As with any subject you study at school or university, there are always going to be certain keywords or phrases specific to that subject. Just as students of languages have to get to grips with conjugation, the past participle, and various cases and tenses, so too do economics students have their own terminology to navigate.
There are some obvious economic terms and topics that students will likely already be familiar with, such as:
- Financial markets;
- Saving compared to investing; or
- Unemployment figures and trends.
However, there are other words that are core to economics, which may not immediately spring to mind, whether that's GDP growth or hyperinflation.
| Principal economic concepts: |
|---|
| Incentives and subsidies |
| Supply and Demand |
| Cost and benefits |
| Scarcity |
| Macro- and microeconomics |
| Money |
| Productivity |
Below is an overview of these important economic concepts, including fundamental concepts that may not be particularly obvious to students.
You can use the services of a reliable economist GMAT tutor here.
Economic Concepts You Should Be Familiar With
If you’re looking to get ahead in your economics studies, then it pays to be ahead of the curve when it comes to important concepts that might be discussed during lessons, or that are mentioned in your course textbooks.
Below is just a selection of the terms that you should be familiar with in order to get the most out of your studies. Of course, some of the words may not appear immediately relevant to economics classes, such as the concept of incentives, but as you’ll see, there’s a crucial reason why these ideas are so important to the field.
Incentives
Incentives matter in economics as well as in economic policy. This is because incentives often influence the demand for a good or service, as the higher the incentive, the greater the projected demand for that product.
For example, if you reduce the price of a chocolate bar, then consumers are incentivised to buy more of it, and as a result demand for that product will be higher, as will its sales.
Subsidies
To maintain equilibrium in the markets, governments will subsidize a wide range of concerns, both public and private. These subsidies may take the form of tax breaks for corporations, carbon capture credits to manufacturers who incur extra costs to offset pollution, or to farmers, to remediate the soil and produce certain crops or raise a specific breed of food animal.
Subsidies often create the same effect as incentives, namely that they distort the economy. As long as government money - read: taxpayer money sustains inefficiently operated businesses, economists cannot get the true picture of how healthy the economy is.
Housing subsidies is a great case in point.
As the government subsidizes housing - thereby housing more people who might otherwise be priced out of the housing market, it becomes harder to project the true cost of rising home prices, and determine the reasons those prices are rising so dramatically.
In essence, a subsidy is more of a plaster put on economic gashes while incentives are an encouragement to overlook those dangers. Both practices render a distorted economic profile.
Money
Money is a core aspect of economics, but it often doesn’t get thought about too often as a concept or economic theory.
Money is important, well, because it’s everywhere. At its most basic, money is a means through which one person agrees to exchange goods or services with another. However, its application in economics is much broader. From stock markets to monetary policy, to inflation, money is at the core of many economic concepts and theories.
What’s more, the popularisation of new currencies, such as Bitcoin, continues to challenge economists in terms of what money means, and how its value impacts economic policies and decisions around the world.
Productivity
Productivity can be used to gauge how well or poorly an economy is performing, as usually, higher levels of productivity indicate a growing economy.
By definition, productivity is measured by how much output is created from each unit of input. Economists commonly consider labour as an input metric, although there are other inputs, such as capital, that can be considered. Outputs can be measured by items such as gross domestic product.
However, you can measure the productivity of almost anything, making it an indispensable analytical tool and prospect for economists the world over.
Find reputable online economics tutors here.
Supply and Demand
Every market is driven by these two concepts: consumers want a good, producers have the good, thus economic activity ensues. This, in essence, describes the law of supply and demand but it's not simply about consumers handing over money for products.
The theory examines the price consumers are willing to pay for a good or service versus the amount that the producer is willing to accept for it.
The law of supply and demand is derived from two, more fundamental laws: the law of supply and the law of demand (logically enough).
On the supply side, the relationship between price and availability shows an upward arc. Namely, the higher the price of a good, the greater the supply of the good. By contrast, the demand side reflects an inverse proportion: the higher the price, the lower the demand.
Imagine a newly-opened bakery is offering artisan breads for about half the price any other bakery charges for their breads. Naturally, people will flock to that store and, soon, their supply of bread will be depleted. That half-priced bread was just an incentive to attract customers to the new business. Now that consumers will likely return because know this new bakery makes good bread, the bakers can charge more for their goods.
Those artisan bread makers have to set their prices judiciously, though. If they charge too much, their customers will return to their familiar outlets but, if they charge too little, their venture will lose money. The bakers have to find the perfect price balance for their venture to succeed.
Equilibrium is when the price of a good or service a producer sells at balances with the amount consumers are willing to pay for it.
Markets strive for equilibrium. That makes supply and demand foundational concepts every economics student must understand.
Other Core Branches of Economics You Should Know
Aside from a handful of economic terms that you should be aware of, economics is also divided into different areas of study. Having knowledge of these main concepts within core areas of economics will make it easier for you to understand what exactly these areas of economics seek to examine.
Macroeconomics
Macroeconomics is the study of the economy as a whole and seeks to look at the “big picture” of how global financial markets and local economies operate. Some of the main macroeconomics words you may come across during your studies include:
- The business cycle;
- Gross domestic product (GDP);
- Inflation and deflation; and
- Monetary or fiscal policy
There are other important economic terms within this field, such as aggregate demand and supply, so the above list is not exhaustive.
If you find yourself struggling with any of the keywords related to macroeconomics, or would like to learn more about this area of economic study, then it may be a good idea to enlist the help of a tutor to get you up to speed with the latest macroeconomic concepts and issues.
Sites such as Superprof can pair you up with tutors that are happy to work with you, either in an online capacity or in-person, to help focus your learning efforts on those areas of economics that you really need help with.
Microeconomics
Microeconomics is the yin to the yang that is macroeconomics. Simply put, it is the opposite of macroeconomics, as microeconomics seeks to understand how individuals and individual companies can influence the economy, and what drives those economic actors to take the decisions that they do.
Microeconomics phrases that you may encounter include:
- The price elasticity of demand;
- Asymmetric information; and
- Income distribution.
If you’re interested in the study of individuals and their behaviour, you may also find the relatively new area of behavioural economics interesting. Figures such as Daniel Kahneman and Amos Tversky have propelled the field forward, and essentially argue that individuals don’t act in a particularly rational way.
Essentially, this blend of psychology and economics shows how far-reaching the study of economics can be. If you’re interested in finding out more about this area, then you may wish to read “Thinking, Fast and Slow” by Kahneman.
Find more A level economics tutors here on Superprof.
Cost and Benefits
Every savvy consumer knows they should get the most for their money. You can say that many different ways: the most bang for your buck, getting your money's worth... even the old saying about being penny wise and pound foolish relates to the theory of rational choice.
Essentially, this theory boils down to consumers making rational decisions. These decisions entail maximising the ratio of benefits to the expenditure - the cost of their decision.
That's clearly rational; paying a lot for some little, worthless thing would be illogical and irrational in the extreme. But, in economic terms, rational doesn't mean logical; it represents balance.
You can think of it this way. Let's say you have a bit of money and want to treat yourself to something sweet. Off you pop to your fav coffeehouse, to scan the display of cakes and other goodies. Some of them are quite pricey and, even though you have that bit of extra, it might not be worth getting the most lavish, expensive cake. The one that will satisfy your need will do.
On the production side of things, now.
Let's say that demand for cakes has suddenly skyrocketed. To meet that demand, the cake factory might hire more workers, but only if the gains netted from the current demand levels will cover their extra operating costs - more salaries to pay, more raw ingredients to make cakes with, and so on.
This cost/benefit analysis doesn't only apply to economic issues. For instance, being a student, you might balance the cost of neglecting a general studies course such as English with the benefit of focusing on those courses that will advance your future career prospects. Or the cost of neglecting a family obligation against the benefit of going out with your mates.
In a perfect world, we could assume that people would always behave rationally when it comes to economic matters but we're confronted with distortions to our rationale everywhere we turn.
Advertising works a lot like subsidies, in that adverts distort our sense of reason by making us crave the item being advertised.
It's difficult for the average consumer to make economic decisions based purely on their careful cost/benefit analyses when visually, audibly and legibly, we're told that we're nothing without this latest... whatever. More and more, consumers are acting irrationally, guided more by their emotions than any economic good sense.
Advertisers are well aware of that phenomenon. Their benefit - higher profits, far outweigh any ethical questions or backlash they might face, so they continue to create ever more provocative adverts to entice continuous consumption.
Technology Has a Crucial Role in Economics
Another core concept that has heavily influenced the area of economics is technology. Although technology is a hugely broad concept, the impact of technology on economics is undeniable.
Take, for example, the first Industrial Revolution, which began in Britain during the 18th century, had a huge effect on almost every aspect of life, from:
- How and where people lived;
- Increases in wealth – whether to business or, arguably, to the working classes; and
- Changes to working conditions.
Since that watershed event, the foundations of many modern and developing economies were established, although living and working conditions have naturally changed over the past few hundred years.
You can also see the impact that technological advances have had on economics, economic growth, and economic activity within the past few decades. The way in which business is conducted has fundamentally shifted within the last 50 years, with a move towards the digital economy and the age of the internet, referred to as the fourth Industrial Revolution.
Indeed, some now argue that, due to the wide availability of information online, any perceived information asymmetry in the economy has actually reduced.
This is because purchasers now have more access to empirical data than ever before about a product, thereby reducing any information mismatches or uncertainty that may have previously been in place between buyers and sellers.
Find various A level economics tutors here on Superprof.
What You Should Know About Scarcity
After incentives, supply/demand, and cost/benefit, scarcity is the most important economic idea to grasp. Luckily, you already have a clue about this concept; it deals with how bountiful the resources are.
Your family may be very well off - you may lack for nothing and have no worries that all of your physical (and at least some psychological) needs will be met. You've nevertheless experienced scarcity.
Our planet is one of the finite resources. As an example, the Russian oil fields may seem vast but they are well on their way to being depleted. That government and well owners have had to close several non-performing wells already. You might think that scarcity in Russian oil stores has nothing to do with the rest of the world - they are in Russia, after all.
Despite where they are located, oil depletion dictates how much consumers will pay for petrol, meaning the growing scarcity of this finite resource impacts prices all over the world.
More to the moment, the lack of semiconductor chips has put the brakes on practically every industry from electronics to car production.
As this and other pandemic-related shortages show, the resource in question doesn't have to be finite; scarcity can be caused by external factors, too. Political disagreements over trade imbalances are just one reason for the ongoing chip shortage. Another is pandemic-driven closures of production plants and shipping delays.
What makes scarcity such a fundamental economic driver is that it sits in opposition to unlimited want. We're not talking about a select group of consumers being supremely greedy; only that every consumer has the same categories of wants. Food production would be the best way to illustrate the point.
Some consumers want bread while others want noodles. However, there's only so much wheat to be harvested and processed into the flour necessary to make these goods. How much flour should be allocated for breadmaking and how much for noodle production?
This scarcity forces a close look at supply and demand, and cost and benefit. Do people buy more pasta than bread, or is it the inverse? Which is more cost-effective to produce? Which one would provide the greatest benefit - more profit as well as a greater supply? Answering these questions brings up many confusing data.
Noodles have a longer shelf life but more people buy bread, and bread is often bought daily, unlike noodles. Breadmaking calls for substantial resources - the added ingredients, along with the cost of baking the bread. Breadmaking is also more labour-intensive so bread production calls for more workers.
From this analysis, you might conclude that bread makers would be awarded the bulk of the flour from each harvest, especially if we consider all of the noodles currently stored in warehouses, awaiting distribution to the local markets. There isn't any immediate need to produce more noodles.
Scarcity forces producers to decide on the most efficient distribution of resources to ensure that the market's highest priorities are satisfied.
Consolidate Your Knowledge of Economic Concepts
There’s no getting away from it – there can be a lot of new words and phrases to learn when you first start studying economics. Even if you’ve been studying economics for a few years, or are enrolled in a university economics degree programme, you’ll find that there are always new terms or concepts to get a handle on.
Supply and demand, costs and benefits, scarcity and incentives: these four fundamental economic concepts, along with others discussed in this article underpin economic studies - both the ones you do in your economics programmes at school and economic theory as a whole.
Thankfully, there are a few helpful tricks to mastering these ideas. If you can, try to understand what area of economics the term applies to. For example, does a term such as price elasticity of demand or a concept such as interest rates belong within the remit of:
- Macroeconomics;
- Microeconomics;
- Global economics and international trade; or
- A mixture of different fields
By identifying which branch of economic study a term falls under, you may be able to associate a new concept with the ones you’re already familiar with, thereby consolidating your learning and helping the new term to stick in your mind.
If you do find yourself struggling, then you can always reach out for extra support. Economics tutors are experienced with a range of economic concepts and can give you practical exercises and real-world examples to help develop your knowledge in particular areas.
On Superprof, you enter your postcode and the subject you’d like to study, and then you’re matched with a tutor in your area. With the options of having one on one or group tuition, there’s plenty of flexibility so that you can get the extra study time you need, without spending a fortune to do so.
Having knowledge of core economic ideas can be a real asset when it comes to coursework or exams, so don’t delay getting on top of the key economic terms, especially ones that feature heavily in your curriculum.
Whether you need to learn more about the 2008 global financial crisis, current world economic issues, or the state of the Eurozone, remember that many an economist before you also had to start out learning about such issues and their implications from an economics perspective. As such, it's always a good idea to be proactive, and reach out for that extra support if you need it.
Enjoyed this article? Leave a rating!
Loading...
