70 essential IGCSE Economics definitions — search, filter, and master every term.
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A6 terms
absolute advantage
Unit 1
When a country can produce a good using fewer resources than another country.
A country can have absolute advantage in everything but still benefits from trade based on comparative advantage.
Example:The US may produce both cars and wheat with fewer resources than Mexico, but Mexico has comparative advantage in one.
absolute poverty
Unit 1
Living below the income level needed to afford basic necessities (food, water, shelter).
The World Bank defines this as living on less than $2.15 per day (2022 figure).
Example:A family in sub-Saharan Africa surviving on $1.50 per day is in absolute poverty.
ageing population
Unit 1
A rising proportion of elderly people in the population, caused by improved healthcare and falling birth rates.
Increases the dependency ratio — fewer workers supporting more dependants. Puts pressure on pensions and healthcare spending.
Example:Japan has one of the oldest populations — over 28% are aged 65+.
appreciation
Unit 1
An increase in the value of a currency relative to other currencies in a floating exchange rate system.
Makes imports cheaper and exports more expensive. Can worsen the current account but reduces imported inflation.
Example:If £1 goes from $1.20 to $1.40, the pound has appreciated — UK goods are now more expensive for Americans.
automatic stabilisers
Unit 6
Tax and benefit changes that occur automatically with the economic cycle without any deliberate policy decision.
In recession: tax revenue falls (less income to tax) + benefit spending rises → automatic fiscal stimulus. In boom: reverse happens.
Example:Progressive income tax automatically collects more in booms (dampening demand) and less in recessions (supporting demand).
average total cost
Unit 3
The cost per unit of output: ATC = TC ÷ Output.
ATC is U-shaped: falls initially (spreading fixed costs) then rises (diseconomies of scale).
Example:If TC = £1500 and output = 100, ATC = £15 per unit.
B5 terms
balance of payments
Unit 1
A record of all financial transactions between a country and the rest of the world over a period of time.
The current account includes trade in goods, services, investment income, and transfers.
Example:If the UK exports £300bn but imports £350bn, it has a current account deficit of £50bn.
barriers to entry
Unit 3
Factors that prevent new firms from entering a market and competing with existing firms.
Include economies of scale, patents, brand loyalty, high capital requirements, and control of resources.
Example:Developing a new commercial aircraft costs £10bn+ — only Boeing and Airbus can afford to compete.
birth rate
Unit 1
The number of live births per 1,000 people per year.
High in developing countries due to lack of contraception, cultural factors, need for farm labour, high infant mortality.
Example:Niger has a birth rate of about 45 per 1,000; Japan has about 7 per 1,000.
brain drain
Unit 1
The emigration of skilled and educated workers from developing to developed countries.
Reduces the quality of human capital in the home country, slowing development. But remittances sent home can help.
Example:Doctors leaving Nigeria to work in the UK reduces Nigeria's healthcare capacity.
budget deficit
Unit 4
When government spending exceeds government revenue — the government must borrow to cover the gap.
Deficits are financed by selling government bonds. Persistent deficits accumulate into national debt.
Example:During COVID-19, the UK deficit hit £322bn (15% of GDP) due to massive furlough and healthcare spending.
C15 terms
capital
Unit 1
Man-made goods used in the production of other goods and services (NOT money).
Capital earns INTEREST as its reward. Capital includes machinery, factories, tools — but NOT financial capital.
Example:A delivery truck, a computer in an office, or an oven in a bakery are all capital goods.
capital intensive
Unit 2
Production that uses a high proportion of capital (machines/technology) relative to labour.
Suitable when labour is expensive, high precision is needed, or mass production is required.
Example:Car assembly plants with robots, oil refineries, and automated warehouses.
central bank
Unit 2
The government's bank and the banker to commercial banks — it sets monetary policy, issues currency, and acts as lender of last resort.
In the UK this is the Bank of England. It is independent from government to avoid political manipulation of interest rates.
Example:The Bank of England sets the Bank Rate and can create money through quantitative easing.
collective bargaining
Unit 2
The process by which trade union representatives negotiate with employers on behalf of all union members over wages, hours, and conditions.
Gives workers more bargaining power than negotiating individually — employer cannot replace all union members at once.
Example:The RMT union negotiating train drivers' pay with Network Rail on behalf of all its members.
commercial bank
Unit 2
A profit-making financial institution that accepts deposits, makes loans, and provides payment services to individuals and firms.
Commercial banks create most of the money supply through lending — when they make a loan, new money is created.
Example:Barclays, HSBC, Lloyds, and NatWest are all UK commercial banks.
comparative advantage
Unit 1
When a country can produce a good at a lower opportunity cost than another country.
Even if one country is better at producing everything (absolute advantage), trade still benefits both if they specialise in their comparative advantage.
Example:If the UK can produce financial services at a lower opportunity cost than France, it should specialise in finance.
competitive market
Unit 4
A market with many buyers and sellers, similar products, low barriers to entry, and no single firm can influence price.
Competition keeps prices low, quality high, and drives innovation. Firms earn only normal profit in the long run.
Example:The UK supermarket sector: Tesco, Sainsbury's, Asda, Lidl, Aldi all competing on price and quality.
conglomerate merger
Unit 3
A merger between two firms in completely unrelated industries — pure diversification.
Spreads risk across different markets but management may lack expertise in the new industry.
Example:Virgin Group operates in airlines, trains, media, telecoms, and healthcare — all unrelated.
consumer price index
Unit 1
A weighted index measuring changes in the price of a typical household's basket of ~700 goods and services.
The basket is updated yearly. Weights reflect spending patterns. Limitations: ignores individual differences, quality changes, housing costs.
Example:If the CPI basket costs £100 in Year 1 and £102.50 in Year 2, inflation is 2.5%.
cost-push inflation
Unit 5
Inflation caused by rising production costs being passed on to consumers as higher prices.
Caused by rising wages, commodity prices, exchange rate depreciation (making imports expensive), or supply chain disruptions.
Example:The 2022 Ukraine war cut European gas supplies — energy costs surged, pushing up prices of all goods.
crowding out
Unit 6
When increased government borrowing leads to higher interest rates, which reduces private sector investment.
Government competes with private firms for loans → interest rates rise → firms borrow less → investment falls, partially offsetting the stimulus.
Example:If government borrows heavily to fund spending, banks may charge higher rates to businesses, reducing private investment.
current account
Unit 1
The section of the balance of payments recording trade in goods, services, investment income, and transfers.
A deficit means imports > exports (money leaving). A surplus means exports > imports (money entering).
Example:The UK typically has a current account deficit because it imports more goods than it exports.
current account deficit
Unit 1
When the value of imports and outflows exceeds the value of exports and inflows on the current account.
May indicate uncompetitive industries, over-reliance on imports, or a strong currency making exports expensive.
Example:The UK importing £350bn but exporting only £300bn has a current account deficit of £50bn.
current account surplus
Unit 1
When the value of exports and inflows exceeds the value of imports and outflows on the current account.
May indicate competitive industries, weak currency, or low domestic demand reducing imports.
Example:Germany consistently runs a current account surplus due to strong manufacturing exports.
cyclical unemployment
Unit 5
Unemployment caused by insufficient aggregate demand during a recession — also called demand-deficient unemployment.
Occurs across all sectors when the economy contracts. Cured by expansionary fiscal or monetary policy to boost demand.
Example:During the 2008 financial crisis, unemployment rose across all sectors as consumer spending collapsed.
D13 terms
death rate
Unit 1
The number of deaths per 1,000 people per year.
Low in developed countries due to better healthcare, nutrition, and sanitation. Falling death rates in developing countries cause rapid population growth.
Example:Sierra Leone has a high death rate due to poor healthcare; Japan has a low death rate.
deflation
Unit 4
A sustained decrease in the general (average) price level over time — a negative inflation rate.
Demand-side deflation (recession) is dangerous — causes spending delays and debt spirals. Supply-side deflation (efficiency) is beneficial.
Example:Japan experienced demand-side deflation for two decades — consumers kept delaying purchases expecting lower prices.
demand
Unit 1
The quantity of a good or service that consumers are willing and able to buy at a given price in a given time period.
Demand requires BOTH willingness AND ability to pay. Just wanting something isn't demand.
Example:If the price of a phone falls from £800 to £500, the quantity demanded increases.
demand-pull inflation
Unit 4
Inflation caused by aggregate demand growing faster than the economy's productive capacity — too much money chasing too few goods.
Caused by expansionary fiscal/monetary policy, rising consumer confidence, or currency depreciation boosting export demand.
Example:After COVID lockdowns ended, pent-up consumer demand was released faster than supply could recover — prices surged.
demerit goods
Unit 2
Goods that are harmful to consumers and/or society but are over-consumed because people underestimate the harm.
The government discourages consumption through taxation, bans, advertising restrictions, or regulation.
Example:Cigarettes and alcohol are demerit goods — taxes make them more expensive to reduce consumption.
dependency ratio
Unit 1
The ratio of dependants (under 15 + over 65) to the working-age population (15-64).
A high dependency ratio means more people depend on fewer workers for economic support.
Example:If 40% of the population are dependants and 60% are working age, the dependency ratio is high.
depreciation
Unit 1
A decrease in the value of a currency relative to other currencies in a floating exchange rate system.
Makes exports cheaper and imports more expensive. Can improve the current account but may cause imported inflation.
Example:If £1 goes from $1.40 to $1.20, the pound has depreciated — UK exports are now cheaper for Americans.
derived demand
Unit 2
Demand for a factor of production that arises from (derives from) the demand for the product it helps to produce.
Labour is not demanded for its own sake but because firms need workers to produce goods that consumers want.
Example:If demand for new houses rises, demand for construction workers (labour) rises — derived demand.
direct tax
Unit 6
A tax paid directly from income or wealth to the government — the payer cannot pass it on to someone else.
Examples: income tax, corporation tax, capital gains tax. Can be made progressive to reduce inequality.
Example:UK income tax: 0% up to £12,570, 20% on next bracket, 40% above £50,270, 45% above £125,140.
diseconomies of scale
Unit 3
The cost disadvantages (higher average costs) that occur when a firm becomes too large.
Caused by communication problems, coordination difficulties, and worker motivation issues in very large organisations.
Example:A multinational corporation may find it hard to coordinate operations across 50 countries, raising costs.
disinflation
Unit 4
When the inflation rate is positive but falling — prices still rising but at a slower rate.
Not the same as deflation. Disinflation = slowing inflation (e.g. 5% to 3%). Deflation = negative inflation.
Example:UK inflation fell from 11% in Oct 2022 to 2% by mid-2024 — this was disinflation, not deflation.
division of labour
Unit 2
Breaking the production process into separate tasks, each performed by different workers.
Increases output per worker, reduces training costs, but can lead to boredom and dependency on others.
Example:Adam Smith's pin factory: 10 workers specialising in steps could produce 48,000 pins/day vs 20 each working alone.
dumping
Unit 1
Selling goods in a foreign market at a price below the cost of production, or below the domestic price.
Used to destroy foreign competition and gain market share. Countries may impose anti-dumping tariffs in response.
Example:China accused of dumping cheap steel in European markets, undercutting local steelmakers.
E12 terms
economic development
Unit 1
An improvement in living standards and well-being, including better healthcare, education, freedom, and reduced poverty.
Development is broader than growth — a country can have GDP growth but still have poor living standards.
Example:A country building schools, hospitals, and clean water systems is experiencing economic development.
economic goods
Unit 1
Goods that are scarce, require resources to produce, and have an opportunity cost.
Most goods are economic goods because they use up scarce resources in their production.
Example:A loaf of bread requires wheat (land), bakers (labour), ovens (capital) to produce.
economic growth
Unit 6
An increase in the real GDP of a country over time — the economy is producing more goods and services.
Example:Bank of England raised rates from 0.1% to 5.25% (2021-2023) to fight 11% inflation.
money
Unit 2
Anything widely accepted as payment for goods and services that serves as a medium of exchange, store of value, unit of account, and standard of deferred payment.
Without money, trade relies on barter which requires a double coincidence of wants — hugely inefficient.
Example:Notes, coins, and bank deposits are all forms of money accepted in the UK economy.
monopoly
Unit 3
A market structure with a single firm (or dominant firm with >25% market share) that controls supply.
High barriers to entry protect the monopolist. Can set high prices and restrict output, but may invest in R&D.
Example:A water company may be the only supplier in a region — consumers have no alternative.
multinational corporation
Unit 1
A company that operates (produces goods/services) in more than one country.
MNCs bring benefits (jobs, investment, technology) but also costs (profit repatriation, exploitation, environmental damage).
Example:Apple, Toyota, and Unilever are all MNCs operating in dozens of countries worldwide.
N4 terms
national debt
Unit 4
The accumulated total of all past government budget deficits minus past surpluses.
UK national debt exceeds £2.7 trillion (~100% of GDP). High debt means large interest payments crowding out other spending.
Example:UK debt interest payments reached ~£110bn/year in 2023/24 — larger than the education budget.
natural increase
Unit 1
The difference between the birth rate and the death rate — population growth excluding migration.
If birth rate > death rate, population grows naturally. If death rate > birth rate, population declines.
Example:Birth rate 30, death rate 10 = natural increase of 20 per 1,000.
needs
Unit 1
Goods and services essential for survival.
These are things humans require to stay alive — food, water, shelter, and clothing.
Example:Clean drinking water is a need; a smartphone is a want.
net migration
Unit 1
The difference between immigration (people moving in) and emigration (people moving out).
Positive net migration increases population; negative net migration decreases it.
Example:If 500,000 immigrants enter and 200,000 emigrate, net migration is +300,000.
O3 terms
occupational mobility
Unit 1
The ability of a factor of production to change its use or occupation.
Barriers include lack of skills, cost of retraining, and time needed to retrain.
Example:A coal miner cannot easily become a software engineer without extensive retraining.
opportunity cost
Unit 1
The value of the next best alternative forgone when making a choice.
Because resources are scarce, choosing one option means giving up the next best option. It's always SPECIFIC.
Example:If a government builds a hospital instead of a school, the opportunity cost is the school that wasn't built.
optimum population
Unit 1
The population size that produces the highest GDP per capita given available resources and technology.
Overpopulation means too many people for resources (GDP per capita falls). Underpopulation means resources are underused.
Example:Bangladesh may be overpopulated (dense, limited land); Canada may be underpopulated (vast resources, small population).
P14 terms
phillips curve
Unit 6
An inverse relationship between unemployment and inflation — low unemployment leads to higher inflation and vice versa.
When unemployment is low, workers demand higher wages → firms raise prices → inflation rises. A key policy trade-off.
Example:UK 2022: unemployment fell to 3.5% (historic low) and wage growth surged to 8%+, fuelling inflation above 11%.
poverty cycle
Unit 1
A self-reinforcing cycle where poverty leads to low education, poor health, low productivity, low income — and back to poverty.
Breaking the cycle requires intervention such as education, healthcare, microfinance, or foreign aid.
Example:A child born into poverty cannot afford school → gets low-skilled job → earns low income → their children face the same.
price elasticity of demand
Unit 2
A measure of how responsive the quantity demanded of a good is to a change in its price.
PED = % change in quantity demanded ÷ % change in price. Always negative (inverse relationship). If |PED| > 1, demand is elastic.
Example:Luxury goods like designer bags tend to have elastic demand — a 10% price rise might cut demand by 30%.
price elasticity of supply
Unit 2
A measure of how responsive the quantity supplied of a good is to a change in its price.
PES = % change in quantity supplied ÷ % change in price. Always positive. If PES > 1, supply is elastic.
Example:Digital music has very elastic supply — streaming platforms can instantly supply more copies.
primary product dependency
Unit 1
When a developing country relies heavily on exporting raw materials or agricultural products.
Makes the economy vulnerable to price fluctuations, has low value-added, and limits economic diversification.
Example:Zambia depends heavily on copper exports — when copper prices fall, the whole economy suffers.
privatisation
Unit 4
The transfer of ownership from the public sector (government) to the private sector.
Aims to increase efficiency through profit motive and competition, but may create private monopolies.
Example:British Telecom was privatised in 1984 — now BT, a private company listed on the stock exchange.
production possibility curve
Unit 1
A diagram showing the maximum possible output combinations of two goods when all resources are fully and efficiently employed.
Points on the curve = efficient. Inside = inefficient/unemployed resources. Outside = unattainable with current resources.
Example:A country can produce 100 cars and 0 trucks, or 0 cars and 80 trucks, or combinations along the curve.
productivity
Unit 3
Output per unit of input — a measure of efficiency. Labour productivity = total output ÷ number of workers.
Higher productivity means more output from the same resources. Improved by better technology, education, and management.
Example:If 10 workers produce 500 units, productivity is 50 units/worker. After training, they produce 700 = 70 units/worker.
profit
Unit 4
The difference between total revenue and total cost: Profit = TR - TC.
Normal profit is the minimum to keep a firm in the industry. Supernormal profit exceeds this and attracts new entrants.