glossary

Question 1

barter

Answer 1

to swap one good for another without the use of money

Question 2

base period

Answer 2

the period with which all other values in a series are compared to (tends to have a value of 100)

Question 3

capital

Answer 3

a factor of production. a stock of manufactured resources used in the production of goods and services

Question 4

capital goods

Answer 4

goods used in the production of other goods

Question 5

ceteris paribus

Answer 5

all other things being equal. the assumption that all other variables are kept constant except for the one you are investigating

Question 6

circular flow of income

Answer 6

a model of the economy which shows the flow of goods, services and money

Question 7

closed economy

Answer 7

an economy where there is no foreign trade present

Question 8

command economy

Answer 8

an economic system where the state or gvt allocates resources in society through a planning process

Question 9

consumer goods

Answer 9

goods that meet and satisfy people’s wants and needs

Question 10

demand

Answer 10

the quantity purchased of a good at any given price, given that other determinants of demand remain unchanged

Question 11

division of labour

Answer 11

specialisation of workers who perform different tasks at different stages of production to make a good

Question 12

economic problem

Answer 12

how do we use the available scarce resources to satisfy people’s infinite needs and wants as effectively as possible

Question 13

economic welfare

Answer 13

the level of wellbeing or living standards of an individual or group

Question 14

entrepreneurs

Answer 14

individuals seeking out profitable opportunity for production and taking risks in attempt to exploit these

Question 15

enterprise

Answer 15

factor of production. seeking out profitable opportunities for production and taking risks in attempt to exploit these

Question 16

factors of production

Answer 16

contributes to the production process. encompasses capital, enterprise, land and labour

Question 17

free market economy

Answer 17

an economy in which resources are allocated solely by the price mechanism

Question 18

green GDP

Answer 18

a measure of GDP which takes into account the environmental costs of production

Question 19

GDP

Answer 19

gross domestic product. a measure of the total output of an economy

Question 20

GNI

Answer 20

gross national income. value of goods and services produced over a period of time plus net overseas interest payments and dividends

Question 21

GNP

Answer 21

gross national product. market value of goods and services produced over a period of time through the labour or property supplied by citizens of a country domestically and overseas

Question 22

hidden economy

Answer 22

almost like an underground market where economic activity is unregulated and unrecorded

Question 23

index number

Answer 23

an indicator showing the relative value of one number compared with another, using a base of 100

Question 24

labour

Answer 24

factor of production. workforce used to produce goods

Question 25

land

Answer 25

factor of production. all natural resources used to produce goods

Question 26

law of diminishing marginal utility

Answer 26

the value or utility that individual consumers gain from the last product consumed falls, as the number of consumed increases.
eg. the marginal utility of consuming the fourth item is lower than the second item

Question 27

margin

Answer 27

point of possible change

Question 28

mixed economy

Answer 28

an economy where the price mechanism and government planning allocate resources within society

Question 29

what is money?

Answer 29

any item which fulfills:

• a medium of exchange
• a measure of value
• a store of value
• a method of deferred payment

Question 30

neo-classical theory

Answer 30

a theory of economics that typically starts with the assumption that economic agents will maximise their utility and act rationally

Question 31

nominal values

Answer 31

values unadjusted for the effects of inflation (inflation is still included in the value)

Question 32

normative statement

Answer 32

a statement which cannot be supported or refuted because it is a value judgement (opinion)

Question 33

open economy

Answer 33

an economy where there is trade with other countries

Question 34

opportunity cost

Answer 34

benefits forgone of the next best alternative

Question 35

positive statement

Answer 35

a statement which can be supported or refuted by evidence (factual)

Question 36

primary sector

Answer 36

exploitation and production of raw materials

Question 37

private sector

Answer 37

part of the economy owned by individuals, companies and charities (not associated with the gvt)

Question 38

PPF

Answer 38

production possibility frontier. a curve showing the maximum potential output level of a combination of two goods / services when all resources are used productively

Question 39

productivity

Answer 39

output per unit of labour

Question 40

public sector

Answer 40

part of economy where production is organised by the state or the gvt

Question 41

PPP

Answer 41

purchasing power parity. an exchange rate of one currency for another which compares how much of a typical basket of goods in one country compares to another

Question 42

real values

Answer 42

values adjusted for inflation (removes inflation from the value)

Question 43

secondary sector

Answer 43

industries involved in the production of goods, mainly manufactured

Question 44

supply

Answer 44

the quantity of goods that a supplier is willing to sell at any given price over a period of time

Question 45

tertiary sector

Answer 45

industries involved in the production of services

Question 46

transfer payments

Answer 46

income for which there is no corresponding output

Question 47

utility

Answer 47

the satisfaction derived from consuming a good