Applied Economics Terminology

Key Terms :
1.Applied Economics - is the application of economic

theory and econometrics in specific settings with the goal
of analyzing potential outcomes.
2.Economics - as a study, is the social science that
involves the use of scarce resources to satisfy unlimited
wants. Well- known economists Alfred Marshall
described economics as a study of mankind in the
ordinary business of life , which examines part of the
individual and social action which is most closely
connected with the attainment and use of material
requisites of well – being .
3. Capital – includes manmade resources used in the
production of goods and services, and includes machines
and equipment. The owner of capital earns an income
called interest.
4. Command economy - is the authoritative system
wherein decision- making is centralized in the
government or a planning committee.
5. Economic system – is the means through which society
determines the answers to the basic economic
problemsof anation.
6. Land - refers to soil andnatural resources which are
found in nature and not manmade. Owners of land
receive a payment known as a rent.
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7. Macroeconomics – is a division of economics that is
concerned with the overall performance of the
entireeconomy. It studies theeconomic system as a
whole rather than the individual economic units that
make up the economy.
8. Market economy – which is the most democratic form
of economic system is where the workings of demand
and supply determine the decisions on what goods and
services to produce.
9. Microeconomics - is concerned with the behavior
ofindividual entities such as the consumer, the
producer, and the resource owner.
10. Opportunity cost – refers to the value of
foregonealternative.
11. Poverty - is the state of being extremely poor. It is a
condition where people’s basic needs for food, clothing,
and shelter are not being met.
12. Poverty line – refers to a minimum income level used
as an official standard for determining the proportion of
a population living in poverty.
13. Scarcity – is a condition where there are not sufficient
resources to satisfy all the needs and wants of a
population, Scarcity maybe arelative or absolute. Relative
scarcityis when a good becomes scarce compared to the
demand for that good. Absolute scarcity iswhen by the
very nature of the good. Its supply is limited.
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14. Social science – is broadly speaking, the study of
society and how people behave and influence the world
around us.
15. Traditional Economy – is an economy where
decisions are based on traditions and practices upheld
over the years and passed from generation to
generation.
16. Unemployment – is a situation where people are who
are willing and able to work are seeking work but cannot
find jobs.
17. ceteris paribus – literally, “holding other things
constant” – is commonly translated as “all else being
equal.” A dominant assumption in mainstream economic
thinking, it acts as a shorthand indication of the effect of
one economic variable on another, provided all other
variables remain the same. In the fields
of economics and finance, the phrase and concept is
often used when making arguments about cause and
effect.
In other words ceteris paribus means allother
relatedvariables, except those that are being studied at
the moment are help constant.
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18. Arc Elasticity - Arc Elasticity of Demand
Definition: Arc elasticity of demand measures elasticity
between two points on a curve.
On most curves the elasticity of a curve varies depending
upon where you are. Therefore elasticity needs to
measure a certain sector of the curve.
Calculating Arc Elasticity of Demand
To calculate arc elasticity of demand we take the
midpoint in between.
Example of Arc Elasticity of Demand
Price increases from 10p to 12p.
Quantity falls from 40 to 20.
Arc elasticity of demand assumes that we should
calculate using the midpoint between 40 and 20 which
equals 30
The % change in quantity is 20/ 30 = – 0.667
The % change in price is 2p / 11 = 0.18
Therefore PED = -0.667 / 0.18 = -3.7
Formula for Average of ‘midpoint’ elasticity of demand
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(Change in Q / average Q)
—————————
(change in P / average P)
19. Business process outsourcing (BPO) is the

contracting of a specific business task, to a third parry
service provider.
20). Complements - are goods which are used together.
Income refers to money that an individual or business
receives in exchange forproviding agood or service or
through investing capital.
21). Cost of production - refers to the expensed incurred
to produce the good.
22). Consumers goods – are goods which consumers use
to satisfy their wants.
23). Labor – refers to the Physical , human effort exerted
in production, covers manual workers like construction
workers, machine operators, and production workers, as
well as professionals like nurses, lawyers and doctors.
The Term also includes jitney drivers, farmers, fishermen;
the income received by labor is referred to as wage.
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Key Terms :

1.Applied Economics - is the application of economic

19. Business process outsourcing (BPO) is the

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