IGCSE Economics key terms

123 terms with short definitions you can learn for the exam. Type to filter the list.

Command words 11

Analyse (6 marks): Write an extended answer that develops and explores an economic concept or issue, with chains of reasoning and the context.
Assess (9 marks): Write an extended answer that uses the information given to weigh up factors and compare them, ending with a judgement.
Calculate (2 marks): Use maths to reach an answer from the data given. Show your working and include units.
Define (1 mark): Give the meaning of a term from the specification.
Describe (2 marks): Identify a consequence of an economic event and briefly develop it.
Draw (3 marks): Draw a diagram with the separate features that earn marks: labelled axes, labelled curves and the shift or equilibrium asked for.
Evaluate (12 marks): Write an extended answer, applying your knowledge to the context, considering both sides and reaching a supported conclusion.
Explain (3 marks): Make one point of fact, then add two further linked steps of explanation.
Multiple choice (1 mark): Choose the correct answer or answers from the options. Tests recall or needs a quick calculation.
State (1 mark): Give a short answer, no longer than a sentence, using knowledge from the specification.
What is meant by (2 marks): Define the term in two separate parts, for example what it is plus what it involves.

Key terms glossary 98

Absolute poverty: When a person cannot afford basic needs such as food, shelter and clothing.
Appreciation: A rise in the value of a currency in a floating exchange rate system.
Average cost: Total cost divided by output: the cost of making one unit.
Balance of payments: A record of a country's transactions with the rest of the world.
Barriers to entry: Obstacles that make it hard for new firms to enter a market, such as high start-up costs or patents.
Boom: The phase of the economic cycle with high growth, low unemployment and rising inflation.
Budget deficit: When government spending is greater than government revenue in a year.
Budget surplus: When government revenue is greater than government spending in a year.
Capital: Man-made resources used to produce goods and services, such as machinery and buildings.
Collective bargaining: Negotiation between a trade union and employers on behalf of workers about pay and conditions.
Competition policy: Government action to promote competition, limit monopoly power, control mergers and protect consumers.
Complementary goods: Goods used together, such as printers and ink; a rise in the price of one cuts demand for the other.
Consumer prices index (CPI): A measure of inflation based on the weighted average price of a basket of goods and services bought by households.
Cost-push inflation: Inflation caused by rising costs of production, such as wages or raw materials, being passed on in higher prices.
Current account: The part of the balance of payments recording trade in goods and services.
Current account deficit: When the value of imports of goods and services is greater than the value of exports.
Cyclical unemployment: Unemployment caused by a fall in demand in a downturn or recession.
Deflation: A sustained fall in the general price level.
Demand: The quantity of a good that consumers are willing and able to buy at a given price over a period of time.
Demand-pull inflation: Inflation caused by total demand in the economy growing faster than output.
Depreciation (currency): A fall in the value of a currency in a floating exchange rate system.
Derived demand: Demand for a factor such as labour that comes from demand for the product it makes.
Direct tax: A tax on income or wealth, such as income tax.
Diseconomies of scale: Rising average costs as a firm grows too large, for example from poor communication.
Division of labour: Splitting production into separate tasks, each done by different workers.
Dumping: Selling exports abroad at a price below the cost of production.
Economic cycle: The regular pattern of boom, downturn, recession and recovery in economic activity.
Economic growth: An increase in the real output of an economy, measured by the rise in real GDP.
Economies of scale: Falling average costs as a firm increases its scale of production.
Elastic: When quantity responds more than proportionally to a change in price (elasticity greater than 1, ignoring the sign).
Enterprise: The factor of production that organises the other factors and takes risks.
Equilibrium price: The price at which quantity demanded equals quantity supplied.
Excess demand: When quantity demanded is greater than quantity supplied, below the equilibrium price.
Excess supply: When quantity supplied is greater than quantity demanded, above the equilibrium price.
Exchange rate: The price of one currency in terms of another.
Expansionary fiscal policy: Cutting taxes or raising government spending to increase total demand.
External benefit: A benefit to a third party not involved in the transaction, such as from vaccinations.
External cost: A cost to a third party not involved in the transaction, such as pollution.
Externality: A cost or benefit that falls on a third party.
Factors of production: The resources used to make goods and services: land, labour, capital and enterprise.
Fiscal policy: Using government spending and taxation to influence the economy.
Fixed costs: Costs that do not change with output in the short run, such as rent.
Foreign direct investment (FDI): Investment by a firm in business operations in another country.
Free rider: Someone who benefits from a good without paying for it.
Free trade: Trade between countries without barriers such as tariffs or quotas.
Frictional unemployment: Short-term unemployment while people move between jobs.
Globalisation: The increasing integration and interdependence of the world's economies.
Gross domestic product (GDP): The total value of output produced in a country in a year.
Human capital: The skills, knowledge and experience of workers.
Income elasticity of demand (YED): How responsive demand is to a change in income.
Indirect tax: A tax on spending, such as VAT, collected from sellers.
Inferior good: A good whose demand falls when income rises; negative YED.
Inflation: A sustained rise in the general price level.
Infrastructure: Basic structures an economy needs, such as roads, rail, ports and communications.
Interest rate: The cost of borrowing and the reward for saving.
Labour: The human effort used in production.
Land: Natural resources used in production.
Market: Any place or system where buyers and sellers exchange goods and services.
Market failure: When the free market leads to a misallocation of resources.
Minimum wage: The lowest hourly wage employers are legally allowed to pay.
Mixed economy: An economy with both a private sector and a public sector.
Monetary policy: Using interest rates to influence the economy, set by the central bank.
Monopoly: A market with one firm (or a dominant firm), a unique product and high barriers to entry.
Multinational company (MNC): A firm that has operations in more than one country.
Normal good: A good whose demand rises when income rises; positive YED.
Oligopoly: A market dominated by a few large firms.
Opportunity cost: The next best alternative given up when a choice is made.
Price elasticity of demand (PED): How responsive quantity demanded is to a change in the good's price.
Price elasticity of supply (PES): How responsive quantity supplied is to a change in the good's price.
Price mechanism: The way prices, set by demand and supply, allocate resources in a market.
Primary sector: Extracting natural resources: farming, fishing, mining and forestry.
Private sector: The part of the economy owned and run by individuals and firms, usually for profit.
Privatisation: Transferring ownership of a firm from the public sector to the private sector.
Production possibility curve (PPC): A curve showing the maximum combinations of two goods an economy can produce with its resources.
Productivity: Output per unit of input, such as output per worker per hour.
Profit: Total revenue minus total costs.
Progressive tax: A tax that takes a larger percentage of income from people on higher incomes.
Protectionism: Using barriers such as tariffs, quotas or subsidies to protect domestic industries from foreign competition.
Public good: A good that is non-excludable and non-rival, such as street lighting.
Public sector: The part of the economy owned and run by the government.
Quota: A physical limit on the quantity of a good that can be imported.
Recession: A period of negative economic growth, usually two quarters in a row of falling real GDP.
Relative poverty: When income is well below the average income in a country.
Scarcity: Unlimited wants but finite resources to satisfy them.
Secondary sector: Manufacturing and construction: turning raw materials into products.
Specialisation: Concentrating on producing a limited range of goods or tasks.
Structural unemployment: Long-term unemployment caused by the decline of an industry, so workers' skills no longer match the jobs.
Subsidy: Money given by the government to producers to lower costs or encourage output.
Substitute goods: Goods that can be used in place of each other; a rise in the price of one raises demand for the other.
Supply: The quantity of a good that producers are willing and able to sell at a given price over a period of time.
Supply-side policies: Policies that aim to increase the productive capacity of the economy, such as education and training.
Tariff: A tax on imports.
Tertiary sector: Providing services, such as banking, retail and tourism.
Trade union: An organisation of workers that acts on their behalf to improve pay and conditions.
Trading bloc: A group of countries that reduce or remove trade barriers between members.
Unemployment: People of working age who are without a job, are available to start work and are actively seeking work.
Variable costs: Costs that change directly with output, such as raw materials.
World Trade Organization (WTO): The international body that sets rules for trade between nations, negotiates trade agreements and settles trade disputes.

Formulas and calculations 14

Average: total of the values ÷ number of values
Average (total) cost (AC): total cost ÷ output
Current account balance: value of exports of goods and services − value of imports of goods and services
Income elasticity of demand (YED): % change in quantity demanded ÷ % change in income. Positive: normal good (above 1: luxury); negative: inferior good.
Interest on savings (one year): amount saved × interest rate ÷ 100
Net pay: gross pay − deductions (such as income tax and other contributions)
Percentage change: (new value − old value) ÷ old value × 100
Price elasticity of demand (PED): % change in quantity demanded ÷ % change in price. Usually negative; ignoring the sign, above 1 is elastic and below 1 is inelastic.
Price elasticity of supply (PES): % change in quantity supplied ÷ % change in price. Positive; above 1 is elastic, below 1 is inelastic.
Profit: total revenue − total costs (a negative answer is a loss)
Social cost: private cost + external cost
Total cost (TC): total fixed costs + total variable costs
Total revenue (TR): price × quantity sold
Total variable cost (TVC): variable cost per unit × output

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