IGCSE Economics Glossary of Terminologies

Absolute poverty is an extreme form of poverty; it indicates the number of people who cannot afford minimal standards of basic human needs (food, clothing, health care and shelter).
Appreciation of a currency occurs when there is an increase in its value relative to another currency operating in a floating exchange rate system.
Average costs are calculated by dividing total costs by the number of units produced.

Backward vertical integration occurs when a firm from the secondary sector of industry merges with a firm from the primary sector of industry or a firm from the tertiary sector of industry merges with a firm from the secondary sector of industry.
Bad debts occur when people or businesses cannot repay a loan.
Balance of payments is a financial record of a country’s transactions with the rest of the world for a given time period, per time period.
Balance of trade (or simply the trade balance) is the difference between a country’s total export earnings and its total import expenditure.
Barriers to entry are the obstacles that prevent other firms from effectively entering the market. Examples include the existence of intellectual property rights, large advertising budgets of existing firms and legal constraints to prevent wasteful competition.
Barriers to trade are obstructions to free trade, imposed by a government to safeguard national interests by reducing the competitiveness of foreign firms.
Bartering is the act of swapping items in exchange for other items through a process of bargaining and negotiation.
Base year refers to the starting year when calculating a price index.
Basic economic problem is how to allocate scarce resources to satisfy unlimited needs and wants.
Birth rate measures the number of live births per thousand of the population in a year.
Borrowing occurs when an individual, firm or the government takes out a loan from a financial institution, paying back the debt with interest over a period of time.
Business is an organisation that sells goods and/or services.
Business cycle describes the fluctuations in the economic activity of a country over time, thus creating a long-term trend of economic growth in the economy.

Capital refers to manufactured resources used to further the production process, e.g. tools, machinery and buildings.
Capital-intensive production happens when a firm spends proportionately more money on capital costs than any other factor of production.
Central bank is the term used to describe the monetary authority that oversees and manages the supply of money and the banking system of the nation.
Chain of production describes how businesses from the primary, secondary and tertiary sectors work interdependently to make a product and sell it to the final customer.
Collateral means security for a loan, e.g. property in the case of a mortgage, or the car purchased in the case of a car loan.
Collective bargaining occurs when a trade union representative negotiates on behalf of its members with the employer to reach an agreement which both sides find acceptable.
Commercial banks are retail banks that provide financial services to their customers, such as accepting savings account deposits and approving bank loans.
Complements are products that are demanded (for their use) together with other products. For example, tea and milk or the cinema and popcorn are jointly demanded.
Conglomerate integration/lateral integration/ diversification occurs when a merger or takeover occurs between two firms from unrelated areas of business.
Conspicuous consumption occurs when people purchase highly expensive goods and services due to status or a desired image.
Consumer prices index (CPI) is a weighted index of consumer prices in the economy over time. It is used to measure the cost of living for an average household.
Consumer spending refers to the amount of household expenditure per time period.
Consumption is the value of all private household consumption within a country.
Co-operatives are business organisations set up, owned and run by their members, who may be employees and/or customers.
Cost-push inflation is a cause of inflation, triggered by higher costs of production, which force up prices.
Costs are the payments made by firms during the production process, e.g. the cost of land, labour, capital and enterprise.
Current account is a component of the balance of payments that records all exports and imports of goods and services between a country and the rest of the world.
Current account deficit occurs when a country’s financial outflows are greater than its financial inflows.
Current account surplus exists if a country’s financial inflows are greater than its financial outflows.

Death rate measures the number of deaths per thousand of the population in a year.
Deflation is the sustained fall in the general price level in an economy over time, i.e. the inflation rate is negative.
Demand refers to the willingness and the ability of customers to pay a given price to buy a good or service. The higher the price of a product, the lower its demand tends to be.
Demand for labour is the number of workers firms are willing and able to employ at a given wage rate.
Demand-pull inflation is a cause of inflation, triggered by higher levels of aggregate demand in the economy, which drive up the general price level.
Demerger occurs when two previously merged firms decide to break up and become two separate firms.
Demerit goods are goods or services which when
consumed cause negative spillover effects in an economy, e.g. cigarettes, alcohol and gambling. Demerit goods are over-consumed due to imperfect consumer information about such goods.
Demographics is the study of population distribution and trends.
Dependency ratio is a comparison of the number of people who are not in the labour force with the number of people in active paid employment.
Depreciation of a currency occurs when there is a fall in its value relative to another currency operating in a floating exchange rate system.
Deregulation is a supply-side policy of making markets more competitive by removing barriers to entry and other market imperfections.
Derived demand means that the demand for factors of production occurs not for their own sake but for the goods and services that they are used to produce.
Devaluation occurs when the price of a currency operating in a fixed exchange rate system is officially and deliberately lowered.
Direct taxes are government charges imposed on income and wealth, such as income tax and inheritance tax.
Diseconomies of scale occur when average costs of production start to increase as the size of a firm increases.
Disinflation occurs when the rate of inflation falls, but is above zero, i.e. prices are generally still rising, only at a slower rate.
Disposable income refers to the earnings of an individual after income tax and other charges have been deducted.
Dissaving occurs when people spend their savings.
Diversification is when a merger or takeover occurs between firms from different sectors of industry that operate in unrelated areas of business.
Division of labour is the specialisation of labour by getting workers to focus on one aspect of the production process.
Dumping is the act of selling exports at artificially low prices, below those charged by domestic firms, and often less than the costs of production.

Economic agents are households (private individuals in society), firms that operate in the. private sector of an economy and the government (the public sector of an economy).
Economic goods are those which are limited in supply.
Economic growth is the increase in the level of national output, i.e. the annual percentage change in GDP.
Economic system describes the way in which an economy is organised and run, including how to best allocate society’s scarce resources.
Economies of scale occur when average costs of production fall as the size of a firm increases.
Embargo is a type of protection by placing a ban on the trade of a certain good or with a particular country.
Employer refers to a person or a firm that hires other workers to an organisation.
Employment refers to the use of factors of production in the economy, such as labour.
Equilibrium occurs when the quantity demanded for a product is equal to the quantity supplied of the. product, i.e. there are no shortages or surpluses.
Equilibrium wage rate is determined when the wage rate workers are willing to work for equals the wage rate that firms are prepared to pay.
Excess demand occurs when the demand for a product exceeds the supply of the product at certain price levels. This happens when the price is set below the equilibrium price, resulting in shortages.
Excess supply occurs when the supply of a product exceeds the demand at certain price levels. This results in a surplus because the price is too high, i.e. above the market equilibrium price.
Exchange rate refers to the price of one currency
measured in terms of other currencies.
Exports are goods and services sold to overseas buyers.
External benefits are the positive side effects of production or consumption incurred by third parties for which no money is paid by the beneficiary.
External costs are the negative side effects of production or consumption incurred by third parties for which no compensation is paid.
External economies of scale are economies of scale that arise from factors outside of the firm, for example, the location of the firm, proximity to transport, availability of skilled workers.
Externalities or spillover effects occur where the actions of firms and individuals have either a positive or negative effect on third parties.

Fertility rate measures the average number of births per woman. It is used as a component to measure population growth.
Financial economies of scale occur as large firms are able to borrow money from banks more easily than small firms because they are perceived to be less risky to the financial institutions.
Fiscal policy is the use of taxes and government spending to affect macroeconomic objectives such as economic growth and employment.
Fixed exchange rate system exists when the central bank (or monetary authority) buys and sells foreign currencies to ensure the value of its currency stays at the pegged value.
Floating exchange rate system means that the currency is allowed to fluctuate against other currencies according to the market forces without any government intervention.
Foreign aid is a form of financial assistance for economic development from other countries or non-government organisations such as Oxfam and Unicef.
Foreign exchange market is the marketplace where foreign currencies can be bought and sold.
Forward vertical integration occurs when a firm from the primary sector of industry merges with a firm from the secondary sector of industry or a firm from the secondary sector of industry merges with a firm from the tertiary sector of industry.
Free goods are goods which are unlimited in supply, such as air or seawater.
Free riders are people who take advantage of the goods or services provided by the government but have not contributed to government revenue through taxation.
Free trade refers to international trade without any
protectionist barriers between countries.
Functions of money describe the role that money plays in the economy: money is a medium of exchange, a store of value and a measure of value or unit of account).
Fundamental economic questions are the key questions that all economic systems strive to answer: what, how and for whom production should take place.

GDP per head or GDP per capita measures the gross domestic product of a country divided by the population size. It is a key measure of a country’s standards of living.
Geographical mobility occurs when a person is prepared to relocate to another area for a job.
Go-slow occurs when workers decide to complete their work leisurely and therefore productivity falls.
Goods are physical items such as tables, cars, toothpaste and pencils.
Government expenditure is the total value of a government’s consumption and investment spending and transfer payments, such as unemployment benefits and state pension schemes.
Gross domestic product (GDP) measures the monetary value of goods and services produced within a country for a given period of time, usually one year.

Horizontal integration occurs when two firms in the same sector of industry and same industry merge together.
Human Development Index (HDI) is the UN’s measure of wellbeing which uses three criteria: life expectancy, educational attainment and income per capita.
Hyperinflation refers to very high rates of inflation that are out of control, causing average prices in the economy to rise very rapidly.

Imported inflation is a cause of inflation triggered
by higher import prices, forcing up costs of production and thus causing domestic inflation.
Imports are foreign goods and services bought by domestic households and firms.
Income is the total amount of earnings an individual receives in a period of time. It may consist of wages, interest, dividends, profits and rental income.
Indirect taxes are taxes imposed on expenditure, i.e. sales taxes such as value added tax (VAT).
Industrial action is any deliberate act to disrupt the operations of a firm in order to force the management to negotiate better terms and conditions of employment, e.g. strike action.
Inflation is the sustained rise in the general level of prices of goods and services over time, as measured by a consumer price index.
Innovation is the commercialisation of new ideas and products. It is a vital source of productivity.
Interdependence means that the three sectors of industry are dependent upon each other and cannot operate independently to produce goods and services.
Internal economies of scale are economies of scale that arise from the internal organisation of the business, for example, financial, bulk-buying and technological economies of scale.
International specialisation occurs when certain countries concentrate on the production of certain goods or services due to cost advantages, perhaps due to their abundant resources.
International trade refers to the exchange of goods and services beyond national borders.
Investment expenditure is the sum of capital spending by all businesses within a country.
Investments are goods that are purchased not to be consumed but to create wealth.
Invisible exports refer to the earnings from selling services to foreign customers.
Invisible imports refer to the spending on services
provided by firms in overseas countries.
Invisible trade balance is a record of the trade in services, such as transportation and financial services.

Labour force participation rate is the percentage of the working-age population that is working.
Labour-intensive production occurs when labour costs account for proportionately more of a firm’s costs than any other cost of production.
Labour supply consists of people who are of working age and are willing and able to work at prevailing wage rates.
Less economically developed countries (LEDCs) are developing countries, with low GDP per capita, so standards of living are generally poor.
Life expectancy measures the number of years an average person in the country is expected to live.
Limited company is a company owned by shareholders who have limited liability.
Limited liability means that in the event of a company going bankrupt, the owners would not lose more than the amount they invested in the company.

Managerial economies of scale occur as large firms have the resources to employ specialists to undertake functions within the firm, e.g. accountants, engineers, human resources specialists.
Managers are responsible for controlling all or part of a company.
Market economy is a type of economic system that relies on the market forces of demand and supply in allocate resources with minimal government intervention.
Market failure occurs when the market forces of demand and supply fail to allocate resources efficiently and cause external costs or external benefits.
Market structure refers to the key characteristics of a particular market, such as the number and size of firms in the market, the degree and intensity of price and non-price competition, and the nature of barriers to entry.
Marketing economies of scale occur as big firms tend to have a large advertising budget and therefore can spend large amounts of money on promoting their products.
Merger occurs when two firms join together to make one firm.
Merit goods are goods or services which when consumed create positive spillover effects in an economy, e.g. education, training and health care. Merit goods are under-consumed so government intervention is often needed.
Mixed economy is a type of economic system that combines elements of both the planned and market economic systems, with some resources being owned and controlled by private individuals and firms whilst others are owned and controlled by the government.
Monetary policy refers to the use of interest rates, exchange rates and the money supply to control macroeconomic objectives and to affect the level of economic activity.
Money is anything that is widely accepted as a means of exchange and acts as a measure and store of value).
Money supply refers to the amount of money in the economy at a particular point in time.
Monopoly is a market structure where there is only one supplier of a good or service, with the power to affect market supply or prices.
More economically developed countries (MEDCs) are developed countries, with high GDP per capita, so standards of living are generally good.
Mortgage is a secured loan for the purchase of property.
Multinational corporations are businesses that operate in two or more countries. Examples include Apple, BMW, HSBC, Marks & Spencer, Nike and Sony.

National minimum wage is the lowest amount a firm can pay its workers and is set by the government.
Nationalisation is the process of taking assets into state ownership. A nationalised organisation is also known as a public-sector organisation.
Needs are goods that are essential for survival.
Net exports refers to the monetary value of the difference between a nation’s export earnings and its import expenditure.
Net income flows are a record of a country’s net income earned from capital flows.
Net migration rate measures the difference between immigration and emigration rates for a country, and thus indicates the physical movement of people in and out of a country.

Occupational mobility is when a person can easily move from one type of job to another.
Opportunity cost is the cost of the next best opportunity foregone when making a decision.
Optimum population exists when the output of goods and services per head of the population is maximised.
Overspecialisation occurs when an individual, firm, region or country concentrates too much on producing a very limited number of goods and services. This exposes the economic agent to a far higher degree of risk.
Owners have a legal right to the possession of something.

Partnerships are businesses owned by between two and twenty owners, who pool funds and take risks together, but have to share profits between themselves.
Perfect competition describes a market where there is immense competition due to the absence of barriers to entry. This means there are many small firms competing in the market, none of which have any power to influence market supply or price.
Planned economy is a type of economic system
that relies on the government allocating scarce resources. It is often associated with a communist political system that strives for social equality. Also referred to as the socialist or command system.
Population refers to the total number of inhabitants of a particular country.
Population growth refers to the rate of change in the size of a country’s population.
Population pyramids are a graphical representation of the age and gender distribution of a country’s population.
Poverty is a condition that exists when people lack adequate income and wealth to sustain a basic standard of living.
Price is the amount of money expected or given in payment for something.
Price discrimination is the practice of charging different prices to different customers for essentially the same product. It occurs because of the customers’ differences in PED.
Price elastic demand describes demand for a product that is responsive to changes in price, usually due to substitutes being available.
Price elasticity of demand (PED) measures the extent to which demand for a product changes due to a change in its price.
Price elasticity of supply (PES) measures the degree of responsiveness of quantity supplied of a product following a change in its price.
Price inelastic demand describes demand for a product that is unresponsive to changes in price, mainly because of the lack of substitutes for the product.
Price maker (or setter) describes a firm with significant market power so it can control enough of the market supply in order to affect the price level.
Price stability means that inflation is under control so that price movements are predictable.
Price takers are firms that set their price according to the market forces of demand and supply, rather than determining their own prices.
Private benefits are the benefits of production and consumption enjoyed by a firm, individual or government.
Private costs of production and consumption are the actual costs of a firm, individual or government such as wages and raw material costs.
Private limited company has limited liability and can sell shares to raise finance but not to the general public.
Privatisation is a supply-side policy of selling off
state-owned assets to the private semi..
Producer refers to any firm that deals in the production and/or provision of goods and services.
Production refers to the total output of goods and services in the production process.
Production possibility curve (PPC) represents the maximum amount of goods and services which can be produced in an economy, i.e. the productive capacity of the economy.
Productivity is a measure of efficiency arrived at by calculating the amount of output per unit of a factor input (such as output per worker or output per machine hour).
Profit is the positive numerical difference between revenues and costs. It is the reward for risk-taking in business.
Progressive taxation is a tax system that deducts a greater proportion of tax as a person’s income level increases, e.g. income tax and capital gains tax.
Proportional taxation is a tax system that deducts the same proportion of tax at all income levels.
Protection is the use of trade barriers to safeguard a country from excessive international trade and foreign competition.
Public limited company is a firm that can sell its shares on a stock exchange, e.g. Microsoft, HSBC and Samsung.
Public corporations (public sector organisations) are organisations that are wholly owned and funded by a government, such as the postal office.
Purchasing or bulk buying economies of scale occur when the cost of raw materials falls when bought in large quantities thus reducing the average costs.

Quota is a type of protection that sets a numerical limit on the number of imports allowed into a country over a specified time period.

Real GDP refers to the value of national income (GDP) adjusted for inflation to reflect the true value of goods and services produced in a given year.
Recession occurs in the business cycle when there is a fall in GDP for two consecutive quarters.
Regional specialisation occurs when certain areas concentrate on the production of certain goods or services, e.g. Hollywood, in Los Angeles, is famous for its motion pictures industry.
Regressive taxation is a tax system that deducts a smaller proportion of tax as a person’s income increases, e.g. sales taxes and stamp duties.
Regulation refers to the rules and laws that govern business behaviour in the economy, e.g. employment laws, consumer protection legislation and environmental protection laws.
Relative poverty is a comparative measure of poverty. Those in relative poverty have a lower standard of living in comparison with the average member of society.
Replacement fertility rate is the number of children that the average woman must have to replace the existing population in order to maintain a stable population size.
Research and development economies of scale occur as large firms may be able to fund research and development and therefore can be innovative and create products that enable them to be leaders in their area of business.
Retail prices index (RPI) is used to calculate the rate of inflation. Unlike the CPI, the RPI includes the cost of housing, including mortgage interest payments and other housing costs but excludes low-income pensioners and high-income households.
Revaluation occurs when the price of a currency operating in a fixed exchange rate system is officially and deliberately increased.
Risk-bearing economies of scale occur as large firms tend to produce a range of products and operate in many locations.

Salary is a fixed monthly payment in return for labour services.
Sales revenue refers to the money a firm earns from its sales, before deducting costs of production.
Saving occurs when a person puts aside some of their current income for future spending.
Savings ratio refers to the proportion of household income which is saved instead of consumed in an economy.
Services are non-physical items such as haircuts, bus journeys, telephone calls and internet access.
Shareholders are the part-owners of a limited liability company.
Sit-in is when union members go to their place of work, occupy the premises but do not undertake their normal work.
Social benefits are the true (or full) benefits of consumption or production, i.e. the sum of private benefits and external benefits.
Social costs are the true or full) costs of consumption or production, i.e. the sum of private costs and external costs.
Sole trader is a person who owns and runs a business as single proprietor. he takes all the
risks but keeps any profit made by the business.
Specialisation occurs when individuals, firms, regions or countries concentrate on the production of a particular good or service.
Specialisation of labour occurs when a worker becomes an expert in a particular profession or in a part of a production process.
Stakeholders are any economic aunts with a vested interest in the operations of a business, e.g. shareholders, employees and customers.
Standards of living refer to the social and economic wellbeing of individuals in a country at a point in time.
Stock exchange is the term used to describe an institutional marketplace for trading the shares of public limited companies.
Stocks (or inventories) are the raw materials, components and finished goods (ready for sale) used in the production process.
Strike occurs when union members withdraw their labour services by refusing to work.
Subsidies are a form of financial support from the government to lower the production costs of domestic firms, thereby raising their competitiveness.
Subsidy is a sum of money given by the government to a producer to reduce the costs of production or to a consumer to reduce the price of consumption.
Substitutes are products that are in competitive
demand as they can be used in place of each other. For example, tea and coffee or McDonald’s and Burger King meals are substitute products.
Supply is the willingness and the ability of firms to provide a good or service at given prices. The higher the price of a product, the higher its supply tends to be.
Supply-side policies are the long-term strategies aimed at increasing the productive capacity of the economy by improving the quality and/or quantity of factors of production.

Takeover occurs when a firm is taken over by another firm. A takeover may be hostile or the two firms may have agreed to the takeover.
Tariffs are import taxes that are imposed on foreign goods.
Tax avoidance is the legal act of minimising payment of taxes, such as by avoiding spending on items with a large sales tax.
Tax burden is the amount of tax that households and firms have to pay.
Tax evasion is the illegal act of not paying the correct amount of tax, perhaps due to a firm under-declaring its profits.
Taxes are government levies on income and expenditure, used to fund government expenditure to affect economic activity.
Technical economies of scale occur as large firms can afford to purchase expensive pieces of machinery and automated equipment for the manufacturing process.
Trade protection is the use of trade barriers to safeguard a country against excessive international trade and foreign competition.
Trade union is an organisation which aims to protect the interests of its members, namely the terms of pay and conditions of employment.
Transfers are money flows from one country to another, e.g. income sent by a foreign worker to their home country, or a gift of money from one government to another.

Unemployment occurs when people of working age who are both willing and able to work cannot find employment.
Unemployment rate is a measure of the percentage of a country’s workforce that is out of employment.
Unitary price elasticity occurs when the percentage change in the quantity demanded (or supplied) is proportional to the change in the price, so there is no change in the sales revenue.
Unlimited liability means that if a business goes bankrupt, the owner(s) is/are personally liable for the debts, even if it means personal belongings have to be sold.

Vertical integration occurs when a takeover or merger takes place between two firms from a different sector of industry.
Visible exports are goods which are sold to foreign customers.
Visible imports are goods bought by domestic customers from foreign sellers.
Visible trade balance is a record of the export and import of physical goods.

Wage-price spiral occurs when trade unions negotiate higher wages to keep income in line with inflation but this simply causes more inflation as firms raise prices to maintain their profit margins.
Wage is the return for labour services, paid hourly or weekly. Payment depends on the amount of time worked.
Wants are goods and services that are not necessary for survival but are demanded by economic agents.
Wealth is measured by the value of assets a person owns minus their liabilities (the amount they owe to others).
Work-to-rule means that workers literally work to fulfill the minimum requirements of their job and do nothing outside what is written in their contract of employment.
Working population or labour force is the number of people in an economy who are of working age and are willing and able to work.

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