Basic Economic Terms
Goods and Services:
Goods: Tangible products that are produced,
bought, or sold, such as cars, food, and clothing.
Services: Intangible activities provided by others,
such as healthcare, education, and banking.
Supply and Demand:
Supply: The total amount of a specific good or
service that is available to consumers.
Demand: The desire of purchasers to buy a specific
good or service.
Market: A place or system in which buyers and
sellers interact to trade goods and services.
Equilibrium Price: The price at which the quantity
of a good or service demanded by consumers
equals the quantity supplied by producers.
Inflation: The rate at which the general level of
prices for goods and services is rising, leading to a
decrease in purchasing power.
Deflation: A decrease in the general price level of
goods and services, often associated with reduced
consumer spending and economic downturns.
Gross Domestic Product (GDP): The total value of
all goods and services produced within a country
over a specific period, often used as an indicator of
economic health.
Gross National Product (GNP): The total value of
all goods and services produced by a country’s
residents, regardless of the location of production.
Unemployment Rate: The percentage of the labor
force that is unemployed and actively seeking
employment.
Fiscal Policy: Government policies regarding
taxation and spending to influence the economy.
Monetary Policy: Central bank policies that control
the money supply and interest rates to influence
the economy.
Budget Deficit: A situation where government
expenditures exceed its revenues.
Budget Surplus: A situation where government
revenues exceed its expenditures.
National Debt: The total amount of money that a
country's government has borrowed.
Exchange Rate: The value of one currency for the
purpose of conversion to another.
Trade Balance:
Trade Surplus: When a country exports more than
it imports.
Trade Deficit: When a country imports more than
it exports.
Tariff: A tax imposed on imported goods and
services.
Quota: A limit on the quantity of a good that can
be imported or exported.
Subsidy: Financial assistance granted by the
government to encourage the production or
consumption of a good.
Capital:
Physical Capital: Tangible assets like machinery,
buildings, and equipment used in production.
Human Capital: The skills, knowledge, and
experience possessed by an individual or
population.
Interest Rate: The cost of borrowing money,
typically expressed as a percentage of the amount
borrowed.
Stock Market: A collection of markets where
stocks (shares of ownership in businesses) are
bought and sold.
Bond: A fixed income instrument that represents a
loan made by an investor to a borrower, typically
corporate or governmental.
Recession: A period of temporary economic
decline during which trade and industrial activity
are reduced, typically identified by a fall in GDP in
two successive quarters.
Depression: A sustained, long-term downturn in
economic activity in one or more economies.
Consumer Price Index (CPI): Measures changes in
the price level of a market basket of consumer
goods and services purchased by households.
Producer Price Index (PPI): Measures the average
change over time in the selling prices received by
domestic producers for their output.
Opportunity Cost: The cost of forgoing the next
best alternative when making a decision.
Marginal Cost: The cost of producing one
additional unit of a good.
Marginal Benefit: The additional benefit received
from consuming one more unit of a good or
service.
Economies of Scale: The cost advantages that
enterprises obtain due to their scale of operation,
with cost per unit of output generally decreasing
with increasing scale.
Externality: A side effect of an economic activity
that affects third parties; it can be either positive
or negative.
Invisible Hand: A term coined by Adam Smith to
describe the self-regulating nature of the
marketplace.
Free Market: An economic system where prices
are determined by unrestricted competition
between privately owned businesses.
Command Economy: An economy where supply
and price are regulated by the government rather
than market forces.
Understanding these terms provides a foundation
for exploring more advanced economic concepts
and discussions.
Differences between Macroeconomics and
Microeconomics
Scope: Macroeconomics looks at the economy as a
whole, while microeconomics focuses on
individual units.
Focus: Macroeconomics deals with aggregate
variables like GDP, inflation, and unemployment,
whereas microeconomics deals with supply and
demand, consumer behavior, and individual
markets.
Policy Implications: Macroeconomics informs fiscal
and monetary policy decisions, while
microeconomics provides insights into market
structures, pricing strategies, and business
decisions.
