Glossary of Economic terms

Studying of Economics often seems hard. It is only because of the vocabulary used in defining the economic concepts, here are a set of terms which are frequently used in economics along with definitions..

2. 1) Positive Economics- Examines matters of economics that
can be proven to be right or wrong by looking at facts.
2) Normative economics – Examines matters of economics
that are based upon opinion and so are hard to be proven to
be right or wrong.
3) Microeconomics- Is the study of the individual markets
and decisions by individual households and firms
4) Macroeconomics- is the study of the economy as a
whole.
5) Scarcity-Is a term used for a limited availability of
recourses

3. 6) Free market economy- when the productions are privately
held by individuals and firms
7) Factors of Production
-Land- Natural resources
-Labor- Human resources
-Capital- Man maid aids to production
-Entrepreneurship- Is the ability to combine the
above three factors
8) Production possibility Curve (PPC)- It shows the
maximum combination of goods and services which can be
produced given the existing levels of resources.

4. 9) Opportunity cost- is the sacrifice made In the next best
alternative.
Type of goods
a. Free good- involve no opportunity cost
b. Capital Good- Use consumption goods in the
future
c. Consumption Good- bought for final
consumption
10) Actual output- The production of goods and services in
the economy achieved in a certain period of time
11) Potential output- The possible production that would be
achieved if the available factors were employed.

5. 12) Actual Growth- When unemployed factors of production
are brought into use
13) Potential grown-When the quantity or quality of factors of
production within an economy increases
14) Economic Growth- Growth of real output in an economy
15) Economic development- Concept involving improvement
in standards of living, reduction in poverty, improved health,
and improved education
16) Sustainable development- Is the economic development
that meets its needs of the present without compromising the
ability of the future generation to meet their needs.

6. 17) Market- where consumers and producers come together
to establish a price where each are happy with for a good
or service.
18) Demand is the willingness and ability to purchase a
quantity of a good or service at a certain price over a given
time of period
Law of demand-states as the price of good or service
rises, the actual quantity demanded decrease.
Demand curve is a representation of the law of demand.
19) Supply- is the willingness and ability of a producer to
produce a quantity of a good or service at a certain price
over a certain period of time

7. 19) Law of supply – states that as a price of a good rises, the
quantity supplied will increase as well.
5) Supply Curve-is the curve of representation between the
price and quantity supplied
20) Equilibrium price- is the market clearing price; demand is
equal to supply
21) Maximum price- aka ‘ceiling price’ is the set price by the
government, in which sellers are not allowed to rise the price
above.
22) Minimum price- aka ‘floor price’ is set by the government,
in which the price is not allowed to be bellow a certain price. 9)
Buffer stock scheme- sets a maximum and minimum price in
the market to stabilize prices.

8. 23) Price elasticity of demand (PED) is the measure of the
responsiveness of the quantity demanded of a good or service
to a change in its price
A. -Elastic demand- means that the change in the price of
the good or service will cause a larger change in the
quantity demanded
B. -Inelastic demand-means that a change in the price of
the good or service will cause a small change in the
quantity demanded.
24) Cross elasticity of demand (XED) measure of the
responsiveness of the demand for a good or service to a
change in the price of a related good
A. Substitute goods- is goods that can be used instead of
another such as coke and Pepsi. Substitute good has
positive cross elasticity of demand

9. B. Complement goods- goods which are used together, such as
calculator and batteries. Complement goods have negative cross
elasticity of demand.
25) Income Elasticity of demand (YED) is a measure of the
responsiveness of demand for a good to a change in income.
A. Normal good- Has a positive income elasticity of demand. As
income rises, demand increases
B. Inferior goods- have a negative income elasticity of demand. As
income rises, demand decreases.
26) Price elasticity of supply (PES)- is a measure of the responsiveness
of the quantity supplied of a good or service to a change in its price
A. Indirect tax- Is an expenditure tax on a good or service
B. Incidence (burden)- tax refers to the amount of tax paid by the
producer or the consumer.

10. 27) Fixed cost- are costs of production that do not change with the
level of the output.
A. Variable costs- are costs of production that vary with the level
of output
B Total cots- are the total costs of producing a certain level of
output fixed costs plus the variable cots
C Average cots is the average total costs of production per unit.
D. Marginal costs- is the additional costs of producing an
additional unit of output

11. 28) Short run- period of time in which at least one factor of
production is fixed
A. Law of diminishing average return- as extra units of a
variable factor are applied to a fixed factor, the output per unit
of the variable factor will eventually diminish
B. Law of diminishing marginal returns- As extra units of
a variable factor are applied to a fixed factor, the output
from each additional unit of variable factor will
eventually diminish

12. 29) Fixed cost- are costs of production that do not change
with the level of the output.
A. Variable costs- are costs of production that vary with
the level of output
B Total cots- are the total costs of producing a certain
level of output fixed costs plus the variable cots
C Average cots is the average total costs of production
per unit.
D. Marginal costs- is the additional costs of producing an
additional unit of output
30) Short run- period of time in which at least one factor of
production is fixed

13. 31) Law of diminishing average return- as extra units of a
variable factor are applied to a fixed factor, the output per
unit of the variable factor will eventually diminish
32) Law of diminishing marginal returns- As extra units of a
variable factor are applied to a fixed factor, the output from
each additional unit of variable factor will eventually
diminish
33) The long run- is the period of time in which all factors
of production are variable
34) Economies of scale- are any fall in long run unit costs
that come about as a result of a firm increasing its scale of
production

14. 35) Diseconomies of scale- are any increase in long run unit
costs that come about as a result of a firm increasing its
scale of production.
36) Total revenue- Is the aggregated revenue gained by a
firm from the scale of a particular quantity of output.
37) Average revenue- is the total revenue received divided
by the number of units sold. Usually the price is equal to
average revenue.
38) Marginal revenue-is the extra revenue gained from
selling an additional unit of a good or service

15. 39) Normal profits- are the amount of revenue needed to
cover the total costs of production, including the opportunity
costs.
40) Abnormal profits- are any level of profit that is greater
than the required to ensure that a firm will continue to
supply its existing good or service.
41) Profit maximizing level of output– the level of output
where marginal revenue is equal to marginal costs.
42) Shut down price- is the price where the average revenue
is equal to average variable costs. Below this price, the firm or
company will shut down in the short run.
43) The break even price- is the price where average revenue
is equal to the average total cost.