IGCSE Economics 0455 – Key Definitions
Cheat Sheet
The Basic Economic Problem
Scarcity: The situation where unlimited wants exceed limited resources.
Opportunity Cost: The next best alternative foregone when a choice is made.
Land: Natural resources used in production.
Labour: Human effort (mental and physical) used in production.
Capital: Man-made resources used to produce other goods/services.
Enterprise: The skill of organizing production and taking business risks.
Allocation of Resources
Demand: The quantity of a good or service that consumers are willing and able to buy at a
given price.
Supply: The quantity of a good or service that producers are willing and able to sell at a
given price.
Equilibrium Price: The price at which quantity demanded equals quantity supplied.
Market: A place where buyers and sellers meet to exchange goods/services.
Elasticity
PED: A measure of how much quantity demanded changes in response to a change in price.
PES: A measure of how much quantity supplied changes in response to a change in price.
Inelastic Demand: Demand that changes by a smaller percentage than price (PED < 1).
Elastic Demand: Demand that changes by a larger percentage than price (PED > 1).
Market Failure
Market Failure: When the market fails to allocate resources efficiently.
Externality: A cost or benefit to third parties not involved in the transaction.
Public Goods: Goods that are non-excludable and non-rivalrous.
Merit Goods: Goods that are under-consumed and provide positive externalities.
Demerit Goods: Goods that are over-consumed and cause negative externalities.
Subsidy: A payment by the government to encourage production or consumption.
Tax: A charge imposed by the government to discourage use or raise revenue.
Microeconomic Decision Makers
Wage: The payment made to labour for their services.
Disposable Income: Income left after direct taxes are deducted.
Trade Union: An organization of workers formed to protect their interests.
Division of Labour: Splitting production into different tasks by different workers.
Economies of Scale: Cost advantages as output increases.
Fixed Costs: Costs that do not change with output.
Variable Costs: Costs that change with the level of output.
Macroeconomy
Inflation: A sustained increase in the general price level.
Deflation: A sustained decrease in the general price level.
Unemployment: People willing and able to work but unable to find a job.
GDP: The total value of goods and services produced within a country in a year.
Recession: Two consecutive quarters of negative economic growth.
Fiscal Policy: Government spending and taxation to influence the economy.
Monetary Policy: Use of interest rates and money supply to influence the economy.
Supply-Side Policy: Policies to increase the economy's productive capacity.
Economic Development
Standard of Living: The level of wealth and material comfort of people.
HDI: Index measuring life expectancy, education and income.
Poverty: Inability to meet basic living needs.
Income Inequality: Unequal distribution of income among individuals or groups.
Trade & Globalisation
Globalisation: Growing integration of economies and societies worldwide.
Free Trade: Trade without tariffs, quotas, or restrictions.
Protectionism: Policies restricting imports to protect domestic industries.
Tariff: A tax on imports.
Quota: A physical limit on import quantity.
Exchange Rate: The price of one currency in terms of another.
Balance of Payments: A record of all transactions between one country and others.
