerful monopoly and retailers that prevents them from stocking the products of competing firms.

APPRECIATION (in the value of a currency)

A rise in the rate at which a national currency can be exchanged for another currency or currencies, i.e. a rise in the market price of one currency in terms of other currencies.

BROKER

A share dealer, able to buy and sell shares on a stock exchange.

DOUBLE COINCIDENCE OF WANTS

A situation which has to exist in a barter system, where each party involved in a transaction wants something offered by the other and so the two parties can exchange their goods or services.

DISINFLATION

A slowdown in the rate at which the general price level is rising over time.

BEAR

A stock market speculator who will buys shares in the hope they will quickly fall in value so they can buy them back at a lower price. A bear market refers to a situation in which the average prices of shares on the stock market is falling.

ECONOMIC GROWTH

A sustained increase in the total output or real GDP of an economy.

DIRECT TAX

A tax levied on the incomes or wealth of individuals or firms that must be paid from their own funds and cannot be passed on to others to pay.

CORPORATION TAX

A tax on company profits

CETERIS PARIBUS

A term meaning 'all other factors being unchanged'.

DEFAULT

A term used to describe a situation when a person, firm or government fails to meet their loan repayments on time

COMMERCIAL BANK

A type of bank with individual and business customers that has retail branches in many towns and cities.

DIRECT INWARD INVESTMENT

Also known as foreign direct investment (FDI), it refers the purchase of productive assets, such as a factory and equipment, in a country by overseas firms and residents for the purpose of production in that country.

COMMON STOCK

Also known as ordinary shares or equity, common stock are shares issued by limited companies that allow their holders to vote on company directors and policy at annual general meetings.

BALANCE OF PAYMENTS

An accounting record of all monetary transactions between a country and the rest of the world.

ABSOLUTE POVERTY

An economic condition of lacking both money and basic necessities needed to successfully live, such as food, water, education, health care and shelter.

ANCILLARY FIRMS

Firms which provide goods and business services for other firms; they are often located near to their main business customers.

ECONOMIES OF SCALE

Internal or external factors that result in falling unit costs of production as the scale of production in a firm or entire industry is increased.

CYCLICAL UNEMPLOYMENT

Joblessness caused by deficient demand during an economic downturn or recession

CAPTAL EMPLOYED.

Money invested in or tied up in productive assets in a firm that enable it to produce goods and services and generate revenues.

ARTIFICIAL BARRIERS TO ENTRY

Obstacles created by a powerful monopoly or oligopoly purposefully to restrict competition from new firms entering the markets they dominate.

CONSUMERS

People and organizations that are willing and able to buy goods and services to satisfy their needs and wants.

COST-PUSH INFLATION

Persistently rising general price levels caused by increasing production costs.

DISPOSABLE INCOME

Personal income remaining to spend or save after direct income taxes have been deducted from it.

DISECONOMIES OF SCALE

Problems that cause unit costs to rise as a firm expands beyond its optimum size.

DIVERSIFICATION

Producing a range of different products for different home and/or overseas markets to spread market risks.

ECONOMIC GOODS

Products that require scarce resources to produce them to satisfy human needs and wants and are therefore limited in supply.

COLLATERAL

Security taken by a lender against a loan, such as a valuable asset owned by the borrower that the lender could sell to recover the value of the loan if the borrower is unable to repay it.

CONSUMER EXPENDITURE

Spending on goods and services for final consumption.

CLOSED SHOP

This exists when trade union membership is made a compulsory condition of a taking a job in a particular workplace or organization.

CENTRAL BANK

The main bank in an economy, responsible for managing the stability of its national currency and money supply, and for regulating its banking system.

EQUILIBRIUM WAGE RATE

The market clearing rate of pay at which the amount of labour demanded by firms will match the amount supplied.

BULL

The name given to a stock market speculator who buys shares in the hope their price will rise quickly so they can sell them for a profit. A bull market refers to a situation in which the average prices of shares on the stock market is rising.

COLLECTIVE BARGAINING

The process of negotiating pay and working conditions between trade union representatives and employers.

DEMAND

The quantities of goods and services that customers are willing and able to buy at a given price in a specific time period.

BUDGET DEFICIT

This financial situation occurs if a government plans to spend more than it forecasts to earn in tax revenues over the financial year. An actual budget deficit occurs if actual public spending exceeds actual tax revenues.

BUDGET SURPLUS

This financial situation occurs if a government plans to spend more than it forecasts to earn in tax revenues over the financial year. An actual budget deficit occurs if actual tax revenues exceed actual public spending.

ECONOMIC CYCLE

The recurrent pattern of fairly predictable fluctuations in the growth rate of real GDP over time.

AVERAGE REVENUE

The revenue per unit of output sold, found by dividing the total revenue from the sale of a given output by that volume of output.

DIVISION OF LABOUR

The separation of a production process into a series of tasks, with each one completed by a different worker or group of employees.

DEREGULATION

The simplification or removal of complex, old or even unnecessary laws and regulations to reduce burdens on business organizations.

ENTERPRISE

The skills and willingness to take the risks required to organize productive activity in a firm.

ABNORMAL PROFIT

The surplus of revenue over costs enjoyed by a monopoly that is in excess of profit the same firm could expect to earn if it faced competition for its market.

AVERAGE TAX RATE

The total amount of personal or corporate income tax a person or firm pays from their total annual income as a proportion of their total annual income.

AGGREGATE DEMAND

The total demand for goods and services in an economy. It is determined by consumer spending, investment, public expenditure and spending by overseas residents on exports.

AGGREGATE SUPPLY

The total output or supply of all goods and services in an economy that all producers are willing and able to supply.

CONSUMPTION

The using up of goods and services to satisfy human needs and wants.

BALANCE OF PAYMENTS ON CURRENT ACCOUNT

This section of the balance of payments of a country is used to record and monitor how well or how badly it is performing in international trade in goods and services, and other flows of incomes and transfers with other countries.

ECONOMICALLY ACTIVE POPULATION

Those people in a population willing and able to participate in productive activity and are therefore either in paid employment of actively seeking employment

EXCHANGE

Trade in goods and services between producers and consumers.

DEPRECIATION

A fall in the value of a floating exchange rate of a currency against another foreign currency.

CONSTANT RETURNS TO SCALE

A firm or production process will have constant returns to scale if output rises in the same proportion to an increase in inputs.

DUMPING

A form of international predatory pricing and unfair competition used by overseas producers to flood another country with cheap products to force its firms out of business

DECREASING RETURNS TO SCALE

A firm or production process will have decreasing returns to scale if the rise in output following an increase in productive scale is proportionately less than the increase in inputs

EMBARGO

A ban introduced by one or more countries on the importation of a specific product or all products from another country.

COMMERCIAL LOAN

A bank loan to a firm, usually with a fixed repayment term and interest rate.

CONSUMER COOPERATIVE

A business organization owned by its customers and run for their mutual benefit.

EFFECTIVE DEMAND

A consumer want for a product backed by an ability to pay for it.

DEVELOPED ECONOMY

A country with a high level of economic development, including high average incomes, good quality housing, legal and education systems, modern infrastructure and a wide range of industries.

DEVELOPING ECONOMY

A country with a low level of economic development and well-being.

BOND

A debt investment with a fixed time period and rate of interest issued by a government or company to sell to investors in order to raise money.

DEFLATION

A fall in the general level of prices in an economy. If the general level of prices is sustained and continues to fall over a long period of time caused by a lack of demand it is referred to as a malign deflation.

CONSUMER DURABLES

Goods that are consumed over a relatively long period of time such as a washing machine, computer and mobile phone.

COMPETITION POLICY

Government policies to prevent and reduce anti-competitive behaviour and the abuse of monopoly power.

COMPENSATING DIFFERENTIALS

Higher rates of pay compared with those for other occupations and required to attract labour to unpleasant, unsociable or dangerous jobs, i.e. the positive wage differential is designed to compensate workers for these unattractive features.

ECONOMIC SYSTEM

How an economy allocates resources to competing productive activities and assigns the outputs or products of these activities to different consumers.

DEPENDENT POPULATION

That part of a population that is economically inactive (not in paid employment) and therefore relies on others to produce the goods and services it consumes.

BREAK-EVEN LEVEL OF OUTPUT

That volume of output which, if completely sold, would raise a total revenue exactly equal to the total cost of its production.

ABSOLUTE ADVANTAGE

The ability of a country or region to produce a good or service at a lower average cost per unit than any other country or region is able to.

COMPARATIVE ADVANTAGE

The ability of a region or country to produce a goods or services at a lower opportunity cost than another.

EMIGRATION

The act of leaving your country to live overseas.

BUDGET

The budget of a government is a forecast or plan of its intended tax revenues and expenditures in a financial year.

AVERAGE COST

The cost per unit of output, calculated by dividing the total cost of a given level of output by that total volume of output.

BALANCE OF TRADE

The difference between the value of visible exports from a country and the value of visible imports to that country, usually measures per month and annually.

CROWDING OUT

The displacement of private sector borrowing and therefore expenditure by increased public sector borrowing and spending. This happens because the interest rate increases as government borrowing rises

EXCHANGE RATE

The equilibrium market price of one national currency in terms of another currency established through trade in currencies on the foreign exchange market.

BARTER

The exchange of goods and services without using money.

BRAND LOYALTY

The extent of the faithfulness of consumers to the product or products of a particular firm, expressed through their repeat purchases and irrespective of changes in the prices and promotions of competing products from rival firms.

DERIVED DEMAND

When demand for one good or service occurs as a result of demand for another. The demand for labour by firms is a derived demand because labour is needed to produce goods and services.

EXCESS DEMAND

When the market demand for a product exceeds its market supply so there is upward pressure on its market price.

EXCESS SUPPLY

When the market supply of a product exceeds market demand so there is downward pressure on its market price.

DISSAVING

Withdrawing or spending from savings, for example to meet living expenses when income is not sufficient.