Edexcel Economics Module 1

55 terms by mhider 

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Scarce Resources

Resources that are limited or finite

Opportunity Cost

The loss of potential gain from other alternatives when one alternative is chosen

Basic economic Problem

Resources are scarce but wants are unlimited

Production possibility frontier

A diagram that shows all the combinations of two goods that can be produced when all factors of production are being used

Free good

A good that has no opportunity cost

Normative economic statement

An economic statement that is based on opinion and cannot be measured

Positive economic statement

An economic statement that can be tested in order to determine whether or not it is true

Land

Natural resources that are used for production

Labour

Human resources that are used for production

Capital

Manufactured goods that are used for production

Enterprise (Entrepreneurship)

Risk taking in the production process

Demand curve

A demand curve shows how much people are willing and able to buy at each price

Supply curve

A supply curve shows how much suppliers are willing and able to supply at each price

Complementary goods

Goods or services that are frequently consumed together

Substitute goods

Goods or services that can be used instead off each other

Price elasticity of demand

A measure of the responsiveness of demand to a change in price

Formula for price elasticity of demand

%Change in quantity demanded
___________________________ (Divided)
%Change in price

Price elasticity of supply

A measure of the responsiveness of supply to a change in price

Formula for price elasticity of Supply

%Change in quantity demanded
___________________________
%Change in price

Income elasticity of demand

A measure of the responsiveness of demand to a change in income

Formula for Income elasticity of demand

%Change in quantity demanded
__________________________
%Change in income

Cross elasticity of demand

A measure of the responsiveness of demand for one good to a change in the price of another good

Formula for cross elasticity of demand

% change in quantity demanded of good A
__________________________________
%Change in price of good B

Normal good

A good that has a positive income elasticity of demand because demand for it will increase as real income increases (and vice versa)

Inferior good

A good that has a negative income elasticity of demand because demand for it will decrease as incomes increase (and vice versa)

Command Economy

An economy in which what, how and for whom to produce are determined by a state planning process

Free market economy

An economy in which what, how and for whom to produce are determined through the forces of supply and demand without state intervention

Mixed economy

An economy in which what, how and for whom to produce are determined partly through planning and partly through market forces

Monopoly

A sole supplier of a good or service

Consumer surplus

The difference between the maximum amount of money consumers are willing to pay for a product and the actual market price

Producer surplus

The revenue received by producers above that which would have brought the product onto the market for sale

Efficiency

How close a firm is to producing at the lowest possible average cost

Productivity

Measures the efficiency with which resources are used. Often taken to mean output per person employed

Division of labour

The way in which tasks in the production process are allocated to different people. (Also used to refer to the way that people within an economy specialise in different types of job and the way in which countries specialise in the production of different goods and services.)

Inflation

A sustained rise in the average price level

Unemployment

A situation where people who are willing and able to work are without paid employment

Structural unemployment

Unemployment caused by a change in the structure of the economy e.g. the decline of a major industry such as coal

Recession

Two or more successive quarters of negative economic growth

Market failure

A situation where free market forces have resulted in a good or service being under or over provided i.e. free market forces do not result in the socially optimal level of output

Private costs

Costs incurred by individual producers and consumers when they engage in an economic activity. These are the costs that are taken into account by free market forces

Private benefits

Benefits directly received by individual producers and consumers when they engage in an economic activity. These are the benefits that are taken into account by free market forces

External costs

Costs experienced by third parties i.e. producers and consumers who are not directly involved in an economic activity. These costs are ignored by free market forces.

External benefits

Benefits received by third parties i.e. producers and consumers who are not directly involved in an economic activity. These benefits are ignored by free market forces.

Social costs

All of the costs of an activity to society i.e. Private costs + external costs

Social benefits

All of the benefits of an activity to society i.e. private benefits + external benefits

Negative externality

If social costs exceeds private cost, the difference is a negative externality i.e. it means the same as external cost

Positive externality

If social benefit exceeds private benefit, the difference is a positive externality i.e. it means the same as external benefit

Merit good

A good or service that would be under-provided by the free market because consumption of the good or service results in substantial external benefits e.g. health care, education

Demerit good

A good or service that would be under-provided by the free market because its consumption results in substantial external costs e.g. cigarettes, alcohol

Public good

A good or service that would not be provided by the free market because it is characterised by non-excludability (i.e. if it exists, it is impossible to stop someone from benefiting from it) and non-rivalry (i.e. its consumption by one person does not reduce its availability to others) e.g. national defence, lighthouses

Private good

A good that is not characterised by non-excludability and non-rivalry

Asymmetric information

A situation in which some participants in a market have access to the same information

National minimum wage

A sum of money that is legally the minimum amount that an employer can pay an employee. It is usually set an hourly rate

Government failure

Situation when government interference in a market to correct market failure results in a less efficient allocation of resources.

Buffer Stock

A reserve of a commodity held to stabilise commodity prices. The stocks are usually held by an organisation that is separate from the producers - often the government.

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