Economics terms Unit 1

  1. Scarcity
    The choices made over the use of limited resources to provide for our wants.
  2. Opportunity cost
    The next best alternative forgone because of scarce resources and unlimited wants
  3. Production possibility frontier
    The maximum potential level of output for two goods or services that an economy can achieve when all its resources are fully and efficiently employed.
  4. Factors of production
    Resources or inputs used in the production of goods and services. Can be classified into four types: land, labour, capital and enterprise.
  5. Specialisation
    An individual, a firm, a region or a country concentrates on the production of a limited range of goods and services.
  6. Division of labour
    A form of specialisation where individuals concentrate on a specific part of the production of a particular product.
  7. Positive statement
    A statement that is completely factual and value-free.
  8. Nomative statement
    A statement that contains a value judgement.
  9. Demand
    The quantity of a good or service purchased at a given price over a given time period. It is the willingness and ability for someone to purchase a product.
  10. Free market
    An economy where prices determined by demand and supply using the price mechanism by private firms. No government intervention
  11. Mixed economy
    An economy where prices are allocated by private firms but with government intervention. This is to prevent market failure e.g. education and healthcare.
  12. Centrally planned economy (command economy)
    An economy where the government has full control over what is being produced and at what prices. Price mechanism isn’t used at all.
  13. Demand curve
    The method of showing demand on a graph. A movement on the demand curve only happens when there is a change in price.
  14. Extension
    When the change in price causes more quantity to be demanded/supplied.
  15. Contraction
    When the change in price causes less quantity to be demanded/supplied.
  16. PED (Price Elasticity of demand)
    Percentage change in demand/Percentage change in price
  17. Luxury goods
    Ones that are not considered essential. These are elastic.
  18. Necessity
    Inelastic because you will buy it regardless e.g. Bread
  19. YED (Income elasticity of demand)
    Percentage change in demand/Percentage change in real income
  20. Luxury goods
    Ones that are not considered essential. These are elastic.
  21. Necessity
    Inelastic because you people will buy it regardless e.g. Bread
  22. YED (Income elasticity of demand)
    Percentage change in demand for a good/Percentage change in real income
  23. Normal good
    When YED is positive, which means two variables of income and demand move in the same direction so a rise in income causes a rise in quantity demanded.
  24. Inferior good
    When YED is negative, which means the two variables of income and demand move in opposite directions so a rise in income causes a decrease in quantity demanded.
  25. XED (Cross elasticity of demand)
    Percentage change in demand for good B/Percentage change in price of good A
  26. Substitute goods
    Goods in competitive demand.. Increase in price of good A will increase demand for good B.
  27. Complementary goods
    Goods in joint demand. Increase in price of good A will decrease demand of good B.
  28. Supply
    The sellers or producers in a market supplying goods and services.
  29. PES (Price elasticity of supply)
    Percentage change in supply of a good/Percentage change in price of a good
  30. Equilibrium
    The balance in the market where demand meets supply
  31. Consumer surplus
    The extra amount of money consumers are prepared to pay for a good or service above what they actually pay.
  32. Producer surplus
    The extra amount of money paid to producer above what they are willing to accept to supply a good or service.
  33. Price mechanism
    The way price is made for a good or service depending on demand and supply. Principal method of allocating resources in a market economy.
  34. Rationing
    The controlled distribution of scarce resources, goods or services. It is used to keep prices below the equilibrium.
  35. Tax
    A compulsory charge made by the government on goods, services, incomes or capital. The purpose is to raise funds for government spending programmes.
  36. Direct tax
    A tax imposed on directly on an individual or an organisation e.g. Income tax and Corporation tax
  37. Indirect tax
    A tax usually put on the purchase of goods or services. It represents a tax on expenditure. There are 2 types, ad valorem and specific.
  38. Specific tax
    A tax where it is charged as a fixed amount per unit of a good e.g. packet of cigarettes. This shifts the whole supply curve left.
  39. Ad valorem tax
    A tax which is charged as a percentage of the price of a good e.g. 20% VAT. This changes the gradient of the curve to be steeper.
  40. Tax incidence
    Falls partly on consumer and partly on producers, depending on teh relative elasticities of demand and supply for the good or service.
  41. Tax burden on consumer
    When demand is inelastic, the tax burden os mostly on the consumer
  42. Tax burden on producer
    When demand is elastic, the tax burden is mainly on the producer
  43. Tax burden evenly split
    In this case, the tax burden is evenly split between consumer and producer because supply and demand are the same.
  44. Subsidies
    A grant, usually provided by the government, to encourage suppliers to increase production of a good or service leading to a fall in price.
  45. Derived demand
    The demand for one good or service occurs as the result of demand for another good or service e.g. the demand for building workers is derived from the demand for new housing. Demand for labour is derived demand.
  46. Externalities
    The costs or benefits which are external to an exchange. They are third party effects ignored by the price mechanism.
  47. External costs
    Known as indirect costs, negative spillovers or negative externalities. These are costs to a third party therefore higher costs than privately paid for.
  48. Triangle of welfare loss
    The are of welfare loss to society, the market has failed since externalities are ignored.
  49. External benefits
    Known as indirect benefits, positive spillovers or positive externalities. These are the benefits to the third party therefore greater than private benefits.
  50. Triangle of welfare gain
    This is the area of welfare gain to society; the market has filaed since positive externalities are ignored.
  51. Public good
    Goods which have a large element of collective consumption e.g. street lights, parks. These have characteristics of non-rivalry and non-excludability.
  52. Non-excludability
    Once the good is provided, no one can be excluded from benefiting from it e.g. street lights
  53. Non-Rivalry
    The consumption of a good by an individual will no reduce amount available for others to consume e.g. public parks.
  54. Private goods
    Opposite of public good so the characteristics of excludability and rivalry so it prevents other people from consuming and only they benefit from it while reducing amount available for others.
  55. Free rider
    When another person can get the benefit of consuming a good or service when someone else pays for it e.g. street lights. This causes market failure because firms cannot withhold the good from consumers who refuse to pay for it.
  56. Asymmetric information
    When there is imperfect and unequal market knowledge between a consumer and a producer where one knows more than the other.
  57. Merit goods
    Goods or services that are beneficial for the entire society but will be under-provided and hence under-consumed if left to the market force e.g. education and health care.
  58. Demerit goods
    Goods or services which are seen as harmful to society but will be over provided and over consumed if left to the market force e.g. tobacco and alcohol.
  59. Mobility of labour
    How easily it is for a worker to change from one job to another.
  60. Frictional unemployment
    When people are moving between jobs so are considered as out of work for a short period of time.
  61. Structural unemployment
    Unemployment when there is a mismatch of skills of what the employer is looking for and the unemployed.
  62. Geographical immobility
    When labour struggle moving from one area to another to find work. This could be as the result of having a family or not being able to afford a new home.
  63. Occupational immobility
    When the labour lacks the skills necessary to move between jobs easily e.g. miner and a salesperson
  64. Agriculture
    The farming industry where they produce crops, livestock or poultry.
  65. Commodity
    The basic goods used in commerce and often the inputs in the production of other goods or services.
    The unit of ownership to a business with limited liability. Can be traded. They own but do not run the firm.
  67. Tradable pollution permits
    A permit which allows firms to cap the amount of carbon dioxide they can produce. They can buy more and trade them between firms. Offers incentive to invest in clean technology.
  68. Property rights
    The rights to organisations (usually government) intervenes with a market by buying up a product when there is excess supply and selling them when there is low supply in order to keep the price within a certain range.
  69. Minimum pricing
    A scheme set up by the government in order to stabalise commodity prices and producer incomes. On a diagram it is always above the equilibrium.
  70. Government failure
    When government tries to intervene to try and fix a problem with a market but results net welfare loss instead. e.g. National minimum wage increasing unemployment.
  71. Cost-benefit analysis
    The process by which business decisions are analysed. This evaluates whether the benefits outweigh the costs.
Card Set
Economics terms Unit 1
For Economics Unit 1 AS level Edexcel