Market System: Key Definitions

The Market System - Key Definitions

• Scarcity is economics' fundamental problem, where limitless needs/wants meet limited resources.
• Opportunity cost means giving up the next best alternative when making a choice.
• Factors of production are inputs like land, labor, capital, and enterprise used in production.
• Demand refers to the quantity of goods/services consumers will buy at a specific price/period.
• Supply refers to the quantity of goods/services producers offer at a specific price/period.
• Market equilibrium occurs when quantity demanded equals quantity supplied, stabilizing price.
• Price Elasticity of Demand (PED) measures demand's responsiveness to price changes. PED = (% change in quantity demanded) / (% change in price).
• Price Elasticity of Supply (PES) measures supply's responsiveness to price changes. PES = (% change in quantity supplied) / (% change in price).
• Income Elasticity of Demand (YED) measures demand's responsiveness to income changes. YED = (% change in quantity demanded) / (% change in income).
• Public goods are non-rivalrous (one person's use doesn't reduce availability) and non-excludable (difficult to prevent access), like street lighting.
• Market failure happens when markets don't allocate resources efficiently due to externalities, public goods, or information asymmetry.
• Externalities refer to costs/benefits affecting third parties not directly in a transaction, like pollution/education.

Topics Covered

• Economic problem basics are scarcity, choice, and opportunity cost.
• A Production Possibility Curve (PPC) shows maximum output combinations of two goods with given resources/technology.
• Economic growth shifts the PPC outward, indicating increased productive capacity.
• Economic assumptions include rational decision-making, though imperfect information can cause irrationality.
• Demand, supply, and market equilibrium are affected by factors such as income, production costs and technology.
• Elasticity calculations, including PED, PES and YED, indicate how prices are affected.
• Mixed economy and market failure topics covered are private vs public sectors, government intervention, and public goods.
• Externalities are covered, including negative (pollution) and positive (education) and how they affect society.

Business Economics - Key Definitions

• Productivity measures output per unit of input, like labor or total factor productivity.
• Division of labor is specializing in production to boost efficiency.
• Total revenue is the amount earned from sales and is price multiplied by quantity sold.
• Total costs equal the sum of fixed costs (unchanged with output) and variable costs (change with output).
• Profit describes the difference between total revenue and total costs.
• Economies of scale are advantages achieved by firms increasing production (lower average costs).
• Diseconomies of scale are increased costs that occur when a firm grows too large, resulting in inefficiencies.
• A monopoly is a market structure where one firm supplies the entire market and has high barriers to entry.
• An oligopoly is a market where a few large firms dominate, with potential for collusion.

Topics Covered

• Production & Productivity and how firms improve efficiency are covered.
• Business Costs, Revenues, and Profit including Types of costs, revenue, and profit calculations are described.
• Market Structures are covered including perfect competition, monopoly, oligopoly, and their characteristics.
• The Labour Market and how factors affect supply and demand for labor is covered.
• Government Intervention in Markets is covered, including taxes, subsidies and price controls.

Government and the Economy - Key Definitions

• Economic growth results from increased national output, usually measured by GDP growth.
• Inflation refers to a general rise in the price level of goods and services over time, measured by CPI.
• Deflation refers to a decrease in the general price level of goods and services over time.
• Unemployment describes people actively seeking work but without a job.
• Balance of payments records a country's trade, including imports, exports, and financial transactions.
• Fiscal policy refers to government policies on taxation/public expenditure to influence economic activity.
• Monetary policy refers to central banks' actions to control the money supply/interest rates.
• Supply-side policy aims to improve efficiency/productivity, such as education/infrastructure investments.

Topics Covered

• Macroeconomic Objectives are the focus.
• Economic Growth: measured by GDP growth, increases output, living standards, and employment is described.
• Inflation: demand-pull and cost-push factors erode purchasing power and affect savings.
• Unemployment: cyclical, structural, and frictional types can cause social and economic costs.
• Balance of Payments: Current account balance affects economic stability and currency value.
• Government Policies are covered, including Fiscal and Monetary policies.
• Fiscal Policy: involves government spending and taxation to influence aggregate demand, and can stimulate the economy.
• Monetary Policy: how Central banks use interest rates and money supply to control inflation.
• Supply-side Policies and how they aim to improve productivity and efficiency is described.
• Relationships Between Objectives like Inflation vs. Unemployment is an important consideration.
• Economic Growth vs. Environmental Protection are policy objectives that must be balanced.

The Global Economy - Key Definitions

• Globalisation describes increasing integration of economies through trade, investment, and technology.
• Free trade describes commerce without barriers like tariffs/quotas.
• Protectionism refers to policies restricting imports to protect domestic industries.
• A tariff involves a tax on imported goods.
• A quota describes a limit on the quantity of imported goods.
• A subsidy involves financial support to reduce production costs.
• An exchange rate describes the value of one currency in terms of another.
• Appreciation describes an increase in a currency's value relative to others.
• Depreciation describes a decrease in a currency's value relative to others.
• A multinational corporation (MNC) operates in multiple countries.

Topics Covered

• Globalisation and International Trade are the focus
• Benefits of Globalisation and increased trade are covered.
• Drawbacks of Globalisation include potential job losses and environmental concerns.
• The Role of MNCs and Foreign Direct Investment (FDI) is discussed.
• Protectionism and Trade Policies are covered, including Arguments for and against Tariffs, Quotas, and Subsidies.
• The Role of the World Trade Organization (WTO) in promoting free trade.
• Exchange Rates and Their Effects are discussed.
• Factors Affecting Exchange Rates such as interest rates and inflation rates, are covered.
• The Impact of Currency Fluctuations on trade balances and economic stability is described.