Edexcel A-Level Economics Terms in this set (1993) Absolute advantage When a country's output of a product per unit of input is greater than that of
... [Show More] any other country. Absolute poverty 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. Aid The transfer of resources from one country to another. Allocative efficiency Where the price of a good is equal to the price consumers are willing to pay. This occurs when all resources are allocated efficiently. Asymmetric information Where buyers have more information than sellers in a market, or vice versa. Automatic stabilisers Parts of fiscal policy that automatically react to changes in the economic cycle. Average Cost (AC) The cost of production per unit of output. Print Average Revenue (AR) Combine The revenue per unit sold. Embed Report 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. Bank rate 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. Black market Economic activity that occurs without taxation and government intervention. Budget deficit When government spending exceeds tax revenues. Budget surplus 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. Cartel A group of products who collude to limit output in order to keep prices high. Central bank The institution responsible for issuing banknotes in an economy, acting as a lender of last resort, and implementing monetary policy. Ceteris paribus All other things remaining equal Circular flow of income The flow of national output, income and expenditure between firms and households. Command economy An economy where only the government determines the allocation of resources. Comparative advantage When the opportunity cost of producing a good or service is lower than that of any other country. Competition policy Government policy aimed at reducing monopoly power in order to increase efficiency and to ensure fairness for consumers. Concentration ratio A measure of the dominance of firms in a market. Edexcel A-Level Economics Conglomerate integration Where a firm merges with or takes over a firm in a completely different market. Consumer surplus The difference between the price a consumer pays and the price they were willing to pay. Consumption The purchase of goods and services. Contestability The degree to which new entrants find it easy to enter the market. Cost-push inflation 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. Cyclical unemployment Unemployment caused by a lack of demand in the economy. Deflation The sustained fall in the average price of goods and services in an economy over a period of time. Demand-pull inflation Inflation caused by increased demand in the economy. Demand-side policy Government policy that aims to alter aggregate demand in the economy. Demerger Where a firm sells of a part/parts of its business to create separate firms. Deregulation Removing government legislation that could restrict competition. Derived demand The demand for a good or service due to its use in making another good or service. Developed countries Relatively rich, industrialised countries with a high GDP per capita. Edexcel A-Level Economics Relatively poor countries that tend to rely on labour-intensive Diseconomies of scale Where average cost rises as output rises. Disinflation A fall in the rate of inflation. Disposable income Income available for households to spend after their tax obligations are fulfilled. Dividend 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. Dynamic efficiency Where firms improve efficiency in the long run by investing in R&D of products, or investing in the production process. Economic cycle The fluctuation in actual growth rates over a period of time. Economic development An assessment of the standards of living and overall welfare of a country's population. Economic growth An increase in an economy's productive potential. Economic integration 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. Emerging countries Countries that are further along the development process than most developing countries, but are not yet fully developed. Equilibrium Where supply equals demand in a market or economy. Equity Fairness Exchange rate The price of one currency expressed in terms of another. Edexcel A-Level Economics Externalities 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. Financial sector Firms that provide financial services. Fiscal policy Government policy that determines the levels of government spending and taxation. Fixed costs 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. Free market 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. Free trade International trade with no restrictions. Frictional unemployment The unemployment experienced by people who are between jobs. Full employment Where everyone who is of working age and who wants a job can get one at current wage rates. Globalisation The increasing integration of economies internationally. Government failure When a government intervention to correct a market failure results in a misallocation of resources. Edexcel A-Level Economics 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. Hit-and-run tactics 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. Horizontal equity Where people in identical circumstances are treated equally. Horizontal integration Where a firm merges with or takes over a firm that is at the same stage of production of a similar product. Human capital 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). Imperfect information A situation where buyers and/or sellers do not have complete information about the goods and services in a market. Income 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. Inequity Unfairness Inflation The sustained rise in the average price of goods and services in an economy over a period of time. Edexcel A-Level Economics Inorganic growth A firm growing through mergers and takeovers. Interest The money paid to a lender by a borrower. Investment The increase of the capital stock of a firm or economy. Labour immobility 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. Liquidity How easily an asset can be spent. Long-Run Aggregate Supply (LRAS) The productive potential of economy operating at full capacity. Marginal cost The cost of producing the final unit of output. Marginal product 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. Marginal revenue The extra revenue received from selling one more unit of output. Marginal utility The utility gained from consuming one more unit of a good. Market failure Where the price mechanism fails to allocate resources efficiently. Merger Two firms uniting to form one new firm. Minimum efficient scale of production (MES) The lowest level of output where average costs are minimised. Monetary policy Government policy that controls the money supply and the cost of borrowing. Monopoly A market with only one supplier, or one dominant supplier. Edexcel A-Level Economics Monopsony 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. Multiplier effect The process by which an injection into the circular flow of income creates a larger change in the size of national income. National debt The total debt a country owes. National Minimum Wage (NMW) A legal minimum hourly wage, set for different age groups. National output All of the goods and services produced in a country in a year. Nationalised industry An industry owned by the government. Natural monopoly 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. Normal profit When a firms total revenue equals their total costs. Oligopoly A market dominated by a few large firms, who are interdependent and therefore can use either competitive or collusive strategies. Opportunity cost The value of the next best alternative forgone. Organic growth A firm growing through increasing the levels of factors of production it uses. Output gap The gap between the trend and actual rates of economic growth. Perfect information Where buyers and sellers have full knowledge of the goods and services in a market. Edexcel A-Level Economics Phillips curve 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. Predatory pricing 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. Price cap A government-imposed limit on prices that make markets fairer to consumers, and also incentivise efficiency. Price discrimination 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. Price maker A firm that has some control over the price it sells at. Price mechanism The process by which supply and demand interact to change the equilibrium price and quantity in a market. Price taker A firm that is forced to accept and sell at the market price. Price war A situation where one firm cuts their price, leading to continual price cuts by other firms as each firm tries to undercut its competition. Principal-agent problem Where those in control of a firm (the agents) act in their own interest, instead of in the interests of the owners (the principals). Privatisation Where a firm or industry is transferred from the public sector to the private sector. Producer surplus The difference between the price a producer gets and the price they were willing to accept. Edexcel A-Level Economics Productive efficiency When products are products at a level of output where average cost is lowest. Productivity The average output produced per unit of a factor of production Profit Total revenue minus total costs. Progressive taxation A tax system where the tax rate rises as incomes rise. Proportional taxation A tax system where the tax rate is the same regardless of income. Protectionism When a government uses policies to control international trade to protect its own economy, firms and industries. Public good A good that is non-rivalrous, non-rejectable and non-excludable. Public sector 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. Quasi-public good A good that exhibits some but not all of the characteristics of a public good. Quota A limit on the amount of a good that can be used, produced or imported. Real income A persons income, adjusted for the effects of inflation. Real wage unemployment Unemployment caused by wages being forced above the equilibrium level. Recession When there is negative economic growth for two consecutive quarters. Regressive taxation A tax system where the tax rate falls as incomes rise. [Show Less]