Anyone that would like to develop their knowledge of economics, either for the purposes of improving their studies or out of general interest, should be very familiar with some of the most common economic concepts and terms.
This is because:
- Knowing key economic terms, from supply and demand to econometrics and monetary policy, will help you understand more about the field;
- You will give yourself more credibility when speaking about economic matters; and
- Learning key terms can be a great way to study economics more broadly, and it can also help develop your skills of economic analysis.
Key Economics Terms
Below are 25 introductory terms that are commonly used in the field of economics, and which may well be used during your studies in economics. Even if the below terms are not taught as an aspect of your curriculum, often these terms will be referenced in your wider economics reading. For example, these terms are often mentioned in blog posts, economics news articles, or even during economics podcasts.
The principle of a bear market is simple enough. Essentially, it represents a negative or pessimistic outlook on a stock market’s performance, often with such markets falling into a downfall spiral, where prices continue to drop.
As a result of a bear market, selling of stocks tends to increase. Additionally, investors expect, and may well receive, increased losses from their investments.
A bull market represents a much more positive outlook on a stock market’s performance compared to a bear market. In a bull market, stock prices either have or are expected to increase.
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The business cycle refers to the overall expansion and subsequent contraction of an economy over a period of time.
As a result, the business cycle is part of the wider field of macroeconomic theory. You can find a definition of macroeconomics below.
A term attributed to economist David Ricardo. Comparative advantage is a theoretical concept that describes the ability of one party to produce goods and/or services with a lower opportunity cost compared to another party or parties. See below for a definition of opportunity cost.
Deflation is the opposite of inflation. It occurs when demand reduces, and this, in turn, produces results such as reduced prices.
Division of labour
The division of labour describes the process of breaking down tasks so that separate groups or individuals can carry out each task. It is often associated with the production process and overall productivity.
Elasticity of demand
The elasticity of demand describes how demand for goods or services increases or decreases when the price of that good or service changes. Goods that generally are susceptible to the elasticity of demand should exhibit the following patterns:
- An increase in the cost of the good will lead to a decrease in demand; whereas
- A decrease in the cost of the good will lead to an increase in demand.
Refers to a market or marketplace where financial assets are bought and sold. A common example of a financial market is a stock exchange.
Fiscal policy refers to a government’s spending and how it affects the economy, particularly if spending levels change.
Gross domestic product (GDP)
GDP is often used as a measure of a nation’s economic performance and activity. It is usually calculated on a quarterly or annual basis.
The growth rate is a measure of growth and how it increases over a period of time. It can be used to describe economic growth, gross domestic product, or items such as annualised growth rates for a company.
An interest rate is calculated by applying a percentage to the amount of the principal being borrowed. A common example of a principal is a loan or some other form of debt. The amount of interest charged is usually calculated by reference to an annual rate.
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In its simplest terms, when there is inflation there is a rise in the prices charged for goods and services. Where an economy has inflation, the cost of living tends to rise.
Developed by the economist John Maynard Keynes, Keynesian economics describes Keynes' economic theories and beliefs, which contained the conviction that government involvement in the economy through spending and taxes could help increase demand and move an economy out of a depression.
Law of demand
The law of demand examines how customers’ buying habits change when prices increase. Specifically, the theory posits that all other things being equal, when prices of a good increase, the demand for that good falls.
Law of supply
The law of supply states that all other things being equal, an increase in price levels results in an increase in the quantity of those goods that are supplied.
Macroeconomics studies how the economy behaves in the aggregate, i.e. as a whole. Concepts examined in macroeconomics include:
- The level of prices in the economy;
- Growth rate.
Marginal utility refers to the amount of satisfaction a consumer has by consuming a good or service. Marginal utility can be used by economists to gauge how much of a good or service a consumer should buy.
The opposite of macroeconomics is microeconomics. Microeconomics focuses on how individuals and companies act within an economy, and how their behaviour also influences an economy.
Monetarism is a school of thought that centres on the idea that the volume of money in an economy is a key factor in the amount of economic activity and growth. It is a theory that sits in contrast to Keynesian economics.
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A term used within the area of market share. In a monopoly, there is only one supplier in the market, and in a duopoly, there are only two. In an oligopoly, there are more than two suppliers in the market, and the actions of one supplier can influence the actions of the others.
Opportunity cost is the cost of missing an opportunity in order to take on a different opportunity. An example of opportunity cost can be seen in investors, who may have to forego investing in one company in order to invest in another.
Stagflation describes an economy that is experiencing slow economic growth, whilst also experiencing inflation and high levels of unemployment. Stagflation is far less common than inflation or deflation.
The invisible hand
An idea introduced by the philosopher Adam Smith, the invisible hand describes the benefits that society at large can enjoy as a result of the actions of self-interested individuals. The invisible hand was an argument used to advocate the benefits of a free market.
Trade barriers relate to a government policy or regulation that limits or controls international trade. Examples include:
- Trade quotas; and
Create Your Own Economics Glossary
The difficulty in understanding economics is that there is so much terminology within the field. However, if you take some time to learn core economic concepts, such as those outlined above, then you’ll be able to:
- Speak with more confidence when discussing economic matters;
- Understand more about which theories and concepts belong to which area of economics, for example, macroeconomics or microeconomics; and
- Use these terms during your exams or in essays, which will show your teacher or lecturer that you’re comfortable using and highlighting such terminology.
Although it can take some time to get to grips with economics concepts, the best tactic to improve your understanding of such key terms is to try and learn new terminology at a slow, but regular, pace.
For example, you could aim to learn between one and three new terms every week. This would mean that, well before you get to the end of the academic year, you’ll be very comfortable with terms such as those above and what they mean, and you'll have taken the time to commit such terms to memory so that you can remember them for years to come.
Of course, if you need or would like to learn such terminology quicker and in a more intensive fashion, then you can always hire an economics tutor to help you revise core economic terms and concepts. Aside from helping you learn such terms, an economics teacher or tutor can:
- Give you exercises that consolidate your knowledge of economic terms;
- Provide you with learning techniques to help you during your revision;
- Identify areas or key terms that you're struggling with, whether that's concepts that fall within behavioural economics or terms such as stagflation; and
- Complement your school’s curriculum by working with you on the areas you’re having the most difficulty with.
Superprof, for example, has a wide range of economics tutors that you can choose from. Simply enter your postcode and Superprof will match you with online and local tutors in your area that would be happy to help you succeed in your studies.
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