Economics Terminology

Economics Terminology

Goods: They are things you can touch and use, or consume, such as clothes ,food and books.

Services: They are things that other people do for you, such as cutting your hair or selling you goods in a shop.

Resource: A resource is any physical or virtual entity of limited availability, or anything used to help one earn a living.[ Or Something that can be used for support or help

Production : Production is the process of creating a product or service by combining the factors of production . or it is an activity desined to satisfy people’s want.

Producer : The people who make and sell goods and services are known as producers.

.Consumption :desires for the consumption of goods and services. The using up of goods and services to satisfy our wants is known s consumption.

Consumers: The people who buy goods and services to satisfy their wants are known as consumers.

Basic economic problem: Resources have to be llocated between competing uses because wants are infinite whilst resources are scare.

Choice: Economic choices involve the lternative uses of scarce resources.

Economic Goods: Goods which are caree because their use has an opportunity cost.

Free goods: goods which are unlimited in supply and which therefore have no opportunity cost.

Needs: The minimum which is necessary for a person to survive as a human being. Or something necessary to sustain life

Want: Something chosen to satisfy a need or make life more enjoyable.Or desires for the consumption of goods and services.

Opportunity cost: The benefits foregone of the next best alternative. Or Cost of one item in terms of the next best alternative that must be foregone.

Exchange : The ability to exchange one type of goods or services for another, normally using money as a means of exchange.

Specialisation : the tendency of an individual, business, region or country to produce certain goods or services.

Production Possiblity frontier /PPC: a curve which shows the maximum potential level of output of one good given a level of out for all other goods in the economy.

Scarce resources: resources which are limited in supply so that choices have to be made about their use.

Normative economics : the study and presentation of policy prescriptions involving value jedgements about the way nin way in which scarce resources are allocated.

Positive economics: the scientific or objective study of the allocation of resources..

Division of labour: specialization by workers.

Factors of production: the input to the production process:

Land : The natural and unreined resources including farm and agricultureal land, forestry land, quarries and mines, rivers, the seas and the atmoshphere, and every thing that lives and grows in or on them.

Labour : the work that is performed by people.

Capital : items not occurring naturally ,including building such as offices, factories and hospitals, and machinery and other equipment, material and parts.

Entrepreneur: People must have ability to to contribute to the production of goods and services and a risk taker to able to employ and organize resources in a firm and run it successfully.

Firm: It is an organization that owns a factory or a number of factories, offices or perhaps even shops where goods and services are produced.

Fixed capital: economics resources such as factories and hospitqals which are used to transform working capital into goods and services.

Human capital: the value of the productive potential of an individual or group of workers.It is made up of th skills, talent ,education nd training of an individual or group and represents the value of future earnings and production.

Factor endorsements : the quantity and quality of factors of production available.

Market economy : is an economy where households and firms each acting in their own self interest determine answers to the three questions above through their interactions in markets.

Command economy is one where the state provides the answers

Mixed economy is one where both markets and the state are responsible for the answers.

Planned economy:The government decides how all scarce resources were to be used.so government provides millions of instructions to hundred to hundred of thousands of firms on wxctly they should produce..In planned economies firms world not aim to produce what the government wanted.

Prouction : it involves changing nturl resource into prouct or the supply of service.Eg.prouction cn be een on builing ite where houese constructed.

Durable good: such as cookers,HD televison,ipods,books,cars,and furniture can be used repeatedly for a long period of time.

Non durable goods: such as food ,confectionary, newspapers and shoe polish are used very soon after they are purchased.

Capital goods: are theose goods purchased by business and used to produce other goods Tools ,Euipments and machinery ,hairdressing.leisure,transport and gardening are its example.

Supply of service: has grown in recent years.Banking insurance ,hairdressing , leisure,transport, and gardening are the example of this type of business activity

Labour market- where people are hired for their services

Housing markets-Where people buy and sell properties.

Money markets-Where people and institution borrow and lend money such as commercial banks

Commodity markets Where raw material s such as copper and coffee are bought mainly by business.

Market price:Buyers can buy the product at a certain prices.The market price is the central to the operation of markets

Chapter on Demand and Supply

Demand is defined as the quantity of a good or service that consumers are willing and able to buy at a given price in a given time period. Each of us has an individual demand for particular goods and services and the level of demand at each market price reflects the value that consumers place on a product and their expected satisfaction gained from purchase and consumption.

Market demandMarket demand is the sum of the individual demand for a product from each consumer in the market. If more people enter the market and they have the ability to pay for items on sale, then demand at each price level will rise.

Effective demand and willingness to payDemand in economics must be effective which means that only when a consumers' desire to buy a product is backed up by an ability to pay for it does demand actually have an effect on the market. Consumers must have sufficient purchasing power to have any effect on the allocation of scarce resources. For example, what price are you willing to pay to view a world championship boxing event and how much are you prepared to spend to watch Premiership soccer on a pay-per-view basis? Would you be willing and able to pay to watch Elton John perform live through a subscription channel?

The concept of derived demandThe demand for a product X might be strongly linked to the demand for a related product Y – giving rise to the idea of a derived demand.

The Law of Demand Other factors remaining constant (ceteris paribus) there is an inverse relationship between the price of a good and demand.

• As prices fall, we see an expansion of demand
• If price rises, there will be a contraction of demand.

The ceteris paribus assumption Understanding ceteris paribus is the key to understanding much of microeconomics. Many factors can be said to affect demand. Economists assume all factors are held constant (ie do not change) except one – the price of the product itself. A change in a factor being held constant invalidates the ceteris paribus assumption

The Demand CurveA demand curve shows the relationship between the price of an item and the quantity demanded over a period of time. There are two reasons why more is demanded as price falls:

The Income Effect: There is an income effect when the price of a good falls because the consumer can maintain current consumption for less expenditure. Provided that the good is normal, some of the resulting increase in real income is used by consumers to buy more of this product.

• The Substitution Effect: There is also a substitution effect when the price of a good falls because the product is now relatively cheaper than an alternative item and so some consumers switch their spending from the good in competitive demand to this product.

A change in the price of a good or service causes a movement along the demand curve. A fall in the price of a good causes an expansion of demand; a rise in price causes a contraction of demand. Many other factors can affect total demand - when these change, the demand curve can shift. This is explained below.Shifts in the Demand Curve Caused by Changes in the Conditions of Demand

There are two possibilities: either the demand curve shifts to the right or it shifts to the left

Economics - the study of how society manages its scarce resources
Efficiency - The property of society getting the most it can from its scarce resources
Equity - the property of distributing economic prosperity fairly among the members of a social community
Opportunity Cost - whatever must be given up to obtain some item.
Rational People - people who systematically and purposefully do their best to achieve their objectives
MarginalChanges - small incremental adjustments to a plan of action
Incentive - something that induces a person to act.
Market Economy - An economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services.
Property Rights - the ability of an individual to own and exercise control over scarce resources
Market Failure - a situation in which a market left on its own fails to allocate resources efficiently
Externality - the impact of one person's actions on the well-being of a bystander
Market Power - the ability of a single economic actor or small group of actors to have a substantial influence on market prices.
Productivity - the quantity of goods and services produced from each hour of a worker's time
Inflation - an increase in the overall level of prices in the economy
Business Cycles - fluctuations in economic activity such as employment and production
Circular-Flow Diagram - a visual model of the economy that shows how dollars flow through markets among households and firms
Production Possibilities Frontier - PPF - A graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology.
Microeconomics - the study of how households and businesses make decisions and how theyinteract in markets
Macroeconomics - the study of economy-wide phenomena such as inflation, unemployment, and aggregate economic growth. Mainly has to do with the economy being in the aggregate, such as total production.
Positive Statements - claims which describe the world as it already is
Normative Statements - claims which try to persuade us into a line of action to change the world into how it is supposed to be.
Absolute Advantage - the ability to produce a good using fewer inputs than another producer
Comparative Advantage - the ability to produce a good at lower opportunity cost than another producer
Imports - goods produced abroad and sold domestically
Exports - goods produced domestically and sold abroad

Absolute advantage: A country has an absolute advantage if its output per unit of input of all goods and services produced is higher than that of another country.
Ad valorem tax:(in Latin: to the value added) - a tax based on the value (or assessed value) of property. Ad valorem tax can also be levied on imported

items. n ad valorem tax is a tax imposed on the value of assets like personal property and real estate. This form of taxation is one of the major forms of government revenue. They can also be levied as duty on imported items.

Literally, Ad valorem means “according to value” in Latin. [1]. The ad valorem tax, which is levied on ownership of assets, is differs from most other taxes as it is not imposed based on transactions but on ownership. The sales tax and the value added tax are transactional taxes while property tax is an ad valorem tax.

Aggregate demand is the sum of all demand in an economy. This can be computed by adding the expenditure on consumer goods and services, investment, and not exports (total exports minus total imports).
Aggregate supply is the total value of the goods and services produced in a country, plus the value of imported goods less the value of exports.

Average total cost is the sum of all the production costs divided by the number of units produced. See also average cost

Balance of Payment is the summation of imports and exports made between one countries and the other countries that it trades with.
Balance of trade: The difference in value over a period of time between a country's imports and exports.
Barter system: System where there is an exchange of goods without involving money

Birth rate: The number of births in a year per 1,000 population.
Bond: A certificate of debt (usually interest-bearing or discounted) that is issued by a government or corporation in order to raise money; the bond issuer is required to pay a fixed sum annually until maturity and then a fixed sum to repay the principal. Bonds guide.
Boom: A state of economic prosperity, as in boom times.
Break even: This is a term used to describe a point at which revenues equal costs (fixed and variable).

Budget: A summary of intended expenditures along with proposals for how to meet them. A budget can provide guidelines for managing future investments and expenses.
The budget deficit is the amount by which government spending exceeds government revenues during a specified period of time usually a year.
Bull: An investor with an optimistic market outlook; an investor who expects prices to rise and so buys now for resale later. A Bull Market is one in which prices are rising.

Capital: Wealth in the form of money or property owned by a person or business and human resources of economic value. Capital is the contribution to productive activity made by investment is physical capital (machinery, factories, tools and equipments) and human capital (eg general education, health). Capital is one of the three main factors of production other two are labour and natural resources.
Capital account; Part of a nation's balance of payments that includes purchases and sales of assets, such as stocks, bonds, and land. A nation has a capital account surplus when receipts from asset sales exceed payments for the country's purchases of foreign assets. The sum of the capital and current accounts is the overall balance of payments.

Cartel: An organization of producers seeking to limit or eliminate competition among its members, most often by agreeing to restrict output to keep prices higher than would occur under competitive conditions. Cartels are inherently unstable because of the potential for producers to defect from the agreement and capture larger markets by selling at lower prices.
Census: Official gathering of information about the population in a particular area. Government departments use the data collected in planning for the future in such areas as health, education, transport, and housing..
Central bank: Major financial institution responsible for issuing currency, managing foreign reserves, implementing monetary policy, and providing banking services to the government and commercial banks.
Centrally planned economy: A planned economic system in which the production, pricing, and distribution of goods and services are determined by the government rather than market forces. Also referred to as a "non market economy." Former Soviet Union, China, and most other communist nations are examples of centrally planed economy

Classical economics: The economics of Adam Smith, David Ricardo, Thomas Malthus, and later followers such as John Stuart Mill. The theory concentrated on the functioning of a market economy, spelling out a rudimentary explanation of consumer and producer behaviour in particular markets and postulating that in the long term the economy would tend to operate at full employment because increases in supply would create corresponding increases in demand.
Closed economy: A closed economy is one in which there are no foreign trade transactions or any other form of economic contacts with the rest of the world.
Collateral security: Additional security a borrower supplies to obtain a loan.
Commercial Policy: encompassing instruments of trade protection employed by countries to foster industrial promotion, export diversification, employment creation, and other desired development-oriented strategies. They include tariffs, quotas, and subsidies.
Comparative advantage: The ability to produce a good at a lower cost, relative to other goods, compared to another country. With perfect competition and undistorted markets, countries tend to export goods in which they have a Comparative Advantage and hence make gains from trading