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Microeconomics Glossary
The definitive resource for all your keywords in Paper 1. Mastering these key definitions is your first step towards exam success.
Module 1 - Introduction to Economics
Topic 1.1: Main Economic Groups and Factors of Production
Consumer
A person or organisation that purchases a good or service for use, and also acts as an end user of a good. They create demand in an economy
Government
A political authority that decides how a country is run, and often supplies good or services that are underproduced such as education/healthcare
Producer
A person, company or country that makes, grows or supplies a good or service to make a profit - they have influence over price and quantity.
Factors of Production
the resources in an economy that can be used in the production process to make goods and services, consisting of labour, capital, land, and enterprise
Labour
The FoP concerned with the workforce of an economy, in terms of its physical and mental health involved in production
Capital
The FoP concerned with the man-made aids to production in an economy, such as machinery
Land
The FoP concerned with the raw materials and natural resources of an economy, such as crude oil or farmland
Enterprise
The FoP that takes risk in organising the other three factors of production: someone who does this is an entrepreneur
Good
A tangible product that can be seen or touched
Service
A product that is intangible and can't be seen or touched
Topic 1.2: The Basic Economic Problem
Want
A want is a good or service that a consumer wishes for, but is not essential for survival
Need
A good or service that is essential for survival
Unlimited Wants
The infinite desire for goods and services consumers would like to have
Scarce Resources
When there is an insufficient amount of something to satisfy all unlimited wants
Opportunity Cost
The next best alternative forgone when making an economic choice
The Basic Economic Problem
The problem of how best to allocate scarce resources to satisfy unlimited wants
Economic Sustainability
The best use of scarce resources to create growth and development in an economy both now and and into the future
Environmental Sustinability
when the impact of growth or development on the natural world is small and possible to manage, both now and into the future
Social Sustainability
When the impact of growth and development promotes an improvement in the quality of life for all people, ​both now and into the future
Module 2: The Role of Markets and Money
Topics 2.1-2.4
Topic 2.1: The Role of Money
Market
Any way of bringing buyers and sellers together to buy and sell goods and services
Market Economy
An economy in which price, quantity and the allocation of scarce resources are determined by the market forces of supply and demand, with no government intervention
Product Market
A market in which final goods and services are bought and sold
Factor Market
AÂ market in which the services of the factors of production and bought and sold
Specialisation
The process by which an indivual, firm or whole country concentrates on producing what they are best at
Exchange
The giving up of something that a firm/individual has in return for something that they do not have but wish to possess
Primary Sector
All activities in an economy involving the direct use of natural resources such as the extraction of raw materials and goods from land and sea
Secondary Sector
All activities in an economy concerned with the manufacturing and construction using primary sector goods
Tertiary Sector
All activities in an economy involving the idea of a service
Topic 2.2: Demand
Demand
The willingness and ability of a consumer to buy a good or service at a given time period and given price
Price Elasticity of Demand
the responsiveness of quantity demanded to change following a change in price
Inelastic Demand
When the percentage change in quantity demanded is lower than the percentage change in price, and the value is between 0 and -1
Elastic Demand
When the percentage change in quantity demanded is greater the percentage change in price and the value is below -1
Topic 2.3: Supply
Supply
The willingness and ability of a producer to sell a good or service at a given price and given time period
Price Elasticity of Supply
the responsiveness of quantity supplied to change following a change in price
Inelastic Supply
When the percentage change in quantity supplied is lower than the percentage change in price, and the value is between 0 and 1
Elastic Supply
When the percentage change in quantity supplied is greater than the percentage change in price, and the value is above 1
Topic 2.4: Price
Price
The sum of money paid by a consumer to a producer in return for a good or service, determined by the interaction of the market forces of supply and demand
Cost
The sum of money paid by a producer in order to produce a good or serviceÂ
Worth
How much you value something, which varies depending on context and differing situations
Market Equilibrium
Where quantity demanded and supplied meet, with no excess demand or excess supply
Efficiency
The optimal production level and allocation of scarce resources, where costs are at their lowest with high revenue
Determination of Price
When the market forces of supply and demand interact to set a price level for a good or service
Allocation of Resources
When the market forces of supply and demand interact to distribute resources amongst producers, and goods and services amongst consumers
Market Forces
Supply and demand: these forces interact to determine price, quantity and the allocation of scarce resources in a market economy with no government intervention
Module 2: The Role of Markets and Money
Topics 2.5-2.8
Topic 2.5 - Competition
Competition
A situation in a market where multiple producers are selling a similar product to the same set of consumers
Monopoly
A sole producer of a good or service, with over 25% of market share
Oligopoly
When a small number of firms control the large majority of market share - in the UK this is when 5 firms have over 50% of market share
Topic 2.6: Production
Production
The total output of goods and services produced by a firm/industry in a given time period
Productivity
One measure of the efficiency in the uses of the factors of production, measured in unit of output per unit input
Total Revenue
The total income of a firm made from the sale of its goods/services, calculated by price x quantity
Average Revenue
The revenue per unit sold, which is the same as price
Total Cost
All of the costs of the firm added together, comprising of total variable costs, and total fixed costs
Average Cost
The cost of producing one single unit, calculated by total cost divided by quantity
Profit
The difference between the total revenue and total cost of producing and selling a good/service, including any opportunity costs
Economies of Scale
The cost advantages a firm gains by increasing production which leads to a fall in average costs.
Topic 2.7: Labour Markets
Labour Markets
Where workers sell the service of their labour and employers buy their labour, consisting of a firm's demand for labour and a household's supply of labour
Supply of Labour
The total number of people willing and able to supply their labour at a given wage rate and time period, including the unemployed
Active Labour Force
The active labour force includes the employed and unemployed and consists of those who are willing and able to work at a given wage rate and time period
Inactive Labour Force
The inactive labour force is anyone not willing or able to work at the current wage rate or time period, including students or retired people
Equilibrium Wage and Quantity
Where the quantity demanded and supplies for labour are equal, with no excess demand or supply of labour
Net Pay
The amount of money a worker makes from wages after all deductions are made, including income tax, national insurance or pension contributions
Gross Pay
The amount of money a worker makes from wages before any deductions including income tax, or national insurance or pension contributions. Gross pay also includes bonuses, such as overtime
Topic 2.8: The Role of Financial Markets and Money
Money
A medium of exchange, that is generally accepted as a medium of payment for goods and services, consisting of legal tender and bank deposits
Medium of Exchange
Anything that sets the standard value of goods and services acceptable to all parties involved in a transaction
Financial Sector
The financial sector consists of financial organisations and their products, and involves the flow of capital, helping a market to function and the three economic groups to carry out their function
Building Society
Building societies are not companies but mutual financial institutions owned by its members, aiming to receive deposits and provide mortgages to allow them to buy property
Insurance Companies
Insurance companies guarantee compensation for a specified loss or damage, in return for an agreed premium that the consumer pays
Investment
Investment is the purchase of capital goods to produce future goods and services
Life Insurance
Life insurance aims to pay out money to the surviving family if a person passes away, in order to replace the loss of income
General Insurance
General insurance covers all non-life policies, including properties, for example, and can also help with dealing with an unexpected event