Aqa As Economics Unit 1

Front 1

Demand

Back 1

The quantity of a good consumers are willing and able to buy at a given price per period

Front 2

Supply

Back 2

The quantity of a good producers are willing and able to sell at a given price per period

Front 3

Market

Back 3

Institution where buyers are in contact with sellers to arrange sale of goods

Front 4

Equilibrium

Back 4

The price and quantity traded which is acceptable to buyers and sellers so long as conditions of demand and supply stay constant

Front 5

Ceteris Paribus

Back 5

All other factors remaining constant

Front 6

Disequilibrium

Back 6

A combination of price and quantity traded which has a tendency to change for the given demand and supply conditions

Front 7

Joint Demand

Back 7

When demand for one good involves the demad for another good e.g. Printer and Printer Ink

Front 8

Joint supply

Back 8

Where supply of one good necessarily involves the supply of another e.g. Beef and Leather

Front 9

Derived Demand

Back 9

Demand for a product (or FoP) which is demanded because of the demand of the final product it contributes to e.g. Labour

Front 10

Composite Demand

Back 10

Where a good is demanded for 2+ separate uses e.g. Crude Oil

Front 11

Elasticity of Demand (PeD)

Back 11

The responsiveness of quantity demanded to a change in price

Formula: PeD = %Qd/ %P

Front 12

Income Elasticity of Demand (YeD)

Back 12

The responsiveness of quantity demanded to a change in income

Formula: YeD = %Qd/ %Y

Front 13

Cross Elasticity of Demand (XeD)

Back 13

The responsiveness of quantity demanded of one good (A) to a change in price of another (B)

Formula: XeD = %Qd (A)/ %P (B)

Front 14

Elasticity of Supply (PeS)

Back 14

The responsiveness of quantity supplied to a change in price

Formula: PeS = %Qs/ %P

Front 15

Normal Good

Back 15

Good whose demand rises as income rises

Front 16

Inferior Good

Back 16

Good whose demand falls as income rises

Front 17

Substitute Good

Back 17

Good which is an alternative to a particular good from the consumers point of view

Front 18

Sales tax (Indirect Tax)

Back 18

Tax levied on the sale of goods

Front 19

Subsidy

Back 19

Gov. payment to produces for production of goods intended to lower the market price

Front 20

Depreciation (of Capital)

Back 20

The rate at which capital loses value over time

Front 21

Home Production

Back 21

Unpaid work within households

e.g. Childcare, gardening --> boost standards of living without increasing GDP

Front 22

Opportunity Cost

Back 22

The value (benefit) of the next best option foregone

Front 23

Production Possibility Frontier (PPF)

Back 23

The combinations of two goods which an economy is capable of producing using all its resources in the most efficient way

Front 24

Productive Efficiency

Back 24

Where production in an economy occurs when all the FoP are fully utilised & are producing output with the min. of factor inputs currently feasible

Front 25

Pareto Efficient

Back 25

Where nobody can be made better off without making someone else worse off (i.e. on the PPF curve)

(An economic state where resources are allocated in the most efficient manner)

Front 26

Positive Economics

Back 26

The study of propositions which can be proved or disproved by data from the real world

e.g. Inflation is 2% in the UK

Front 27

Normative Economics

Back 27

The study of propositions which cannot be verified by data and require judgements

e.g. Inflation should be increased

Front 28

Specialisation

Back 28

The conc. of a worker, firm, region or country to produce a narrow range of goods and services

Front 29

Division of Labour

Back 29

Where labour specialises in the performance of a particular part of the production process

Front 30

Money

Back 30

Whatever is generally acceptable in exchange for goods & services or labour

Front 31

Unit Cost (Average Cost/ AC)

Back 31

Cost per unit of output

Forumla: AC = Total Cost / Output

Front 32

Productivity

Back 32

A measure of efficiency. (Output per factor input)

e.g. Labour productivity = Output/ Man hour

or

Capital productivity = Output/ Machine

Front 33

Economies of Scale

Back 33

The gains in efficiency (fall in unit costs) from expanding the scale of production. (increasing FoP long run)

Front 34

Diseconomies of Scale

Back 34

The rise in unit cost as a firm expands its scale of production in the long run

Front 35

Scarcity

Back 35

Where wants for a product/ FoP exceeds the amount available

(Infinite wants + limited resources)

Front 36

Factor of Production

Back 36

A productive resource

including Land, Labour, Capital and Enterprise

Front 37

Capital

Back 37

Man made aids to production

e.g. machines, buildings

Front 38

Enterprise (Entrepreneurship)

Back 38

Risk taking role undertaken by owners of a business as they combine other FoP in the pursuit of profit

Front 39

Profit

Back 39

A financial gain

Total Revenue - Total Costs

Front 40

Investment

Back 40

Spending by firms on new capital / repair of existing stock (per period)

Front 41

Market Failure

Back 41

Where free market outcomes lead to major problems for society, usually inefficiency

Front 42

Government Failure

Back 42

Where government intervention causes inefficiency in resource allocation

Front 43

Cobweb Theory

Back 43

Theory explaining fluctuations in market price and quantity over time

Front 44

Minimum Price (Price Floor)

Back 44

a guaranteed price at which producers can sell their output

Front 45

Maximum Price (Price Ceiling)

Back 45

Price above which producers and consumers cannot legally trade

Front 46

Buffer Stock Scheme

Back 46

Scheme to maintain market price received by producers between a minimum and maximum

Front 47

Common Agricultural Policy (CAP)

Back 47

EU programme to intervene in the agricultural market to support the welfare of European farmers

Front 48

Tariff

Back 48

Tax levied on an import

Front 49

Monopoly

Back 49

A single seller in the market or industry

(Competition Commission Criteria: firm with over 25% of market share)

Front 50

Public Good

Back 50

Good with non excludability and non rivalry (Therefore almost impossible for prvt. firms to sell profitably)

Front 51

Quasi Public Good

Back 51

Goods which exhibit partial non excludability and non rivalry

Front 52

Private good

Back 52

Good which is both rival and excludable

Front 53

Merit Good

Back 53

A good which consumers under consume at market prices because they underestimate the long term benefit to themselves

Front 54

Economic Good

Back 54

Good that has an opportunity cost

Front 55

Free Good

Back 55

Good which has no opportunity cost

Front 56

Demerit Good

Back 56

A good which consumers over consume at market prices because the underestimate the long term harm to themselves

Front 57

Labour Immobility

Back 57

Where workers cannot move into alternative employment in other regions or occupations

Front 58

Local Authority or (Council) Housing

Back 58

Houses owned by local councils which are rented to poorer households at low rents

Front 59

Green Belt

Back 59

Area around urban areas where no property is allowed without special permission

Front 60

Starter Home Initiative

Back 60

Interest free loan offered to certain public sector workers to help them live in London

Front 61

Affordable Housing Regulations

Back 61

Gov. rules which set a quota for houses with a new development which must be relatively cheap to buy

Front 62

Negative Externality

Back 62

Side effect of a market activity which harms 3rd parties without compensation

Front 63

Positive Externality

Back 63

A side effect of a market activity which benefits 3rd parties without them having to pay

Front 64

Property Right

Back 64

Legal entitlement to the exclusive use of a resource

Front 65

Marginal Private Cost (MPC)

Back 65

The addition to total cost to the firm from an extra unit of production

Front 66

Marginal External Cost (MEC)

Back 66

The additional external cost suffered by the 3rd party from an extra unit of production

Front 67

Marginal Social Cost (MSC)

Back 67

The additional cost to society from an extra unit of production

MSC= MPC + MEC

Front 68

Marginal Private Benefit (MPB)

Back 68

The additional benefit to the consumer from an extra unit of production

Front 69

Marginal External Benefit (MEB)

Back 69

The additional external benefit to third parties from an extra unit of production

Front 70

Marginal Social Benefit (MSB)

Back 70

The additional benefit to society from an extra unit of production

MSB= MPB + MEB

Front 71

Socially Optimal Production

Back 71

Output where allocative efficiency is maximised

MSB = MSC

Front 72

Deadweight Loss

Back 72

Net welfare lost from not producing at the socially optimal production

Front 73

The Market Mechanism

Back 73

The process through which markets solve the problem of allocating scarce resources between competing uses

Front 74

Economic Systems

Back 74

Institutional means for resolving the problems or resource allocation in an economy

i.e what how and whom to go to/ to produce

Front 75

Mixed Economy

Back 75

Resource allocation is undertaken by state planning & market forces depending on the product

Front 76

Capitalist (Free Market) Economy

Back 76

Where markets determine resource allocation with minimal state intervention

Front 77

Invisible Hand

Back 77

Resources are allocated by the decentralised decision making of consumers & producers acting through markets, without any state planning

Front 78

Consumer Sovreignty

Back 78

Production of goods is directed by consumer demand

Front 79

Laissez Faire

Back 79

Where gov. doesn't interfere with the functioning of markets

Front 80

Consumer Surplus

Back 80

Difference between the total amount consumers are willing and able to pay for a good or service (indicated by the demand curve) and the amount they actually pay (Market Price)

Front 81

Producer Surplus

Back 81

The difference between what the producers are willing and able to supply a good for and what they actually recieve

Front 82

Regressive Tax

Back 82

Tax is regressive when low income earners pay a higher proportion of their income in tax than high earners