BASIC ECONOMIC IDEAS & RESOURCE ALLOCATION
This term describes unlimited wants but limited resources.
Scarcity
This is the point where quantity demanded equals quantity supplied.
Market equilibrium
This tax is a fixed amount charged per unit sold.
Specific / unit tax
This is the total value of goods and services produced within a country in one year.
Gross Domestic Product (GDP)
This is the government policy that uses changes in government spending and taxation to influence the economy.
Fiscal policy
This curve shows the maximum combinations of goods an economy can produce with given resources.
PPC
This price elasticity measure is calculated using the percentage change in quantity demanded divided by the percentage change in income.
Income elasticity of demand (YED)
This is the maximum price set below equilibrium by the government.
Maximum price / price ceiling
This part of the business cycle is associated with falling output and rising unemployment.
Recession / downturn
This automatic stabiliser increases during recessions as more people lose jobs.
Unemployment benefits / welfare payments
This economic concept describes a good for which demand increases as income rises, except it forms a smaller proportion of income at higher income levels.
Normal good
This occurs when cross elasticity of demand (XED) between two products is positive.
Substitutes
This form of government payment encourages production or consumption by reducing costs.
Subsidy
This term describes persistent increases in the general price level.
Inflation
This monetary policy tool requires commercial banks to hold a certain proportion of deposits as reserves.
Reserve requirement ratio
This solution to the economic problem allocates resources through price signals rather than planning.
The price mechanism / market mechanism
This elasticity measure explains how the quantity supplied responds to a change in price, especially in the short run.
Price elasticity of supply (PES)
This type of market failure occurs when consumers or producers lack full information, leading to decisions that do not maximise welfare.
Information failure
This measure of unemployment counts only those actively seeking work but currently jobless.
Unemployment (ILO/claimant count)
This type of fiscal deficit occurs when government expenditure exceeds revenue at full employment.
Structural budget deficit
This is the loss of potential output when resources are reallocated from one use to another.
Opportunity cost
This concept occurs when resources are allocated such that no one can be made better off without making someone else worse off, and it is achieved in competitive markets where price equals marginal cost.
Allocative efficiency
This type of good is under-consumed due to information failure, leading governments to intervene.
Merit goods
This concept explains why an increase in autonomous spending results in a proportionally larger change in national income.
The multiplier effect
This supply-side policy focuses on improving the quality and productivity of labour through education, training, and skill development.
Human capital development / education & training