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Edexcel A-Level Economics A: Definitions
Terms in this set (191)
When a country's output of a product per unit of input is greater than that of any other country.
When a person does not have the income or wealth to fulfil their basic needs.
Aggregate Demand (AD)
The total demand/spending in an economy at a given price level over a given period of time. Made up of consumption, investment, government spending and net external demand.
Aggregate Supply (AS)
The total amount of goods and services that can be supplied in an economy at a given price level over a given period of time.
The transfer of resources from one country to another.
Where the price of a good is equal to the price consumers are willing to pay. This occurs when all resources are allocated efficiently.
Where buyers have more information than sellers in a market, or vice versa.
Parts of fiscal policy that automatically react to changes in the economic cycle.
Average Cost (AC)
The cost of production per unit of output.
Average Revenue (AR)
The revenue per unit sold.
Backward vertical integration
Where a firm merges with or takes over a firm further back in the production process.
Balance of payments
A record of the international transactions of an economy.
The official rate of interest set by the central bank (e.g. by the Monetary Policy Committee of the Bank of England)
Barriers to entry
Potential difficulties that make it hard for firms to enter a market.
Barriers to exit
Potential difficulties that make it hard for firms to leave a market.
Economic activity that occurs without taxation and government intervention.
When government spending exceeds tax revenues.
When tax revenues exceed government spending.
Capital account of the balance of payments
A part of the balance of payments that shows transfers of non-monetary and fixed assets into and out of the economy.
A group of products who collude to limit output in order to keep prices high.
The institution responsible for issuing banknotes in an economy, acting as a lender of last resort, and implementing monetary policy.
All other things remaining equal
Circular flow of income
The flow of national output, income and expenditure between firms and households.
An economy where only the government determines the allocation of resources.
When the opportunity cost of producing a good or service is lower than that of any other country.
Government policy aimed at reducing monopoly power in order to increase efficiency and to ensure fairness for consumers.
A measure of the dominance of firms in a market.
Where a firm merges with or takes over a firm in a completely different market.
The difference between the price a consumer pays and the price they were willing to pay.
The purchase of goods and services.
The degree to which new entrants find it easy to enter the market.
Inflation caused by rising costs of production.
Cross elasticity of demand (XED)
A measure of the responsiveness of demand of one good/service to a change in price of another good/service.
Current account of the balance of payments
A part of the balance of payments that consists of: trade in goods, trade in services, primary income and secondary income.
Unemployment caused by a lack of demand in the economy.
The sustained fall in the average price of goods and services in an economy over a period of time.
Inflation caused by increased demand in the economy.
Government policy that aims to alter aggregate demand in the economy.
Where a firm sells of a part/parts of its business to create separate firms.
Removing government legislation that could restrict competition.
The demand for a good or service due to its use in making another good or service.
Relatively rich, industrialised countries with a high GDP per capita.
Relatively poor countries that tend to rely on labour-intensive industries, with a low GDP per capita.
Diseconomies of scale
Where average cost rises as output rises.
A fall in the rate of inflation.
Income available for households to spend after their tax obligations are fulfilled.
A share in a firm's profits paid to shareholders.
Divorce of ownership from control
When the owner of a firm ceases to control its day-to-day operations, which can lead to the principal-agent problem.
Where firms improve efficiency in the long run by investing in R&D of products, or investing in the production process.
The fluctuation in actual growth rates over a period of time.
An assessment of the standards of living and overall welfare of a country's population.
An increase in an economy's productive potential.
The process by which the economies of different countries become more closely linked.
Economically active population
The people in an economy who are old enough to and capable of working.
Economies of scale
Where average cost falls as output rises.
Countries that are further along the development process than most developing countries, but are not yet fully developed.
Where supply equals demand in a market or economy.
The price of one currency expressed in terms of another.
The costs and benefits of the production and consumption of a good or service that are felt by third parties.
Factors of production
The four inputs used to produce what people want: land, labour, capital and enterprise.
Financial account of the balance of payments
A part of the balance of payments that shows the movements of financial assets.
Firms that provide financial services.
Government policy that determines the levels of government spending and taxation.
Costs that do not vary with output in the short run.
Foreign Direct Investment (FDI)
When a firm in one country makes an investment in a different country.
Forward vertical integration
Where a firm merges with or takes over a firm further forward in the production process.
A market where there is no government intervention.
Free rider problem
Once a public good is provided, there is no way to stop people who haven't paid for the good from benefiting from it.
International trade with no restrictions.
The unemployment experienced by people who are between jobs.
Where everyone who is of working age and who wants a job can get one at current wage rates.
The increasing integration of economies internationally.
When a government intervention to correct a market failure results in a misallocation of resources.
Gross Domestic Product (GDP)
The total value of all the goods and services produced in an economy in a year.
Gross National Income (GNI)
The GDP of an economy, plus any income earned on investments/assets abroad, minus any income paid to foreigners on domestic investments/assets.
Gross National Product (GNP)
The total output of the citizens of a country, regardless of whether or not they are resident in that country.
When a firm enters a market while supernormal profits can be made, and then leaves once prices have been driven down to normal profit levels.
Where people in identical circumstances are treated equally.
Where a firm merges with or takes over a firm that is at the same stage of production of a similar product.
The economic value of a person's skills, experience and training.
Human Development Index
A measure of a country's economic development that takes into account health (life expectancy), education (average and expected years of schooling), and standards of living (real GNI per capita).
A situation where buyers and/or sellers do not have complete information about the goods and services in a market.
Money a person or firm receives for providing a good or service.
Income elasticity of demand (YED)
A measure of the responsiveness of demand to changes in real income.
The sustained rise in the average price of goods and services in an economy over a period of time.
The basic facilities and services required for a country's economy to function.
A firm growing through mergers and takeovers.
The money paid to a lender by a borrower.
The increase of the capital stock of a firm or economy.
When labour cannot move to new jobs, or cannot switch between occupations.
Law of diminishing returns
If a firm increases one variable factor of production while others remain fixed, the marginal returns will eventually decrease.
How easily an asset can be spent.
Long-Run Aggregate Supply (LRAS)
The productive potential of economy operating at full capacity.
The cost of producing the final unit of output.
The extra output produced when one extra unit of input is used.
Marginal propensity to consume (MPC)
The proportion of an increase in income that is spent and not saved.
The extra revenue received from selling one more unit of output.
The utility gained from consuming one more unit of a good.
Where the price mechanism fails to allocate resources efficiently.
Two firms uniting to form one new firm.
Minimum efficient scale of production (MES)
The lowest level of output where average costs are minimised.
Government policy that controls the money supply and the cost of borrowing.
A market with only one supplier, or one dominant supplier.
A market with only one consumer, or one dominant consumer.
Multinational Corporations (MNCs)
Firms who operate in at least one country other than their country of origin.
The process by which an injection into the circular flow of income creates a larger change in the size of national income.
The total debt a country owes.
National Minimum Wage (NMW)
A legal minimum hourly wage, set for different age groups.
All of the goods and services produced in a country in a year.
An industry owned by the government.
An industry where economies of scale are so great that the lowest LRAC can only be achieved if there is a single supplier.
Natural Rate of Unemployment (NRU)
The rate of unemployment when the labour market is in equilibrium.
When a firms total revenue equals their total costs.
A market dominated by a few large firms, who are interdependent and therefore can use either competitive or collusive strategies.
The value of the next best alternative forgone.
A firm growing through increasing the levels of factors of production it uses.
The gap between the trend and actual rates of economic growth.
Where buyers and sellers have full knowledge of the goods and services in a market.
A curve showing the relationship between inflation and unemployment. In the short run, as one falls the other rises. In the long run, unemployment remains at the NRU regardless of inflation.
An aggressive and typically illegal pricing tactic where incumbent firms lower prices to a level that new entrants cannot match, thus forcing them out of the market.
A government-imposed limit on prices that make markets fairer to consumers, and also incentivise efficiency.
Where a seller charges a different price to different groups of consumers for exactly the same product.
Price elasticity of demand (PED)
A measure of the responsiveness of demand to changes in price.
Price elasticity of supply (PES)
A measure of the responsiveness of supply to changes in price.
A firm that has some control over the price it sells at.
The process by which supply and demand interact to change the equilibrium price and quantity in a market.
A firm that is forced to accept and sell at the market price.
A situation where one firm cuts their price, leading to continual price cuts by other firms as each firm tries to undercut its competition.
Where those in control of a firm (the agents) act in their own interest, instead of in the interests of the owners (the principals).
Where a firm or industry is transferred from the public sector to the private sector.
The difference between the price a producer gets and the price they were willing to accept.
Production Possibility Frontier (PPF)
A curve that shows the maximum outputs of two goods or services, using the current level of resources in the economy.
When products are products at a level of output where average cost is lowest.
The average output produced per unit of a factor of production
Total revenue minus total costs.
A tax system where the tax rate rises as incomes rise.
A tax system where the tax rate is the same regardless of income.
When a government uses policies to control international trade to protect its own economy, firms and industries.
A good that is non-rivalrous, non-rejectable and non-excludable.
The part of the economy that is owned or controlled by the government.
Purchasing Power Parity (PPP)
An adjustment of exchange rates to reflect the real purchasing power of the two currencies.
Quantitative Easing (QE)
Where a central bank increases the money supply by buying assets owned by financial institutions and other firms.
A good that exhibits some but not all of the characteristics of a public good.
A limit on the amount of a good that can be used, produced or imported.
A persons income, adjusted for the effects of inflation.
Real wage unemployment
Unemployment caused by wages being forced above the equilibrium level.
When there is negative economic growth for two consecutive quarters.
A tax system where the tax rate falls as incomes rise.
When someone has a low income relative to other people in their country. In the UK, relative poverty is defined as having less than 60% of the median income.
Returns to scale
How much a firm's output changes as they increase input.
The total value of sales of a good or services over a given time period
Running a firm in such a way that does just enough to satisfy important stakeholders, as opposed to maximising something.
Unemployment due to uneven economic activity over the year.
Shadow banking system
Firms, or parts of firms, that provide credit but that are unregulated.
Something that represents a proportion of a firm's value, and entitles the owner of a share to a proportion of a firm's profits.
Individuals or firms that hold shares in a company.
A time period when at least one of a firm's factors of production are fixed.
Short-Run Aggregate Supply (SRAS)
The level of aggregate supply when factors of production are fixed.
Where individuals, firms or economies do/produce only the things that they are best at.
When things are bought in the hope that they can be sold on for a profit at a later date.
When productive and allocative efficiency are both achieved at a particular point in time.
Unemployment caused normally by the decline of a major industry.
An amount of money paid by the government to producers in order to lower the cost of production.
An unrecoverable cost of entering a market.
Where total revenue exceeds total costs.
Government policy that aims to increase aggregate supply in an economy.
Meeting the needs of people now without adversely affecting the ability of people in the future to meet their needs.
When a problem in one part the financial sector can cause the whole financial sector to collapse.
When a firm buys another firm, which becomes part of the first firm.
A form of taxation placed on imports to disincentivise their consumption.
An amount of money paid directly or indirectly to the government.
Terms of trade
A measure of the price of a country's exports relative to its imports.
Total cost (TC)
All of the costs incurred by a firm for producing a particular level of output.
Total Revenue (TR)
The total amount of money a firm receives from its sales in a particular time period.
The removal of trade barriers within a trading bloc, allowing firms to buy from the cheapest supplier and increasing intra-bloc trading.
When trade barriers imposed on non-members means that trade is diverted away from cheaper non-members.
The reduction or removal of protectionist measures.
An organisation that represents the interests of its worker members.
Associations between the governments of countries that promote and manage trade between those countries.
The number of people who are looking for a job but cannot find one.
The unemployment level as a proportion of the labour force.
The benefit/wellbeing/happiness gained from an action.
Costs that vary with the level of output of a firm.
Where people with different circumstances are treated differently but fairly.
The differences in wages between different groups of workers, or workers in the same occupation.
The rate of pay of an employer to a worker.
The value of one's assets.
World Trade Organisation (WTO)
An international organisation that provides a forum for its members to discuss trade agreements and settle disputes, with the aim of making trade as free as possible.
Inefficiency caused by unnecessary costs and waste.
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