Edexcel A Economics - Theme 1 Flashcards
Barter
swapping one good for another without the use of money
Base period
the period, such as a year or a month, with which all other values in a series are compared
Basic economic problem
resources have to be allocated between competing uses because wants are infinite whilst resources are scarce.
Capital
as a factor of production is the stock of manufactured resources used in the production of goods and services.
Capital goods
goods that are used in the production of other goods such as factories, offices, roads, machines and equipment.
Capital productivity
output per unit of capital employed.
Ceteris Paribus
all things being equal; the assumption that, whilst the effects of a change in one variable are being investigated, all other variables are kept constant.
Choice
economic choices involve the alternate uses of scare resources.
Command economy
an economic system where the government, through a planning process allocates resources in society
Consumer goods
goods and services that are used by people to satisfy their needs and wants.
Economic goods
goods that are scarce because their use has an opportunity cost.
Enterprise
as a factor of production is the seeking out of profitable opportunities for production and take risks in attempting to exploit these
Entrepreneurs
individuals who seek out profitable opportunities for production and take risks in attempting to exploit these
Factors of production
the inputs top the production process: land, labour, capital and enterprise.
Fixed capital
economic resources such as factories and hospitals which are used to transform working capital into goods and services.
Free goods
goods that are unlimited in supply and which therefore have no opportunity cost.
Free market economy
an economic system that resolves the basic economic problems mainly through the market mechanism.
Human capital
the value of the productive potential of an individual or group or workers.
Index number
an indicator showing the relative value of one number to another from a base value of 100.
Labour
as a factor of production is the workforce.
Labour productivity
output per worker
Land
as a factor of production is all natural resources
Law
a theory or model which has been verified by empirical evidence
Margin
a point of possible change
Market
any convenient set of arrangements by which buyers and sellers communicate to exchange goods and services.
Mixed economy
an economy where both free market mechanism and the government planning process allocate significant proportions of total resources
Money
any item such as a coin or bank balance which fulfils four functions: a medium of exchange, a measure of value, a store of value and a method of deferred payment.
Money substitutes
anything which can be used as a medium of exchange but which are not stores of value. (Credit cards)
Nominal values
values unadjusted for the effects of inflation
Non-renewable resources
resources which once exploited cannot be replaced.
Non-sustainable
a resource which can be economically exploited in such a way that stock is being reduced over time
Normative statement
a statement which cannot be supported or refuted because it is a value judgement.
Opportunity cost
the value forgone of the next best alternative.
Positive statement
a statement which can be supported or refuted by evidence.
Primary sector
extractive and agricultural industries
Private sector
the part of the economy owned by individuals, companies and charities.
Production possibility frontier
a curve which shows the maximum potential level of output of one good given a level for all other goods in the economy
Productivity
output per unit of input employed.
Public sector
the part of the economy where production is organised by the state or the government.
Real values
vales adjusted for inflation
Renewable resources
resources that can be exploited over and over again because they have potential to renew themselves.
Scarce resources
resources that are limited in supply so that choice has to be made about their use.
Scientific method
a method which subjects theories or hypotheses to falsification by empirical evidence
Secondary sector
industries involved in the production of goods, mainly manufactured.
Social science
the study of societies and human behaviour using a variety of methods, including the scientific method.
Specialisation
a system of organisation where economic units such as households or nations are not self-sufficient but concentrate on producing certain goods and services and trading the surplus with others.
Sub-market
a market which is distinct and identifiable part of a larger market
Sustainable resource
renewable resource that is being economically exploited in such a way that it will not diminish or run out
Tertiary sector
industries involved in the production of services
Theory or model
a hypothesis which I capable of refutation by empirical evidence.
Wants
desires for the consumption of goods and services
Working capital
resources that are in the production system waiting to be transported into goods or other materials before being finally sold to the consumer.
Ad valorem tax
tax levied as a percentage of the value of the good.
Complement
a good that is purchased with other goods to satisfy a want. (Negative XED).
Conditions of demand
factors other than price, such as income or the price of other goods, which lead to changes in demand which are associated with shifts in the demand curve.
Conditions of supply
factors other than price, such as income or the price of other goods, which lead to changes in supply which are associated with shifts in the supply curve.
Consumer surplus
the difference between how much the consumer is prepared to pay for a good and what they actually pay.
Contraction of demand
when quantity demanded for a good falls because its price rises; it is shown by a movement up the demand curve
Cross elasticity of demand
a measure of the responsiveness of quantity demanded for good ‘y’ to a change in price of good ‘x’.
Demand
the quantity purchased of a good at any given price, given that other determinants of demand remain unchanged
Demand curve
the line on a price/quantity diagram, which shows the level of effective demand at any given price.
Economic welfare
the level of well-being or prosperity or living standards of an individual or group of individuals such as a country.
Elastic demand
where the price elasticity of demand is greater than 1. The responsiveness of demand is proportionally greater than the change in price. Demand is perfectly elastic if the price elasticity of demand is infinity.
Equilibrium price
the price at which there is no tendency to change because planned purchases are equal to planned sales. (Where supply meets demand)
Excess demand
where demand is greater than supply
Excess supply
where supply is greater than demand
Extension of demand
when quantity demanded for a good increases because its price falls; it is shown by a movement down the demand curve
Free market forces
forces in free markets which act to reduce prices when there is excess supply and raise prices when there is excess demand
Incentive function
when changes in price encourage buyers and sellers to change the quantity they buy and sell
Incidence of tax
the tax burden on the taxpayer
Income elasticity of demand
a measure of the responsiveness of quantity demanded to a change in income.
Inelastic demand
where the price elasticity of demand is less than 1. The responsiveness of demand is proportionally less than the change in price. Demand is perfectly inelastic if the price elasticity of demand is zero.
Inferior good
a good where demand falls when income increases. (Negative IED)
Law of diminishing marginal utility
the value or utility that individual consumer gain from the last product consumed falls the greater the number consumed.
Long run
the period of time when all factor inputs can be varied but the state of technology remains constant.
Macroeconomics
the study of the economy as a whole, including inflation, growth and unemployment.
Market clearing price
the price at which there is neither excess demand nor excess supply but where everything offered for sale is purchased.
Microeconomics
the study of the behaviour of individuals or groups such as consumers, firms or workers, typically within a market context.
Neo-classical theory
a theory of economics which typically starts with the assumption that economic agents will maximize their benefits and act rationally, and which develops how resources will be allocated in markets and at what price through the forces of demand and supply; the margin is a key concept in neo-classical theory.
Normal good
a good where demand increases when income increases. (Positive IED)
Price elasticity of demand
the responsiveness of demand to a change in price.
Price elasticity of supply
a measure of the responsiveness of quantity supplied to a change in price.
Producer surplus
the difference between the market price which firms receive and the price at which they are prepared to supply.
Rationing function
when changes in price lead to more or less being produced, so increasing or limiting the quantity demanded by buyers
Shift in the demand curve
a movement of the whole demand curve to the right or left of the original caused by a change in any variable affecting demand except price.
Short run
the period of time when at least one factor input to the production process can be varied
Signaling function
when changes in price give information to buyers and sellers which influence their decisions to buy and sell.
Specific of unit tax
tax levied on volume
Subsidy
a grant given which lowers the price of a good, usually designed to encourage production or consumption of a good.
Substitute
a good that can be replaced by another good to satisfy a want. (Positive XED)
Supply
the quantity of goods that suppliers are willing to sell at any given price over a period of time.
Total expenditure
quantity bought times the average price of a product
Total revenue
quantity sold times the average price of a product
Unitary elastic
where the value of price elasticity of demand is 1. The responsiveness of demand is equal to the change in price.
Utility or economic welfare
the satisfaction or benefit derived form consuming a good or a set of goods.
Asymmetric information
where buyers and sellers have different amounts of information, with one group having more than the other
Complete market failure
when a market fails to supply any of a good which is demanded, creating a missing market.
External benefits of consumption
when the social costs of consumption are different from the private costs of consumption.
External benefits of production
when the social costs of production are different from the private costs of production.
Externality
the difference between the social costs and benefits and private cost and benefits.
Free rider
a person or organisation which received benefits that others have paid for without making any contribution.
Imperfect information
where buyers and sellers both lack information to make an informed decision.
Information failure
where buyers or sellers or both don’t have the information that is available to make a decision
Marginal social and private costs and benefits
the social and private costs and benefits of the last used either produced or consumed.
Market failure
where resources are inefficiently allocated due to imperfections in the working of the market mechanism
Missing market
a market where the market mechanism fails to supply any good.
Moral hazard
when an economic agent makes a decision in their own best interest knowing that there is a potential adverse risk, and that if problems result, the cost will be partly borne by other economic agents.
Negative consumption externalities
private benefits exceed social benefits.
Negative externality
net social cost is greater than net private cost
Negative production externalities
social costs exceed private costs
Non-excludability
once provided it is impossible to prevent any economic agent from consuming the good
Non-rejectability
once provided it is impossible for any economic agent not to consume the good.
Non-rivalry
consumption by one economic agent does not reduce the amount available for consumption by others.
Partial market failure
when a market for a good exists but there is overproduction or underproduction of the good
Positive consumption externalities
social benefits exceed private benefits.
Positive externality
– net social benefit is greater than net private benefit.
Positive production externalities
social costs are less than private costs.
Principal-agent problem
occurs when the goal of principals, those standing to gain or lose from a decision, are different from agents, those making the decision on half of the principal.
Private cost and benefit
the cost of benefit of an activity to an individual economic unit such as a consumer or firm
Private good
a good which possesses the characteristics of rivalry and excludability.
Public good
a good which possesses the characteristics of non-rivalry and non-excludability.
Quasi-public good
a good which does not preferably possess the characteristics of non-rivalry and non-excludability and yet which also is not perfectly rival or excludable.
Social cost and benefit
the cost or benefit of an activity to society as a whole.
Cap and trade schemes
schemes which set a limit on a particular type of pollution, and then issue pollution permits to the total of that limit which can be bought and sold between firms which pollute.
Government failure
occurs when government intervention leads to a net welfare loss compared to the free market solution.
Public choice theory
theories about how and why public spending and taxation decisions are made.
Rent-seeking
the use of political power by an economic agent to manipulate the distribution of resources for their own benefit at the expense of others without creating any extra wealth for society.
Trade pollution permit
a permission issued, usually by a government to allow a fixed amount of pollution to be created; this permit can be used by the owner or sold to another firm.
