The basic economic problem:

Fundamental economic question:

Factors of production:
Opportunity cost:
Market system:
Planned:
Mixed:
Demand:
Supply:
Market Equilibrium:
Price elasticity of demand:
Price elasticity of supply:
Market failure:
Social cost:
Social benefit:
Money:
Commercial banks:
Central banks:
Stocks:
Bonds:
Stock exchange:
Government intervention:
National minimum wage:
Specialisation in labour:
Trade Unions:
Savings:
Borrowing:
Liability:
Sole trader:
Partnership:
Private limited company:
Public limited company:
Multinational:
Cooperatives:
Public:
Demand for factors of production:
Labour intensive production:
Capital incentive production:
Productivity:
Fixed cost:
Variable cost:
Average cost:
Revenue:
Profit:
Monopoly:
Perfect competition:
Economies of scale:
Diseconomies of scale:
Internal economies of scale:
External economies of scale:
Integration:
Vertical integration:
Horizontal integration:
Role of the government:
Regulations:
Subsidies:
Fiscal Policy:
Monetary Policy:
Supply-side policy:
Taxation:
Direct Taxes:
Indirect taxes:
Progressive taxation:
Regressive taxation:
Inflation:
Demand Push:
Cost pull:
Consumer price index and retail price index:
Deflation
Unemployment:
Cyclical unemployment:
Structural unemployment:
Frictional unemployment:
Technological unemployment:
Seasonal unemployment:
Temporary unemployment:
Economic growth:
Recession:
Peak:
Trough:
Recovery:
GDP:
Human Development index:
Economic development:
Economic growth:
Standards of living:
Absolute poverty:
Relative poverty:
Population:
Birth rate:
Death rate:
Fertility rate:
Net migration rate:
Specialisation:
International specialization:
Balance of payments:
Current account:
Visible trade balance:
Invisible trade balance:
Trade balance:
Deficits:
Surplus:
Fixed Exchange rate:
Floating exchange rate:
Free trade:
Trade protection:
Quotas;
Tariffs:

The basic economic problem: how to allocate resources to satisfy unlimited wants and needs but limited
resources.
Fundamental economic question: WHOM?HOW?WHAT?
Factors of production: Land refers to the natural resources used in production. Labour refers to the human
resources used in production. Capital refers to the machinery used in production. Enterprise refers to a
business person who combines land, labour and resources and bearing risk.
Opportunity cost: the cost of the next best alternative forgone when making a decision.
Market system: resources allocated by the forces of demand and supply with no or minimal government
intervention.
Planned: resources are only allocated by the government
Mixed: a mixture of market and planned where resources are allocated by the government and the market force
of demand and supply
Demand: the ability and willingness of customer to pay at a given price
Supply: the ability and willingness of firms to produce at a given price
Market Equilibrium: aka market clearing price; where the demand and the supply meets.
Price elasticity of demand: measure of how responsive demand is when there is a change in price
Price elasticity of supply: measure how responsive supply is when there is a change in price
Market failure: when resources are failed to be allocated efficiently
Social cost: private cost + external cost
Social benefit: private benefit + external benefit
Money: a commodity that is generally accepted and used as a medium of exchange
Commercial banks: a retail bank the provide services to the general public such as bank loans, safety box and
cheques.
Central banks: the lender of last resort, the governments bank and the bankers bank
Stocks: a share of a company that is sold on the stock exchange
Bonds:
Stock exchange: a place to sell or buy stocks
Government intervention: rules and regulation set by the government to try to reduce market failure
National minimum wage: the minimum money companies must people to workers
Specialisation in labour: a person that owns a specialized skilled
Trade Unions: an organisation
Savings: when people put away their money for the future such as
Borrowing: when people take a loan from the bank or an individual which needs to be paid back with interest
Liability: when the person has the full responsibility
Sole trader: when one person owns the whole business, limited liability
Partnership: two people who share a business, limited liability
Private limited company:
Public limited company:
Multinational:
Cooperatives:
Public:
Demand for factors of production:
Labour intensive production:
Capital incentive production:
Productivity:
Fixed cost:
Variable cost:
Average cost:
Revenue:
Profit:
Monopoly:
Perfect competition:
Economies of scale:
Diseconomies of scale:
Internal economies of scale:
External economies of scale:
Integration:
Vertical integration:
Horizontal integration:
Role of the government:
Regulations:
Subsidies:
Fiscal Policy:
Monetary Policy:
Supply-side policy:
Taxation:
Direct Taxes:
Indirect taxes:
Progressive taxation:
Regressive taxation:
Inflation:
Demand Push:
Cost pull:
Consumer price index and retail price index:
Deflation
Unemployment:
Cyclical unemployment:
Structural unemployment:
Frictional unemployment:
Technological unemployment:
Seasonal unemployment:
Temporary unemployment:
Economic growth:
Recession:
Peak:
Trough:
Recovery:
GDP:
Human Development index:
Economic development:
Economic growth:
Standards of living:
Absolute poverty:
Relative poverty:
Population:
Birth rate:
Death rate:
Fertility rate:
Net migration rate:
Specialisation:
International specialization:
Balance of payments:
Current account:
Visible trade balance:
Invisible trade balance:
Trade balance:
Deficits:
Surplus:
Fixed Exchange rate:
Floating exchange rate:
Free trade:
Trade protection:
Quotas;
Tariffs: The basic economic problem:
Fundamental economic question:
Factors of production:
Opportunity cost:
Market system:
Planned:
Mixed:
Demand:
Supply:
Market Equilibrium:
Price elasticity of demand:
Price elasticity of supply:
Market failure:
Social cost:
Social benefit:
Money:
Commercial banks:
Central banks:
Stocks:
Bonds:
Stock exchange:
Government intervention:
National minimum wage:
Specialisation in labour:
Trade Unions:
Savings:
Borrowing:
Liability:
Sole trader:
Partnership:
Private limited company:
Public limited company:
Multinational:
Cooperatives:
Public:
Demand for factors of production:
Labour intensive production:
Capital incentive production:
Productivity:
Fixed cost:
Variable cost:
Average cost:
Revenue:
Profit:
Monopoly:
Perfect competition:
Economies of scale:
Diseconomies of scale:
Internal economies of scale:
External economies of scale:
Integration:
Vertical integration:
Horizontal integration:
Role of the government:
Regulations: rules and regulations imposed
Subsidies: financial assistance from the government to reduce production and encourage demand of certain
goods
Fiscal Policy: used government spending and taxation to affect macroeconomic activity
Monetary Policy: used to manipulate the money supply, interest rates and exchange to effect macroeconomic
activity.
Supply-side policy: long term strategies to increase production capacity of economy
Taxation: a government levy on income and expenditure to raise government revenue.
Direct Taxes: taxes on income
Indirect taxes: taxes on goods and services
Progressive taxation: when the rich pay mroe proportion of their income than the poor
Regressive taxation: when the poor pays more proportion of their income than the rich

Inflation: a sustained rise in the general price level over a period of time
Demand Push: high level of aggregate demand driving up general price level, driven by forces of demand and
supply
Cost pull: higher costs of production makes firms to maintain profit margin, driven by forces of supply and
demand
Consumer price index: represents the cost of living for the average household in an economy over time
Retail price index: measures price changes of a representative basket of goods
Deflation: when the general price level decrease
Unemployment: a person who is willing and able to work but cant find a job
Cyclical unemployment: when aggregate demand of a country decreases causing there not to be enough jobs
Structural unemployment: occurs when the demand for products produced in a particular industry falls
continually
Frictional unemployment: transitional unemployment that occurs when job seekers are unable to find jobs due
to lack of information
Technological unemployment: the person is unemployed due to being replaced by a machine
Seasonal unemployment: when the person is unemployed due to unsuitable weather
Temporary unemployment: short term unemployment when a person is changing job
Economic growth: is the increase in the level of national output
Recession: when the GDP falls for 2 consecutive quarters
Peak: where the economy is a the best; most people are confident and more people are spending and investing
Trough: the bottom of the recession; more people are saving
Recovery: when a country is recovering from recession
GDP: measures the monetary value of goods and services produced in an economy over a given amount of time.
GDP = C + I + G + (X-M)
Human Development index: measures health care, education and income level
Economic development: measure of the welfare of humans in a society
Economic growth: a measure of the value of output of goods/services within a time period
Standards of living: measures the quality of life of a person in a country
Absolute poverty: extreme poverty; only spends money on necessities
Relative poverty: comparative measure. Has lower standards of living compared to the average members of a
society
Population: the amount of people in a country// measured by
Birth rate: measures the number of live babies per 1000 of the population in each year
Death rate: measures the amount of death per 1000 of the population in each year
Fertility rate: measures number of children born per woman
Net migration rate: measures the difference between the amount of people leaving the country and the amount
of people coming into the country
Specialisation: occurs when an individual, firms or country concentrate on the production of a particular good or
service
International specialization: occurs when a certain country focuses on a certain good
Balance of payments:
Current account:
Visible trade balance:v
Invisible trade balance:
Trade balance:
Deficits: when a countrys financial output is more than their financial input
Surplus: occurs when a country's financial input is more than their financial output
Fixed Exchange rate:
Floating exchange rate:
Free trade: international trade can take place without any forms of trade barriers
Trade protection: the use of trade barriers to reduce foreign competition
Quotas; set limits
Tariffs: tax on imports