Economics · Learning hub
Economics, one idea at a time.
A free, self-paced path through the ideas behind prices, wages, profits and trade. Move the sliders, test yourself, and look up any word you meet in the news.
- 12 short modules
- 7 interactive diagrams
- 246-term glossary
How to use this page
Read the question
Each module opens with one everyday question and a short answer.
Play with the diagram
Drag the sliders and press the buttons. The words beside the picture update as you go.
Check yourself
Answer the quick check, then follow the key terms into the glossary.
Module 01
Scarcity and choice
Why does every decision cost something, even when it is free?
Time, money, land and skills are limited, so choosing one use means giving up another. Economics starts by naming what is given up and comparing it with what is gained.
Try it · Module 01
The production possibilities frontier
Making 40 robots leaves room for about 92 tonnes of bread.
The next 10 robots would cost about 5.0 tonnes of bread. That is their opportunity cost.
Module 02
Demand, supply and prices
What actually sets the price of a loaf of bread?
Buyers and sellers respond to prices in opposite directions. Where their plans meet, the market settles; when something changes their plans, the price and quantity move.
Try it · Module 02
Demand, supply and the market price
The market settles at about 4.00 per loaf, with 50 loaves sold. Move a slider and the meeting point moves.
Module 03
How strongly people respond
Why can a price rise increase one shop's revenue and wreck another's?
Elasticity measures how much quantity reacts when price or income changes. Necessities with few substitutes react little; luxuries with many alternatives react a lot.
Try it · Module 03
Same price rise, different reactions
- Table salt: sales -2%, revenue +8%.
- One café's latte: sales -20%, revenue -12%.
Key terms
Module 04
How consumers choose
Why is the fifth slice of pizza worth less than the first?
People get less extra satisfaction from each additional unit of the same thing. Comparing that extra satisfaction with the price helps explain how budgets are spread across goods.
Key terms
Module 05
Costs, production and profit
Why can a business show a profit on paper and still be making a poor choice?
Firms face costs that stay put and costs that grow with output. Economists also count the value of the owner's time and money, which is why accounting profit and economic profit can differ.
Module 06
Competition and market power
What changes when one company controls most of a market?
Markets range from many small sellers with no control over price to a single seller with a lot of it. The number of rivals, and how hard it is to enter, shape prices, choice and innovation.
Try it · Module 06
From many sellers to one
Perfect competition. No single seller can raise the price without losing every customer.
Example: Many growers selling the same grade of wheat.
Module 07
When markets miss costs and benefits
Who pays for the smoke from a factory chimney?
Some costs and benefits land on people outside a deal. When prices ignore them, markets can produce too much of something harmful or too little of something useful.
Try it · Module 07
When a price ignores the smoke
The market produces about 67 units, but counting the harm the best amount is about 50. Lost value: 16.7 (teaching units).
Key terms
Module 08
Work, pay and inequality
Why do wages differ, and how do we measure the gap between rich and poor?
Pay is shaped by the demand for skills, the supply of workers, bargaining power and rules. Income and wealth are different measures, and inequality is tracked with tools such as the Lorenz curve.
Module 09
Information, risk and insurance
Why is it hard to buy a used car you can trust?
When one side knows more than the other, good deals can disappear. Warranties, reputations, inspections and insurance contracts are ways to cope with risk and hidden information.
Module 10
Saving, borrowing and investing
How does money today compare with money in ten years?
Interest is the price of using money over time. Savers, borrowers, companies and governments meet in financial markets, trading return against risk and liquidity.
Try it · Module 10
Simple versus compound interest
Simple interest: 2,750
Compound interest: 5,427
Compounding adds 2,677 because each year's interest also earns interest.
Key terms
Module 11
Government and public choices
Why don't public decisions always reflect what most people want?
Governments tax, spend and regulate, but voters, officials and organised groups all respond to incentives too. Public choice explains why outcomes can drift from the general interest.
Try it · Module 11
The circular flow of an economy
Households supply work to firms in the labour market. Firms supply goods and services to households.
Key terms
Module 12
Trade and the global economy
Why do countries trade even when one is better at making everything?
Countries gain by specialising in what they give up least to produce, then trading. Tariffs, quotas and trade agreements change who wins and who pays.
Glossary · 246 terms
Economics glossary, in plain English
Search a word you met in the news, or filter by module. Every entry has a short definition, and many have an everyday example.
246 of 246 shown
A
- Absolute advantage12 Trade and the global economy
- Being able to produce more of something than others with the same resources.
- See also: Comparative advantage
- Accounting profit05 Costs, production and profit
- Revenue minus explicit costs.
- See also: Economic profit
- Acquisition06 Competition and market power
- One company buying control of another.
- Adverse selection09 Information, risk and insurance
- When hidden information means the people most eager to make a deal are the riskiest ones for the other side.
- e.g. If insurance is priced for average risk, high-risk people are the keenest to buy it.
- Allocative efficiency01 Scarcity and choice
- Producing the mix of goods that people value most, given what it costs to make them.
- See also: Productive efficiency
- Anti-dumping duty12 Trade and the global economy
- An extra tariff applied to imports judged to be sold below a fair price.
- Asymmetric information09 Information, risk and insurance
- When one side of a deal knows more than the other.
- e.g. A used-car seller knows whether the car has been in a crash; the buyer may not.
- Average total cost05 Costs, production and profit
- Total cost divided by the number of units produced.
- Average variable cost05 Costs, production and profit
- Variable cost divided by the number of units produced.
B
- Backward-bending labour supply04 How consumers choose
- The idea that, past a point, higher wages can lead some people to work fewer hours because they can afford more free time.
- Barriers to entry06 Competition and market power
- Obstacles that make it hard for new firms to join a market, such as high setup costs, control of key resources or legal rules.
- Behavioural economics04 How consumers choose
- A branch of economics that uses psychology to study how real people make decisions, including habits, mental shortcuts and biases.
- Bond10 Saving, borrowing and investing
- A loan to a government or company that pays interest and returns the borrowed amount on a set date.
- See also: Coupon rate, Maturity date
- Bond yield10 Saving, borrowing and investing
- The return an investor earns from a bond, based on its price today. When bond prices fall, yields rise.
- Budget constraint01 Scarcity and choice
- The limit on what someone can buy, given their income and the prices they face.
- See also: Opportunity set
- Bundling06 Competition and market power
- Selling products only as a package rather than separately.
C
- Capital gain10 Saving, borrowing and investing
- Profit from selling an asset for more than you paid.
- Cartel06 Competition and market power
- A group of firms that formally agree to coordinate output or prices to act like a monopoly.
- Ceteris paribus01 Scarcity and choice
- Latin for 'other things equal'. It means changing one factor at a time while holding everything else fixed, so its effect can be isolated.
- Circular flow11 Government and public choices
- A simple picture of the economy in which households supply labour to firms and spend their income on what firms produce.
- Co-signer09 Information, risk and insurance
- A second person who promises to repay a loan if the borrower cannot.
- Coinsurance09 Information, risk and insurance
- A percentage of each claim that the insured person pays themselves.
- Collateral09 Information, risk and insurance
- Something of value a borrower pledges, which the lender can take if the loan is not repaid.
- Collective bargaining08 Work, pay and inequality
- Negotiation between an employer and representatives of a group of workers.
- Collusion06 Competition and market power
- Rivals secretly or openly agreeing to limit competition, for example by fixing prices or sharing out customers. Usually illegal.
- See also: Cartel
- Command economy01 Scarcity and choice
- An economy in which a central authority decides what is produced, how and for whom, and owns most productive resources.
- See also: Market economy
- Command-and-control regulation07 When markets miss costs and benefits
- Rules that set specific limits or required technology for each polluter, rather than using prices.
- Common market12 Trade and the global economy
- A group of countries with free trade among themselves, a shared tariff on outsiders and free movement of labour and capital.
- Comparative advantage12 Trade and the global economy
- Being able to produce something at a lower opportunity cost than others. It is the basis for gains from trade.
- e.g. A head chef who chops vegetables faster than her apprentice still leaves the chopping to him, because her time is worth more spent cooking.
- See also: Absolute advantage, Opportunity cost
- Competition law06 Competition and market power
- Rules that ban practices such as price-fixing and abuse of market power, and review large mergers. Also called antitrust law.
- Complement02 Demand, supply and prices
- A good used together with another, so a price rise for one reduces demand for the other.
- e.g. Printers and ink; game consoles and games.
- Compound interest10 Saving, borrowing and investing
- Interest calculated on the original amount plus interest already earned.
- e.g. 100 at 10% a year grows to 110, then 121, then about 133: each year's interest is bigger.
- See also: Simple interest
- Concentration ratio06 Competition and market power
- The combined market share of the largest few firms in an industry; a quick measure of how concentrated it is.
- Constant returns to scale05 Costs, production and profit
- When expanding output leaves average cost per unit roughly unchanged.
- Consumer equilibrium04 How consumers choose
- The point where a buyer's budget is spread so that the last unit of money spent on each good adds about the same satisfaction.
- Consumer surplus02 Demand, supply and prices
- The difference between the most buyers would have been willing to pay and what they actually paid.
- e.g. You would pay up to 10 for a book and find it for 6: your consumer surplus is 4.
- Copayment09 Information, risk and insurance
- A fixed amount the insured person pays each time they use a covered service.
- Copyright06 Competition and market power
- A legal right that protects original creative work, such as writing, music, film or software, from being copied without permission.
- Corporate bond10 Saving, borrowing and investing
- A bond issued by a company.
- Corporate governance10 Saving, borrowing and investing
- The rules and people, such as boards and auditors, that oversee how a company is run on behalf of its owners.
- Corporation10 Saving, borrowing and investing
- A business that is a separate legal entity from its owners, whose liability is usually limited to what they invested.
- Coupon rate10 Saving, borrowing and investing
- The interest rate a bond pays on its face value.
- Cross-price elasticity of demand03 How strongly people respond
- How much demand for one good changes when the price of another good changes. Positive for substitutes, negative for complements.
- Current account (bank)10 Saving, borrowing and investing
- A bank account for everyday payments and transfers. Also called a checking account.
D
- Deadweight loss02 Demand, supply and prices
- The value of trades that would have benefited both sides but no longer happen, for example because of a price control or tax.
- Debit card10 Saving, borrowing and investing
- A card that takes payments straight from your bank account.
- Deductible09 Information, risk and insurance
- The amount the insured person pays before the insurer starts paying. Also called an excess.
- Demand02 Demand, supply and prices
- How much of something buyers would want, and could afford, to buy across the whole range of possible prices.
- See also: Quantity demanded, Demand curve
- Demand curve02 Demand, supply and prices
- A graph of demand, usually sloping downward from left to right because lower prices attract more purchases.
- Deregulation06 Competition and market power
- Removing or relaxing government rules on an industry, often to allow more competition.
- Differentiated product06 Competition and market power
- A product that buyers see as different from rivals' because of quality, design, location or brand.
- Diminishing marginal utility04 How consumers choose
- The tendency for each additional unit of the same thing to add less satisfaction than the one before.
- e.g. The first glass of water on a hot day is wonderful; the fourth, much less so.
- Discrimination08 Work, pay and inequality
- Treating people differently in hiring, pay or promotion because of characteristics unrelated to their work.
- Diseconomies of scale05 Costs, production and profit
- Rising average cost per unit when a firm grows so large it becomes harder to coordinate.
- See also: Economies of scale
- Diversification10 Saving, borrowing and investing
- Spreading money across many investments so one bad result does less damage.
- Dividend10 Saving, borrowing and investing
- A payment a company makes to shareholders out of its profits.
- Division of labour01 Scarcity and choice
- Splitting work into separate tasks done by different people, which usually raises total output.
- See also: Specialisation
- Dumping12 Trade and the global economy
- Selling exports abroad below their cost or their home-market price.
- Duopoly06 Competition and market power
- An oligopoly with only two main firms.
E
- Economic model01 Scarcity and choice
- A deliberately simplified picture of how something works, keeping only the parts needed to answer a question.
- e.g. A demand and supply graph ignores many details of real shops so the effect of a price change is easy to see.
- Economic profit05 Costs, production and profit
- Revenue minus both explicit and implicit costs. It shows whether the business beats the owner's next-best option.
- e.g. A shop earns 40,000 above its bills, but its owner could earn 50,000 in a job: economic profit is −10,000.
- Economic union12 Trade and the global economy
- A common market whose members also coordinate economic policies, sometimes including a shared currency.
- Economics01 Scarcity and choice
- The study of how people, businesses and governments decide what to do with limited resources, and what follows from those decisions.
- Economies of scale05 Costs, production and profit
- Falling average cost per unit as a firm produces more.
- e.g. A large bakery buys flour in bulk and spreads its oven cost over many more loaves.
- See also: Diseconomies of scale
- Elastic demand03 How strongly people respond
- Demand where quantity changes by a larger percentage than price. Total spending falls when the price rises.
- e.g. One brand of cereal among dozens on the shelf.
- Elastic supply03 How strongly people respond
- Supply where producers can raise output by a larger percentage than the price rise, often because extra capacity is easy to add.
- Elasticity03 How strongly people respond
- A measure of sensitivity: how big a percentage reaction one thing has when another changes by 1%.
- Equilibrium02 Demand, supply and prices
- The price at which the amount buyers want equals the amount sellers offer, so there is no pressure to change.
- See also: Equilibrium price, Equilibrium quantity
- Equilibrium price02 Demand, supply and prices
- The price at which quantity demanded equals quantity supplied.
- Equilibrium quantity02 Demand, supply and prices
- The amount bought and sold when the market is at its equilibrium price.
- Equity10 Saving, borrowing and investing
- Ownership value: what an asset is worth minus any debt owed on it.
- Explicit cost05 Costs, production and profit
- A cost paid out in money, such as wages, rent or materials.
- See also: Implicit cost
- Exports12 Trade and the global economy
- Goods and services produced at home and sold to buyers abroad.
- See also: Imports
- Externality07 When markets miss costs and benefits
- A cost or benefit from an activity that falls on people who are not part of the transaction.
- See also: Negative externality, Positive externality
F
- Face value10 Saving, borrowing and investing
- The amount a bond will repay when it matures.
- Factors of production02 Demand, supply and prices
- The inputs used to make goods and services: labour, land and natural resources, capital, and entrepreneurship.
- Financial intermediary10 Saving, borrowing and investing
- An institution, such as a bank or fund, that channels money from savers to borrowers.
- Fiscal policy11 Government and public choices
- Government decisions about taxes and public spending.
- See also: Monetary policy
- Fixed cost05 Costs, production and profit
- A cost that does not change with how much is produced in the short run.
- e.g. Rent, insurance, a software subscription.
- Fixed-term deposit10 Saving, borrowing and investing
- Money left with a bank for a set period in exchange for a set interest rate, with a penalty for early withdrawal.
- Free rider07 When markets miss costs and benefits
- Someone who benefits from a good without paying toward it.
- e.g. A flatmate who never chips in for the shared internet but uses it daily.
- Free trade agreement12 Trade and the global economy
- A deal between countries to reduce or remove tariffs and other barriers on trade between them.
- Fungible04 How consumers choose
- Interchangeable: one unit can replace another of the same kind, as one banknote replaces another of equal value.
G
- Gains from trade12 Trade and the global economy
- The extra goods and services both sides can enjoy by specialising and exchanging rather than each producing everything.
- Game theory06 Competition and market power
- The study of decisions where each player's best move depends on what others do.
- See also: Prisoner's dilemma
- Gini coefficient08 Work, pay and inequality
- A single number from 0 (everyone has equal income) to 1 (one person has everything), based on the Lorenz curve.
- Globalisation12 Trade and the global economy
- The growing connection of economies through trade, investment, travel, information and supply chains.
- Government bond10 Saving, borrowing and investing
- A bond issued by a national government to fund spending.
- Gross domestic product (GDP)11 Government and public choices
- The total value of final goods and services produced in a country over a period.
H
- Herfindahl-Hirschman Index (HHI)06 Competition and market power
- A concentration measure found by squaring each firm's market share and adding them up. Higher numbers mean less competition.
- e.g. Two firms with 50% each: 50² + 50² = 5,000.
- High-yield bond10 Saving, borrowing and investing
- A bond from a riskier borrower that pays more interest to compensate. Also called a junk bond.
- Human capital08 Work, pay and inequality
- The skills, knowledge and health that make a person more productive.
I
- Imperfect information09 Information, risk and insurance
- When buyers or sellers lack full knowledge about quality, prices or risks.
- Implicit cost05 Costs, production and profit
- The value of resources the owner already has and uses in the business, such as their own time or savings, measured by what they could earn elsewhere.
- See also: Explicit cost, Opportunity cost
- Import quota12 Trade and the global economy
- A limit on the quantity of a good that can be imported.
- Imports12 Trade and the global economy
- Goods and services produced abroad and bought at home.
- See also: Exports
- Income08 Work, pay and inequality
- Money received over a period, from wages, profits, interest, rent or transfers.
- See also: Wealth
- Income effect04 How consumers choose
- The part of a change in buying caused by a price change making you feel richer or poorer.
- See also: Substitution effect
- Income elasticity of demand03 How strongly people respond
- How much demand for a good changes in percentage terms when income changes by one percent.
- See also: Normal good, Inferior good
- Income inequality08 Work, pay and inequality
- How unevenly income is spread across a population.
- Index fund10 Saving, borrowing and investing
- A fund that aims to match a market index by holding the same investments, usually at low cost.
- Inelastic demand03 How strongly people respond
- Demand where quantity changes by a smaller percentage than price. Total spending rises when the price rises.
- e.g. Essential medicine with no close substitute.
- Inelastic supply03 How strongly people respond
- Supply that responds only a little to price changes, often because production takes a long time to expand.
- e.g. Beachfront land, or a vintage that takes years to age.
- Inferior good02 Demand, supply and prices
- A good people buy less of when their income rises, often because they switch to something they prefer.
- e.g. Someone who gets a raise may take fewer long bus trips and more trains or flights.
- See also: Normal good
- Informal economy01 Scarcity and choice
- Economic activity that takes place outside official rules, records or taxes, such as unregistered cash work.
- Inheritance tax08 Work, pay and inequality
- A tax on wealth passed on when someone dies. Also called an estate tax.
- Initial public offering (IPO)10 Saving, borrowing and investing
- The first time a company sells its shares to the general public.
- Insurance09 Information, risk and insurance
- An arrangement where many people pay regularly into a pool that covers those who suffer a loss.
- Intellectual property06 Competition and market power
- Legal rights over creations of the mind, such as inventions, designs, brands, writing and music.
- See also: Patent, Copyright, Trademark
- Interest rate10 Saving, borrowing and investing
- The price of borrowing money, or the reward for lending it, expressed as a percentage per year.
- Intra-industry trade12 Trade and the global economy
- Countries buying and selling similar products to each other, such as cars traded in both directions.
- Invisible hand01 Scarcity and choice
- The idea that people pursuing their own interests in competitive markets can, without planning it, produce outcomes that benefit others.
L
- Labour market08 Work, pay and inequality
- The market where workers offer their time and skills and employers hire them for wages.
- Labour union08 Work, pay and inequality
- An organisation of workers that bargains with employers over pay, hours and conditions.
- Law of demand02 Demand, supply and prices
- Other things equal, when the price of something rises, people buy less of it.
- See also: Demand curve
- Law of diminishing returns01 Scarcity and choice
- As you add more of one input while holding others fixed, each extra unit eventually adds less output.
- e.g. A third cook in a tiny kitchen helps; a tenth mostly gets in the way.
- Law of supply02 Demand, supply and prices
- Other things equal, a higher price encourages sellers to offer more.
- See also: Supply curve
- Legal monopoly06 Competition and market power
- A monopoly protected by law, for example through an exclusive licence.
- Liquidity10 Saving, borrowing and investing
- How quickly and cheaply an asset can be turned into cash without losing value.
- Logrolling11 Government and public choices
- Lawmakers trading votes: 'I'll support your proposal if you support mine.'
- Long run05 Costs, production and profit
- A period long enough for a firm to change every input, including its size and location.
- See also: Short run
- Lorenz curve08 Work, pay and inequality
- A graph showing the share of total income earned by each cumulative share of the population. The further it bows below the equality line, the greater the inequality.
M
- Macroeconomics01 Scarcity and choice
- The part of economics that looks at the whole economy: total output, unemployment, inflation, interest rates and trade balances.
- See also: Microeconomics, Gross domestic product (GDP)
- Marginal analysis01 Scarcity and choice
- Deciding by comparing the extra benefit of a little more of something with its extra cost.
- e.g. Should a shop stay open one more hour? Compare that hour's extra sales with its extra wages and power.
- Marginal cost05 Costs, production and profit
- The extra cost of producing one more unit.
- Marginal revenue06 Competition and market power
- The extra revenue from selling one more unit.
- Marginal utility04 How consumers choose
- The extra satisfaction from consuming one more unit.
- Marginal utility per unit of money04 How consumers choose
- The extra satisfaction from a good divided by its price; a way to compare value for money across options.
- Market02 Demand, supply and prices
- Any arrangement, physical or online, where buyers and sellers exchange goods, services or labour.
- Market economy01 Scarcity and choice
- An economy in which most decisions about production and prices come from private buyers and sellers rather than central planners.
- See also: Command economy
- Market failure07 When markets miss costs and benefits
- When a market left alone produces a result that wastes resources or misses gains, for example because of externalities, public goods or market power.
- Market structure06 Competition and market power
- How a market is organised: the number of sellers, how similar their products are and how easy it is to enter.
- Maturity date10 Saving, borrowing and investing
- The date a bond or loan must be repaid in full.
- Median voter theory11 Government and public choices
- The idea that, in some elections, candidates move toward the position of the voter in the middle of opinion.
- Microeconomics01 Scarcity and choice
- The part of economics that looks at individual decision-makers: households, workers, firms and single markets.
- See also: Macroeconomics
- Minimum wage08 Work, pay and inequality
- A legal floor on hourly pay. Its effect on jobs depends on how high it is set relative to local wages.
- See also: Price floor
- Monetary policy11 Government and public choices
- Central bank decisions about interest rates and the supply of money and credit.
- See also: Fiscal policy
- Money-back guarantee09 Information, risk and insurance
- A promise to refund buyers who are not satisfied, signalling the seller's confidence in quality.
- Monopolistic competition06 Competition and market power
- A market with many sellers offering similar but differentiated products, each with a little control over price.
- e.g. Neighbourhood cafés, hair salons, clothing brands.
- Monopoly06 Competition and market power
- A market with a single seller and no close substitutes, giving it power over price.
- Moral hazard09 Information, risk and insurance
- When someone takes more risk because they are protected from part of the consequences.
- Mutual fund10 Saving, borrowing and investing
- A fund that pools many investors' money to buy a mix of stocks, bonds or other assets.
N
- Natural monopoly06 Competition and market power
- A market where one firm can supply everyone more cheaply than several could, often because of very high fixed costs.
- e.g. A water pipe network: building two in parallel would waste money.
- Negative externality07 When markets miss costs and benefits
- A cost imposed on others without compensation.
- e.g. Traffic noise and fumes affect residents who never bought the cars.
- Non-excludable07 When markets miss costs and benefits
- Impossible or very costly to stop people who have not paid from using it.
- Non-rival07 When markets miss costs and benefits
- One person's use does not reduce what is available to others.
- Non-tariff barriers12 Trade and the global economy
- Rules other than taxes that make importing harder, such as licensing, paperwork or product standards.
- Normal good02 Demand, supply and prices
- A good people buy more of when their income rises.
- See also: Inferior good
- Normative statement01 Scarcity and choice
- A claim about what should be, based on values or judgement rather than evidence alone.
- e.g. 'Bus travel ought to be free' is a value judgement.
- See also: Positive statement
O
- Occupational licence09 Information, risk and insurance
- Official permission required to practise a profession, intended to assure buyers of a minimum standard.
- Oligopoly06 Competition and market power
- A market dominated by a few large firms whose decisions affect one another.
- Opportunity cost01 Scarcity and choice
- The value of the best option you give up when you make a choice.
- e.g. An hour spent scrolling costs the hour of study or rest you could have had instead.
- See also: Scarcity, Sunk cost
- Opportunity set01 Scarcity and choice
- All the combinations of choices that are possible within a given budget or set of resources.
- See also: Budget constraint
P
- Partnership10 Saving, borrowing and investing
- A business owned by two or more people who share its profits and responsibilities.
- Patent06 Competition and market power
- A time-limited legal right to stop others from making or selling an invention.
- Perfect competition06 Competition and market power
- A model market with many sellers of identical products, full information and free entry, so no single seller can set the price.
- Perfectly elastic03 How strongly people respond
- An extreme case where any price rise above the market level makes quantity demanded fall to zero.
- Perfectly inelastic03 How strongly people respond
- An extreme case where quantity does not change at all when price changes.
- Pollution tax07 When markets miss costs and benefits
- A charge on each unit of pollution, so firms pay for harm they cause and have a reason to cut it.
- Pork-barrel spending11 Government and public choices
- Public spending directed to a politician's local area mainly to win support there.
- Positive externality07 When markets miss costs and benefits
- A benefit enjoyed by others without payment.
- e.g. Vaccination protects people around you, not only yourself.
- Positive statement01 Scarcity and choice
- A claim about what is, was or will be, which can in principle be checked against evidence.
- e.g. 'Raising the bus fare reduced the number of riders' can be tested with data.
- See also: Normative statement
- Poverty line08 Work, pay and inequality
- An income threshold below which a household is counted as poor. Each country or organisation sets its own.
- Poverty rate08 Work, pay and inequality
- The share of people living below the poverty line.
- Poverty trap08 Work, pay and inequality
- A situation where earning more brings little gain because benefits are withdrawn or costs rise, discouraging extra work.
- Predatory pricing06 Competition and market power
- Pricing below cost for a time to drive rivals out, then raising prices once competition is gone.
- Present value10 Saving, borrowing and investing
- What a future payment is worth today, after allowing for the interest you could earn in the meantime.
- Price cap regulation06 Competition and market power
- Limiting how much a regulated firm, such as a utility, may raise prices, while letting it keep savings from cutting costs.
- Price ceiling02 Demand, supply and prices
- A legal maximum price. If it is set below equilibrium it tends to create shortages.
- e.g. A rent cap set well below market rents can leave more people searching than flats available.
- Price control02 Demand, supply and prices
- A legal limit on how high or low a price can be set.
- See also: Price ceiling, Price floor
- Price elasticity of demand03 How strongly people respond
- How many percent buyers change their purchases for each 1% change in price. Work it out as % change in quantity ÷ % change in price.
- e.g. Price up 10%, quantity down 5%: elasticity is 0.5, so demand is inelastic.
- Price elasticity of supply03 How strongly people respond
- How many percent sellers change their output for each 1% change in price.
- Price floor02 Demand, supply and prices
- A legal minimum price. If it is set above equilibrium it tends to create surpluses.
- See also: Minimum wage
- Price taker06 Competition and market power
- A seller too small to affect the market price, so it accepts the going price.
- e.g. One farmer selling wheat at the market rate.
- Prisoner's dilemma06 Competition and market power
- A situation where each side acting in its own interest leads to a worse result for both than if they had cooperated.
- e.g. Two rival stores both cut prices to steal customers and both end up earning less.
- Private company10 Saving, borrowing and investing
- A company whose shares are not openly traded.
- Private cost07 When markets miss costs and benefits
- The cost paid by the person or firm making a decision.
- See also: Social cost
- Private rate of return07 When markets miss costs and benefits
- The gain an investment brings to the person or firm that pays for it.
- Producer surplus02 Demand, supply and prices
- The difference between the price sellers receive and the lowest price they would have accepted.
- Production05 Costs, production and profit
- Turning inputs such as labour, materials and equipment into goods or services.
- Production possibilities frontier (PPF)01 Scarcity and choice
- A curve showing the largest combinations of two goods an economy can produce with its resources and technology.
- e.g. Points on the curve use everything fully; points inside waste resources; points outside are out of reach for now.
- See also: Productive efficiency
- Productive efficiency01 Scarcity and choice
- Producing without waste, so you cannot make more of one thing without making less of another.
- See also: Allocative efficiency
- Progressive tax08 Work, pay and inequality
- A tax system where people with higher incomes pay a larger share of their income in tax.
- See also: Regressive tax
- Property rights07 When markets miss costs and benefits
- Clear legal rights to own, use and exchange something. Well-defined rights can help resolve some externalities through bargaining.
- Protectionism12 Trade and the global economy
- Policies that shield domestic producers from foreign competition, such as tariffs and quotas.
- Public choice11 Government and public choices
- The study of how voters, politicians and officials make decisions, using the same tools economists apply to markets.
- Public company10 Saving, borrowing and investing
- A company whose shares can be bought and sold by the public, usually on a stock exchange.
- Public good07 When markets miss costs and benefits
- A good that is non-excludable and non-rival, so markets tend to supply too little of it.
- e.g. Street lighting, flood defences, basic research.
Q
- Quantity demanded02 Demand, supply and prices
- How much buyers want to purchase at one particular price.
- See also: Demand
- Quantity supplied02 Demand, supply and prices
- How much sellers want to offer at one particular price.
- See also: Supply
- Quintile08 Work, pay and inequality
- One fifth of a population ranked by income or wealth, used to compare the top, middle and bottom groups.
R
- Race to the bottom12 Trade and the global economy
- The worry that countries competing for investment will keep lowering labour or environmental standards.
- Rate of return10 Saving, borrowing and investing
- The gain or loss on an investment over a period, as a percentage of what was invested.
- Rational ignorance11 Government and public choices
- Choosing not to become informed because the effort costs more than the expected benefit.
- Redistribution08 Work, pay and inequality
- Using taxes and public spending to move resources from higher-income to lower-income groups.
- Regressive tax08 Work, pay and inequality
- A tax that takes a larger share of income from lower-income people than from higher-income people.
- See also: Progressive tax
- Regulatory capture06 Competition and market power
- When a regulator ends up serving the interests of the industry it oversees rather than the public.
- Revenue05 Costs, production and profit
- The money a firm receives from sales: price multiplied by quantity sold.
- Risk (finance)10 Saving, borrowing and investing
- The chance that the return on an investment differs from what was expected, including the chance of losing money.
- Risk group09 Information, risk and insurance
- People with similar chances of making a claim, grouped together for pricing insurance.
S
- Safety net08 Work, pay and inequality
- Public programmes that support people facing low income, unemployment, illness or old age.
- Savings account10 Saving, borrowing and investing
- A bank account that pays interest and allows withdrawals, usually with less flexibility than a current account.
- Scarcity01 Scarcity and choice
- The basic problem that people want more than the available time, money and resources can provide.
- e.g. A city has one plot of land and must choose between a park, a school and housing.
- See also: Opportunity cost
- Shift in demand02 Demand, supply and prices
- A change in demand at every price, caused by something other than the good's own price, such as income, tastes or the prices of related goods.
- See also: Normal good, Substitute, Complement
- Shift in supply02 Demand, supply and prices
- A change in supply at every price, caused by things like input costs, technology, weather or taxes.
- Short run05 Costs, production and profit
- A period in which at least one input, such as a building or major machine, cannot be changed.
- See also: Long run
- Shortage02 Demand, supply and prices
- A situation where buyers want more than sellers offer at the current price, often because the price is held below equilibrium.
- e.g. Concert tickets priced too low sell out in minutes and appear on resale sites for more.
- See also: Price ceiling
- Shutdown point06 Competition and market power
- The price below which a firm loses less by stopping production for now, because revenue would not even cover its variable costs.
- Simple interest10 Saving, borrowing and investing
- Interest calculated only on the original amount.
- See also: Compound interest
- Sole proprietorship10 Saving, borrowing and investing
- A business owned by one person, who is personally responsible for its debts.
- Special interest group11 Government and public choices
- An organised group that lobbies for policies benefiting its members.
- Specialisation01 Scarcity and choice
- Focusing on a narrow set of tasks or products that you are relatively good at.
- See also: Division of labour, Comparative advantage
- Substitute02 Demand, supply and prices
- A good that does a similar job to another, so when one gets dearer, people switch toward the other.
- e.g. Tea and coffee; streaming services competing for the same viewers.
- Substitution effect04 How consumers choose
- The part of a change in buying caused by a good becoming cheaper or dearer relative to alternatives.
- See also: Income effect
- Sunk cost01 Scarcity and choice
- A cost already paid that cannot be recovered, so it should not affect what you do next.
- e.g. A non-refundable concert ticket is gone whether or not you attend while feeling unwell.
- See also: Opportunity cost
- Supply02 Demand, supply and prices
- How much of something sellers would offer across the whole range of possible prices.
- See also: Quantity supplied, Supply curve
- Supply curve02 Demand, supply and prices
- A graph of supply, usually sloping upward because higher prices make producing more worthwhile.
- Surplus02 Demand, supply and prices
- A situation where sellers offer more than buyers want at the current price, so unsold stock builds up.
- See also: Price floor
T
- Tariff12 Trade and the global economy
- A tax on imported goods.
- Tax incidence03 How strongly people respond
- Who actually ends up bearing the cost of a tax. The side of the market that is less able to respond usually pays more of it.
- Total cost05 Costs, production and profit
- Fixed cost plus variable cost.
- Total surplus02 Demand, supply and prices
- Consumer surplus plus producer surplus: the total gain from trade in a market. Also called social or economic surplus.
- Total utility04 How consumers choose
- The overall satisfaction from consuming a given amount of something.
- Tradable permits07 When markets miss costs and benefits
- A system that caps total pollution and lets firms buy and sell the right to emit, so cuts happen where they are cheapest.
- Trade secret06 Competition and market power
- Valuable business know-how kept confidential, such as a recipe or method.
- Trademark06 Competition and market power
- A protected name, logo or symbol that identifies a brand.
- Traditional economy01 Scarcity and choice
- An economy organised mainly by custom, where work and goods are passed on in long-established ways.
- Tying06 Competition and market power
- Requiring buyers of one product to also buy another product from the same firm.
U
- Unit elasticity03 How strongly people respond
- When quantity changes by exactly the same percentage as price, so total spending stays the same.
- Utility04 How consumers choose
- The satisfaction or usefulness a person gets from a good, service or experience.
V
- Value chain12 Trade and the global economy
- The sequence of steps that turns raw materials into a finished product in a buyer's hands, often spread across countries.
- Variable cost05 Costs, production and profit
- A cost that rises or falls with the amount produced.
- e.g. Ingredients, packaging, delivery fuel.
- Venture capital10 Saving, borrowing and investing
- Investment in young, high-risk companies in exchange for a share of ownership.
- Voting cycle11 Government and public choices
- When majority votes between pairs of options give circular results, so no single option beats all the others.
W
- Wage08 Work, pay and inequality
- The price of labour: what an employer pays for work, usually per hour or month.
- Warranty09 Information, risk and insurance
- A seller's promise to repair or replace a faulty product within a set period.
- Wealth08 Work, pay and inequality
- The value of everything a person owns minus everything they owe, at a point in time.
- See also: Income
- World Trade Organization (WTO)12 Trade and the global economy
- The international body that oversees global trade rules and helps settle trade disputes between members.
About these lessons
The modules, definitions, examples, quizzes and diagrams were written and drawn by Farvenzo Explained for beginners. Numbers inside the diagrams and examples are invented for teaching; they are not real prices, forecasts or statistics.
This is general education, not financial, legal or tax advice. Found a mistake? Read our corrections policy or email contact@farvenzo.com.
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