P 1 Key economic terms

Key terms that an Economics student should be familiar with. Key terms

Absolute advantage and comparative advantage

Accounting profit, normal profit and economic profit

Aggregate demand supply

Average cost (fixed and variable)

Balance of payments (Accounting and real)

Business cycle = Austrian and Keynesian explanations

Capitalism (Free Market)

Ceteris Paribus

Communism (Socialism and the developmental state)

Consumer price index

Consumption function

Deadweight loss

Demand (Demand curve – or schedule, Law of demand)

Division of labour (specialization)


Economic development, economic growth

Economic systems



Equilibrium (market – market clearing price, firm, economy)

Excess (demand, supply)

Exchange rates Externality: Air pollution from motor vehicles is an example of a negative externality. The costs of the air pollution for the rest of society is not compensated for by either the producers or users of motorized transport.

Factor market

Final goods (intermediate goods)

Fiscal policy




Gini coefficient

(a) good is a material that satisfies human wants and provides utility, for example, to a consumer making a purchase. A common distinction is made between 'goods' that are tangible property (also called goods) and services, which are non-physical.


Indifference curves

Inflation - Inflation always meant an increase in the money supply - now this has been superseded by the effect rather than the cause and that is of a significant rise in prices across the board over time affecting a basket of goods.

Keynes, Hayek, ???


Leakage: The three leakages are savings, taxes, and imports. These are termed leakages because they are "leaked" out of the core circular flow of consumption, production and expenditure. These are counteracted by the injections into the system.




Market, the: A market is the process by which the prices of goods and services are established.

Market and Government failures


Minimum wages (unemployment)

Mixed economy

Monetary policy

Money and currency

Monopolistic competition

Nationalisation and privatization


Phillips curve

Price elasticity of supply

Relative advantage


Substitution effect


Supply curve


Total cost

Tragedy of the commons


Demand curve (Movements and shifts)

Unemployment (Induced unemployment – the portion of unemployment created by interventionist policies.)

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