Cambridge IGCSE Economics 0455

Learn 200 Cambridge IGCSE Economics words for explaining markets, using data and discussing policy effects. Each entry gives a plain-English meaning and a short example.

For Cambridge IGCSE Economics 0455 in 2027–2029, Paper 1 has 40 multiple-choice questions in one hour and counts for 30%. Paper 2 lasts two hours, has 80 marks and counts for 70%. The longer structured answers are on Paper 2.

200 words and examples
Exam requirements and worked examples
Fencing Method
Practice exercises

200 essay vocabulary words and examples

Markets, living standards and public policy

scarcity — limited resources relative to wants. scarcity forces households and governments to make choices.
opportunity cost — the benefit of the next best option forgone. explain the opportunity cost of using land for parking.
factor of production — a resource used to produce goods and services. classify a delivery van as capital rather than labour.
specialisation — concentrating on a narrower range of tasks or products. specialisation may raise productivity through practice.
demand — the quantity consumers are willing and able to buy at different prices in a period. a rise in income can shift demand for a normal good.
supply — the quantity producers are willing and able to sell at different prices in a period. higher input costs may reduce supply.
market equilibrium — the price and quantity where quantity demanded equals quantity supplied. show how a shift in demand changes equilibrium.
shortage — a situation where quantity demanded exceeds quantity supplied at a price. a binding price ceiling can create a shortage.
surplus — a situation where quantity supplied exceeds quantity demanded at a price. a binding price floor can create a surplus.
price elasticity of demand — responsiveness of quantity demanded to a change in price in percentage terms. close substitutes can make demand more price elastic.
indirect tax — a tax on spending on goods or services. an indirect tax can raise the price consumers pay.
subsidy — financial support intended to encourage production or consumption. a subsidy can reduce a producer’s effective costs.
external cost — a cost imposed on a third party outside a transaction. traffic noise can create an external cost for nearby residents.
inflation — a sustained increase in the general price level. distinguish inflation from an increase in one price.
real income — income adjusted for changes in the price level. rising prices can reduce real income when money income grows slowly.
economic growth — an increase in real output over time. use real GDP to measure economic growth.
unemployment — the condition of being without work while seeking and available for work, under the applicable definition. a fall in demand can increase cyclical unemployment.
exchange rate — the price of one currency in terms of another. a depreciation can make imports more expensive in domestic currency.
tariff — a tax on imports. compare how a tariff affects consumers and domestic producers.
standard of living — the material conditions and resources available to people. real GDP per person gives only a partial picture of the standard of living.

Market structure and policy mechanisms

deadweight loss — a loss of total surplus relative to an efficient allocation. identify the deadweight loss from underproduction.
price ceiling — a legal maximum price. a binding price ceiling can create excess demand.
price floor — a legal minimum price. a binding price floor can create excess supply.
tradable permit — an authorisation that can be exchanged and allows a specified activity. tradable permits place a price on emissions.
internalise — bring an external cost or benefit into a decision-maker’s incentives. a charge may internalise an external cost.
excludability — the ability to prevent people from using a good. excludability affects how a service can be financed.
rivalry — the extent to which one person’s use reduces what others can use. rivalry increases when a road is congested.
free rider — someone who benefits without contributing to the cost. a free rider may still benefit from street lighting.
moral hazard — a change in behaviour after protection alters the cost of taking risks. insurance can create moral hazard.
adverse selection — a distortion in who participates when one side has hidden information. adverse selection can change the mix of people insured.
sunk cost — a cost already incurred that cannot be recovered. sunk costs may deter market entry.
economies of scale — falls in long-run average cost as output expands. economies of scale can favour larger firms.
normal profit — the minimum return needed to keep resources in their present use. normal profit is included in economic cost.
supernormal profit — profit above normal profit. barriers can help sustain supernormal profit.
price discrimination — charging different prices for comparable units when differences are not explained by cost. price discrimination requires some ability to separate customers.
derived demand — demand for an input arising from demand for its output. demand for labour is derived from demand for its product.
marginal revenue — the addition to total revenue from selling an extra unit. a firm compares marginal revenue with marginal cost.
transfer payment — a payment made without receiving current goods or services in return. a transfer payment can change disposable income.
trade creation — a shift to a lower-cost partner producer following trade integration. trade creation can lower production costs.
trade diversion — a shift to a higher-cost partner producer because of preferential treatment. trade diversion can offset gains from integration.

Microeconomic analysis

widespread — present across many places or groups. widespread smartphone use.
prevalent — common in a particular group or setting. prevalent among younger adults.
elasticity — responsiveness of one variable to a change in another. price elasticity affects the fall in quantity demanded.
inelastic — relatively unresponsive to a change in a specified variable. inelastic demand for a necessary input.
equilibrium — a position where opposing forces balance in the model. a new market equilibrium.
persistent — continuing over a period despite efforts or change. a persistent shortage.
gradual — happening in small steps over time. a gradual decline.
marginal — relating to the next unit or a small additional change. compare marginal social cost with marginal social benefit.
externality — a cost or benefit affecting a third party outside the transaction. congestion can create a negative externality.
incidence — the distribution of an economic burden or benefit. the incidence of a tax depends on relative elasticities.
incremental — proceeding through successive small additions or changes. incremental improvements.
rationing — allocating a limited quantity among competing users. price rationing allocates available supply.
monopoly — a market with a single seller, or dominant market power in relevant usage. evaluate the consequences of monopoly power.
monopsony — a market with a single buyer, or dominant buyer power in relevant usage. a firm with monopsony power can influence wages.
oligopoly — a market dominated by a few firms. strategic interaction in an oligopoly.
contestability — the extent to which entry and exit can discipline firms. contestability depends partly on sunk costs.
barrier — an obstacle that makes entry or action difficult. a barrier to entry protects incumbents.
welfare — economic wellbeing, often assessed through benefits and costs. evaluate the net welfare effect.
allocative efficiency — allocation where marginal social benefit equals marginal social cost in the standard framework. the tax may move output toward allocative efficiency.
productive efficiency — production at the lowest attainable average cost for the relevant output or at minimum average cost in the standard firm diagram. distinguish productive efficiency from higher output alone.

Macroeconomic analysis

temporary — lasting for a limited period. a temporary measure.
disinflation — a fall in the inflation rate while prices may still be rising. disinflation reduces the rate of price increase.
deflation — a sustained fall in the general price level. deflation can increase the real burden of debt.
permanent — intended or expected to continue indefinitely. a permanent change.
productivity — output per unit of input. higher labour productivity can reduce unit costs.
aggregate demand — planned total expenditure on domestically produced output at a given price level. higher investment can raise aggregate demand.
aggregate supply — total output firms are willing to produce at a given price level. higher input costs can reduce short-run aggregate supply.
output gap — the difference between actual and potential output. a negative output gap indicates spare capacity.
multiplier — the ratio of the eventual change in national income to the initial change in an injection. a larger marginal propensity to import can reduce the multiplier.
leakage — a withdrawal from the circular flow, such as saving, taxation or imports. higher imports increase a leakage.
injection — spending entering the circular flow through investment, government spending or exports. a rise in exports is an injection.
fiscal policy — use of government spending and taxation to influence the economy. an expansionary fiscal policy can raise demand.
monetary policy — central-bank action influencing monetary and financial conditions. monetary policy operates through several channels.
transmission — the process through which a policy change affects the economy. the transmission from rates to investment can take time.
systemic — rooted in the workings of a whole system. a systemic failure.
depreciation — a fall in the value of a currency under a floating exchange-rate system. depreciation can raise the domestic price of imports.
current account — the balance-of-payments account recording trade and primary and secondary income flows. consider the effect on the current account.
crowding out — a reduction in private spending associated with increased public spending or borrowing. crowding out may limit the rise in investment.
capacity — the level of output an economy or producer can sustain with available resources. spare capacity can affect the inflation response.
hysteresis — a lasting effect of a temporary shock on the economy. long unemployment spells can contribute to hysteresis.

Taking a position

claim — a statement you want the reader to accept. make a claim.
stance — your position on a question. take a clear stance.
thesis — the central position or interpretation your response develops. support the thesis.
premise — an idea the argument starts from. question the premise.
assumption — something treated as true without being established. test the assumption.
assert — state a position firmly. assert that access matters.
argue — give reasons in support of a position. argue for a trial.
maintain — continue to hold or defend a view. maintain that the policy is fair.
contend — put forward a position that can be challenged. contend that the proposal is workable.
justify — give sufficient reasons for a decision or judgement. justify the expense.
advocate — publicly support an action or change. advocate for reform.
defend — answer criticism of a view or choice. defend a decision.
qualify — limit a statement so it applies only where warranted. qualify the conclusion.
concede — acknowledge a valid point made by the other side. concede that costs may rise.
rebut — answer an opposing claim with reasoning or evidence. rebut the objection.
counterargument — a reasoned objection to a position. address a counterargument.
reservation — a concern that makes agreement incomplete. express a reservation.
distinguish — show what makes two things different. distinguish cost from value.
criteria — standards used to judge something. agree on the criteria.
verdict — a final judgement reached after consideration. reach a verdict.

Using evidence and reasoning

evidence — information that helps establish a claim. draw on evidence.
example — a specific case that makes a general point clearer. give a concrete example.
illustrate — make an idea clearer through a case or detail. illustrate the difficulty.
demonstrate — show how or why something is true. demonstrate a connection.
substantiate — support a claim with convincing information. substantiate the allegation.
corroborate — provide independent support for an existing account. corroborate the witness’s account.
infer — draw a conclusion from available clues. infer a motive from the wording.
imply — suggest a meaning without saying it directly. imply that change is possible.
interpret — explain what something means in context. interpret a figure in context.
analyse — examine how parts work together. analyse the writer’s choices.
evaluate — judge the strength, quality or value of something. evaluate the proposal.
plausible — reasonable enough to believe given what is known. a plausible explanation.
credible — worthy of belief or trust. a credible source.
relevant — directly connected to the issue being considered. relevant to the question.
sufficient — enough for the purpose or conclusion at hand. sufficient for a limited trial.
representative — typical enough to reflect a larger group. a representative sample.
anecdote — a brief account of a particular incident. open with an anecdote.
limitation — something that restricts what a method or claim can establish. acknowledge a limitation.
contradict — state or show something incompatible with another claim. contradict the earlier finding.
synthesise — combine ideas from separate sources into a new account. synthesise competing accounts.

Connecting ideas

whereas — introduces a clause that contrasts with another. whereas the first option costs less.
although — introduces a fact that qualifies the main statement. although demand may rise.
however — signals a contrast or change in direction. however, costs remain uncertain.
nevertheless — signals that a point still holds despite a difficulty. nevertheless, the trial could go ahead.
conversely — introduces a contrasting relationship in the reverse direction. conversely, lower demand can free capacity.
similarly — points out a meaningful likeness. similarly, smaller groups need space.
likewise — shows that a similar point applies elsewhere. likewise, evening users need lighting.
consequently — introduces a result of what came before. consequently, the queue grew.
therefore — introduces a conclusion or result that follows. therefore, a trial is justified.
furthermore — adds a supporting point. furthermore, the existing room is free.
specifically — narrows the discussion to a precise detail. specifically, the plan would add two sessions.
instead — signals a replacement or different choice. instead, use the current building.
alternatively — introduces another option. alternatively, change the timetable.
otherwise — indicates what happens under different conditions. book early, otherwise places may fill.
provided — introduces a condition when used with a following clause. provided that staffing is adequate.
despite — introduces something that fails to prevent the main outcome. despite the delay.
unlike — marks a difference between two things. unlike the previous scheme.
respectively — matches items with values in the same stated order. costs were $5 and $8, respectively.
overall — signals a judgement about the whole picture. overall, the benefits are modest.
ultimately — identifies what matters after other factors are considered. ultimately, the decision depends on demand.

Explaining cause and effect

cause — produce or bring about an outcome. cause avoidable delays.
contribute — play a part in bringing about an outcome. contribute to overcrowding.
trigger — set a process or reaction in motion. trigger a review.
accelerate — make a process happen faster. accelerate the transition.
intensify — make something stronger or more severe. intensify competition.
exacerbate — make an existing problem worse. exacerbate existing inequalities.
mitigate — reduce the severity or harmful effect of something. mitigate the harm.
prevent — stop something from happening. prevent further damage.
deter — discourage someone from taking an action. deter people from taking risks.
enable — make an action possible. enable students to attend.
facilitate — make an action or process easier. facilitate access to training.
reinforce — strengthen an effect, belief or behaviour. reinforce an existing pattern.
undermine — weaken something, often gradually. undermine public trust.
sustain — keep something going over time. sustain the improvement.
displace — push something or someone out of an existing place or role. displace smaller operators.
redistribute — change how something is shared. redistribute public funds.
consequence — an outcome that follows an action or event. an unintended consequence.
mechanism — the process through which an effect occurs. identify the mechanism.
correlation — a pattern in which two things vary together. observe a correlation.
constraint — a condition that limits what can be done. work within a budget constraint.

Comparing options and weighing costs

benefit — a useful or favourable effect. a long-term benefit.
drawback — a feature that makes an option less attractive. a potential drawback.
trade-off — a compromise in which gaining one thing costs another. a trade-off between cost and convenience.
priority — something that deserves attention before competing needs. give priority to public health.
alternative — another way of achieving a goal. offer an alternative to driving.
feasible — possible to carry out with the available resources. a feasible timetable.
viable — capable of working successfully over time. a viable business model.
practical — suited to what can actually be done. a practical solution.
effective — able to produce the intended result. an effective response to congestion.
efficient — able to achieve a result with relatively little waste. efficient use of limited funds.
affordable — within the means of the people expected to pay. affordable childcare.
accessible — easy or possible for the intended users to reach or use. accessible public transport.
equitable — fair in light of differing needs and barriers. equitable access to training.
proportionate — appropriate in scale to the problem. a proportionate penalty.
substantial — large enough to matter. a substantial reduction in waste.
measure — an action taken to address a problem. introduce a temporary measure.
outweigh — be more important than something on the other side. the benefits outweigh the costs.
offset — counterbalance part or all of an effect. offset part of the expense.
allocate — assign money, time or resources to a purpose. allocate funds to local schools.
compromise — an arrangement that meets competing needs only in part. reach a workable compromise.

Public decisions and evidence

governance — how institutions make and carry out decisions. local governance shapes enforcement.
jurisdiction — the area or matters over which an authority has legal power. within the regulator’s jurisdiction.
funding — money made available for a purpose. secure funding for a trial.
regressive — placing a larger proportional burden on people with less income in a tax or charging context. a potentially regressive flat charge.
progressive — placing a larger proportional tax burden on higher incomes. a progressive tax schedule.
procurement — the process of buying goods or services, often for an institution. public procurement rules.
structural — arising from the organisation of institutions or systems. structural barriers to employment.
outcome — the result of an action or process. improve learning outcomes.
levy — an officially imposed charge. a levy on disposable packaging.
exemption — release from a rule or charge. an exemption for emergency vehicles.
substitution — the use of one option in place of another. substitution of rail travel for driving.
displacement — movement of a problem, activity or group elsewhere. displacement of traffic into nearby streets.
rationale — the reasoning behind an action. explain the rationale for a fee.
baseline — a starting measurement for later comparison. collect baseline data before the trial.
causality — the relationship through which one factor produces an effect. a claim about causality needs evidence.
implementation — the process of putting a plan into practice. the implementation depends on local staffing.
legitimacy — acceptance that an institution or action has rightful standing. public scrutiny can strengthen legitimacy.
distributional — relating to how effects are shared across groups. the distributional impact of a transport charge.
localised — limited to a particular area or group. a localised shortage.
spillover — an effect that reaches beyond the original activity or area. a spillover into neighbouring districts.

Exam requirements and worked examples

Use the two sections of Paper 2 correctly

In Section A, answer the compulsory 20-mark question and all six of its parts. Use the information supplied about the economic situation. In Section B, answer three 20-mark structured questions from a choice of four. Each has four parts. You can use the introductory context and relevant examples you have studied in Section B.

Section B part (d) calls for a reasoned discussion of both sides. Build causal chains and explain conditions that affect the result. Shorter answers may instead need a definition, a calculation or an explanation. Use the marks and the command to decide how much to develop. The 2027–2029 timing differs from earlier papers, so match practice to your exam year.

Official specifications and sources

Worked discussion about a tax on fuel

Try this original question. Discuss whether a tax on fuel is likely to reduce traffic congestion. An indirect tax can raise the price buyers pay if suppliers pass on some of it. If motorists respond by driving less or shifting to other transport, congestion may fall. The size of that change depends partly on the availability and convenience of substitutes.

The opposing argument is that some drivers have few alternatives, especially on journeys with fixed schedules or in places with limited transit. If demand is relatively price inelastic, a higher price may produce only a small change in quantity demanded. Congestion also depends on where and when people drive. A reduction in fuel use spread across many journeys may have a limited effect on peak congestion at particular locations.

A reasoned judgement gives the policy more weight where drivers can switch to alternatives and the price increase is large enough to change behaviour. It also distinguishes a reduction in fuel use from a measured reduction in congestion. If the question asks about effectiveness, explain which measure or location you would use to judge it.

Fencing Method for an economics term

Start with Demand is inelastic. Add detail. Some commuters have few practical alternatives to driving. Refine the tone. Fuel demand may be relatively price inelastic for those journeys in the short run. Add logic. A higher price can raise expenditure while changing fuel use only modestly if the quantity response is small. Transfer the pattern to a product with more close substitutes and explain why the likely response differs.

Try fencing opportunity cost. Name a choice and the next best alternative. Explain what benefit is given up when resources move to the selected use. Repeat with a household decision and a government decision. Keep the alternative specific enough that the reader can identify the forgone benefit.

Use a diagram and a paragraph together

Draw the initial market with labelled axes and curves. Mark the original price and quantity. Show the shift or movement implied by the question and label the resulting point. Then describe why it happens in words. The diagram displays the relationship. Your prose makes the mechanism and assumptions clear.

Practise distinguishing a shift in demand from a movement along the demand curve. A change in the good’s own price ordinarily causes a movement along a given curve. A change in consumer income can shift demand, with the direction depending on the good. If the question describes both changes, separate their effects before drawing a conclusion.

Read data without overstating the claim

Take an economic figure and write the period, units and comparison. If prices rise while money income stays the same, explain the likely effect on purchasing power. If the data show income and prices both rising, compare the rates before judging the effect. Avoid treating a money figure as a real figure unless the source or calculation supports that interpretation.

When assessing living standards, choose a measure suited to the claim. Real output per person may help describe average material resources. It cannot on its own show how those resources are distributed or whether specific households can afford basic needs. State what other information would help answer the question.

Frequently asked questions

Do I need both sides in every answer? Match the instruction. The Section B part (d) discussion specifically calls for both sides. Can I bring in examples in Section B? Cambridge allows relevant studied examples and the supplied introductory context. What makes a conclusion stronger? Explain which condition changes the balance and link it directly to the question.

Do a two-sided practice drill

Choose a policy and name the group it is intended to help. Write one chain for a benefit and one for a limitation or cost. End both chains at the same outcome where possible. Then compare their likely strength under the circumstances. If the outcome depends on price responsiveness, explain which market features make a large or small response more plausible.

Practise an alternative using the same criterion

Return to the fuel-tax question and compare the tax with a public transport subsidy. Apply the same criterion to both, such as the likely change in peak car journeys. A tax changes the cost of driving. A subsidy can reduce the cost of an alternative journey. Explain how availability, frequency and convenience might affect both mechanisms. The comparison becomes clearer when you follow each option through to the same outcome.

Then consider who bears the cost. Households with few alternatives may pay more tax without changing many trips. A subsidy also has a cost, which may be justified if the service attracts enough travellers. State what you would need to know about the area before reaching a conclusion.

Make a short answer do one job

Take a longer paragraph and reduce it to a definition, then to a short explanation, then build it back into a discussion. For a definition, include the feature that distinguishes the term. For an explanation, name the cause and show the link to the outcome. For a discussion, add the strongest reason the result could differ. Practising the three versions helps you use the time and marks in proportion to the task.

Top 200 Vocabulary Word List for Cambridge IGCSE Economics (0455) | Essay Writing