A–Z Glossary
Every Economics term, defined for exams
Concise definitions written by Dr Daisy. Suitable for GCSE, A-Level and IB. Search or scroll alphabetically.
A
- Aggregate Demand
- Total planned spending on goods and services in an economy at a given price level (AD = C + I + G + (X − M)).
- Aggregate Supply
- Total quantity of goods and services producers are willing and able to supply at a given price level.
- Allocative Efficiency
- When resources are distributed so that consumer satisfaction is maximised; occurs where P = MC.
B
- Balance of Payments
- A record of all financial transactions between a country and the rest of the world over a period of time.
C
- Capital
- Man-made goods used to produce other goods and services, e.g. machinery, factories.
- Comparative Advantage
- The ability of a country to produce a good at a lower opportunity cost than another country.
D
- Demand
- The quantity of a good or service consumers are willing and able to buy at a given price in a given time period.
E
- Economic Growth
- An increase in real GDP over time; the productive capacity of an economy expanding.
- Externality
- A cost or benefit imposed on a third party not involved in the original transaction.
F
- Fiscal Policy
- Government use of taxation and spending to influence aggregate demand and the economy.
G
- GDP
- Gross Domestic Product — the total monetary value of all final goods and services produced in a country in a year.
I
- Inflation
- A sustained rise in the general price level over time, measured by indices like CPI.
- Interest Rate
- The cost of borrowing or the reward for saving money, set by the central bank's base rate.
M
- Market Failure
- When the free market fails to allocate resources efficiently, leading to welfare loss.
- Monetary Policy
- Central bank actions, mainly changing interest rates and money supply, to control inflation and AD.
- Monopoly
- A market dominated by a single seller with significant pricing power, often defined as >25% market share.
O
- Opportunity Cost
- The value of the next best alternative forgone when a choice is made.
P
- Price Elasticity of Demand
- The responsiveness of quantity demanded to a change in price (% ΔQd / % ΔP).
- Productive Efficiency
- Producing at the minimum point of the average cost curve, using fewest resources per unit.
Q
- Quantitative Easing
- Central bank purchase of financial assets to inject money into the economy and lower long-term rates.
R
- Recession
- Two consecutive quarters of negative real GDP growth.
S
- Supply
- The quantity of a good or service producers are willing and able to sell at a given price in a given time period.
T
- Tariff
- A tax on imported goods, raising their price and protecting domestic producers.
U
- Unemployment
- People of working age who are willing and able to work but cannot find a job.
V
- Value Added
- The difference between the value of output and the cost of inputs used to produce it.