AQA Economics Definitions Unit 1
All definitions of AQA economics unit 1 key concepts
Terms in this set (64)
A place where buyers and seller are brought into contact with each other and goods and services are exchanged.
Markets in which goods and services are traded, for example the market for bananas or plumbing services.
Non tangible products e.g. a taxi ride
Markets in which factors of production are traded, for example the market for coal or nurses.
One of the functions of prices which informs buyers and seller the conditions of the market, allowing them to plan and co-ordinate their economic activities.
One of the functions of prices which explains how prices give incentives to buyers to try to maximise their welfare and sellers to maximise their profit.
One of the functions of prices which explains how prices adjust to reflect and ration the relative scarcity of resources,
Demand backed by the ability you pay e.g. someone might desire a luxury car, but they only have demand if they have sufficient income to pay for it.
The amount that consumers and willing and able to buy at each given price level.
Meaning assuming everything else remains the same. This is used in all model e.g Demand and supply, where Economist's hold all other variables constant.
Total demand in a market, the sum of all individual's demand, at each given price.
the technique used to calculate the market demand (supply) from individual demand (supply) schedules.
Determinants of demand
Any factor which affects demand other than the price of the good itself e.g. advertising. These cause the demand curve to shift.
Goods that are consumed together e.g fish and chips.
Goods (services, factors) that can be used as alternatives to another good (service, factor) e.g bus and rail transport.
Goods and services that will see an increase in demand, when income rise e.g. Luxury cars.
Goods and services that will see a decrease in demand when incomes rise e.g basic ranges in supermarkets.
Demand for a factor or good/service which is not demanded for itself but for what it can provide. E.g demand for labour by firms.
Any factor that lies within the economic model e.g price is an endogenous variable in the theory of prices.
Any factor that lies outside the economic model e.g income is an exogenous variable in the theory of price.
The quantity of a good/service/factor that a seller is prepared to supply to the market at any given price over a period of time.
Total supply in a market, the sum of all sellers output, at each given price.
Where the supply of one good necessarily involves the supply of another e.g beef and leather.
Determinants of supply
Any factor which affects supply other than the price of the good itself e.g technological improvements. These cause the supply curve to shift.
Extension of supply
A movement along a supply curve caused by an increase in price of the good itself.
Contraction of supply
A movement along the supply curve caused by a decrease in the price of the good itself.
A state where the market clears, with no forces acting to change the equilibrium price and quantities.
Where either excess demand or excess supply exist and market forces strive to eliminate them.
Market price/ Equilibrium price
The price that is acceptable to both buyers and sellers so long as determinants of demand and supply remain constant.
The process by which free markets automatically adjust (via the independent decisions of buyers and sellers) to bring itself into equilibrium.
The forces acting on a market in disequilibrium.
Market Clearing Price
The equilibrium price in a market, where demand is equal to supply and the market is said to clear.
Exists when a market is in disequilibrium and the price is less than the market clearing price. "Planned" demand is therefore greater than "planned" supply.
Exists when, a market is in disequilibrium and the price is greater than the market clearing price. "Planned" supply is therefore greater than "planned" demand.
The amount that buyers/sellers would choose to buy/sell at each given price.
The amount that buyers/sellers actually buy/sell at the equilibrium price.
When demand for one good involves demand for another good e.g. DVD player and DVDs (same as complementary goods).
When supply of one good necessarily involves the supply of another e.g. beef and leather (cow hides).
Where a good (or factor) is demanded for 2 or more distinct purposes e.g. oil for petrol and plastic.
The difference between the maximum price a consumer is willing to pay and the market price.
The difference between the minimum price a firm is willing to supply at and the market price.
The responsiveness of one variable to a change in another.
The responsiveness of quantity demanded to a change in the price of the good itself.
Price elastic demand
Where a change in % change in price leads to a proportionally greater % change in quantity demanded. (PED>1)
When one party has less market knowledge than the other party - usually consumers have less knowledge than producers.
Goods, which are provided by the government for free because the government believes everyone should benefit from them even if some cannot afford them. They are also provided by the private sector. E.g. schools and hospitals.
Goods which society over-produces and are not in people's best interest. E.g. Tobacco.
Barriers to entry
Possible restrictions on the entry of firms in an industry.
A firm, which supplies almost 100% of the market. Legally a firm with 25% or more market share
When intervention by the government leads to a net welfare loss. There might be an inefficient allocation of resources.
Economies of scale
Falling average costs, as a firm grows larger in size.
Exists when the market causes an inefficient allocation of resources. There might be an overproduction or underproduction or no production of goods and services.
A group of workers that negotiate with employers on wage and working conditions.
A grant given by the government to firms to encourage production thus increasing supply and decreasing prices of a good or service.
Statements which include facts and can be proven using figures. Can be tested as true or false.
Statements, which include value-judgements and express an opinion (Key words: ought, should, fair, unfair, better or worse).
The satisfaction gained from consuming a good or service. It is often expressed as utils.
Elasticity equals one. A percentage change in price leads to an exact and opposite change in quantity demanded.
Arise because larger factories can be productively more efficient or purchase large expensive pieces of equipment
A period of time where at least one factor of production must be fixed (it is usually capital)
When economic units (individuals, firms, nations etc.) concentrate on producing certain goods and services.
Refers to the fact that resources are limited in their supply
The difference between total revenue and total cost.
The sale of government owned (nationalised) industries to the private sector (e.g., sale of British Telecom in 1984).