Economics Unit 1 Edexcel

Front 1

What is scarcity?

Back 1

Scarcity: Where wants of a product (or a factor of prodution) exceed the amount available (where demand exceeds supply at zero price)

Front 2

What is a factor of production?

Back 2

Factor of Production: A productive resource

There are 4 types: land, labour, capital and enterprise

Front 3

What is capital?

Back 3

Capital: Man-made aids to production

Front 4

What is enterprise?

Back 4

Enterprise: The risk-taking role undertaken by owners of a buissness as they combine other factors of production in the persuit of profit

Front 5

What is human capital?

Back 5

Human Capital: The ability of workers to add value to production

Front 6

What are renewable resources?

Back 6

Renewable resources: Category of natural resources which can reproduce without human effort

Front 7

What is Investment?

Back 7

Investment: Spending by firms on new capital stock or repair of existing stock

Front 8

What is depreciation (of capital)?

Back 8

Depreciation (of Capital) : The rate at which capital loses value over time.

Front 9

What is opportunity cost (O/C)?

Back 9

Opportunity cost (O/C) : The value (benfit) of the next best alternative foregone

Front 10

What is a production possibility frontier (PPF)?

Back 10

Production Possibility Frontier: The combinations of two goods which an economy is capable of producing using all it's resources in the most efficient way

Front 11

What is specialisation?

Back 11

Specialisation : Where a factor of production is devoted to a specific job in the production process

Front 12

What is the division of labour?

Back 12

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

Front 13

What is a positive statement?

Back 13

Positive statement : A proposition which can be verified (proved or disproved) by data from the real world

Front 14

What is a normative statement?

Back 14

Normative statement : A proposition which cannot be verified by data from the real worls and requires a value judgement (eg should)

Front 15

What is demand (D)?

Back 15

Demand (D) : The quantity of a good consumers are willing and able to buy at a given price

Front 16

What is supply (S)?

Back 16

Supply (S) : The quantity of a good producers are willing and able to sell at a given price

Front 17

What is the market?

Back 17

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

Front 18

What is an equilibrium?

Back 18

Equilibrium : The price and quantity (traded) which is acceptable to both buyers and sellers so long as conditions of demand and supply stay constant i.e. neither excess demand or excess supply exists at this market place, also known as market equilibrium

Front 19

What does "ceteris paribus" mean?

Back 19

"Ceteris Paribus": All other factors remaining constant

Front 20

What is disequilibrium?

Back 20

Disequilibrium: A combination of price and quantity traded which has a tendancy to change for the given demand and supply conditions i.e. excess demand or supply

Front 21

What is joint demand?

Back 21

Joint Demand: When demand of one good involves demand for another good (complements) e.g. Tennis rackets and Tennis balls

Front 22

What is joint supply?

Back 22

Joint Supply : When supply of one good necessarilly involves supply of another

e.g. beeswax and honey

Front 23

What is consumer surplus (CS)?

Back 23

Consumer Surplus (CS): Measure of consumer welfare: the maximum price a consumer is willing to pay for a good minus the market price

Front 24

What is producer surplus (PS)?

Back 24

Producer Surplus (PS): Measure of producer welfare: the surplus of market price recieved over the minimum price the producer would be prepared to accept

Front 25

What is price elasticity of demand (PeD)?

Back 25

Elasticity of Demand (PeD): The responsiveness of quantity demanded to a change in price (ceteris paribus)

% change in Qd / % change in price

- Inelastic if between 0 and -1

- elastic if greater than -1

- unitary elasticity if = -1

Front 26

What is income elasticity of demand (YeD)?

Back 26

Income Elasticity of Demand (YeD): The responsiveness of quantity demand to a change in income (ceteris paribus)

% change in Qd / % change in income

+ = normal good

- = inferior good

Front 27

What is cross elasticity of demand (XeD)?

Back 27

Cross Elasticity of Demand (XeD): The responsiveness of quantity demanded of one good (A) to a change in price of another good (B) (ceteris paribus)

% change in Qd of A / % change in price of B

+ = complimentary goods

- = substitute goods

Front 28

What is price elasticity of supply (PeS)?

Back 28

Elasticity of Supply (PeS): The responsiveness of quantity supplied to a change in price.

% change in Qs / % change in price

Front 29

What is a normal good?

Back 29

Normal Good: Good whose demand rises as income rises

Front 30

What is an inferior good?

Back 30

Inferior Good: Good whose demand falls as income rises

Front 31

What is a substitute good?

Back 31

Substitute Good: Good which is an alternative to a particular good from the consumer's point of vue

Front 32

What is the labour market?

Back 32

Labour Market: The institutional arrangements whereby employmet (i.e. filled job vacancies) and conditions of work (including wages) are agreed between workers (who supply their labour) and employers (who demand it)

Front 33

What is demand for labour?

Back 33

Demand for labour: The number of workers (or worker hours) a firm (or industry) is willing and able to hire at a given wage rate

Front 34

What is derived demand for labour?

Back 34

Derived demand for labour: Labour is only demanded (by employers) because of the output it can produce and not because firms want workers in their own right

Front 35

What is elasticity of demand for labour?

Back 35

Elasticity of Demand for Labour: The responsiveness of demand for labour to a change in wage rate

Front 36

What is the supply of labour?

Back 36

Supply of Labour: The number of workers a firm can attract at a given wage rate

Front 37

What are non pecuniary benefits?

Back 37

Non Pecuniary Benefits: Advantages for workers in a particular job which makes them willing to do the job for a lower pay

Front 38

What is the elasticity of supply of labour?

Back 38

Elasticity of Supply of Labour: The responsiveness of supply of labour to a change in wage (ceteris paribus)

Front 39

What is migration?

Back 39

Migration: The movement of population from one country to another (to change residency)

Front 40

What are trade unions (TU)?

Back 40

Trade Unions (TU): An organisation of workers financed by membership fees which aims to further the interests of it's members e.g. negotiating with management to improve working conditions (trade unions = monopoly seller of labour)

Front 41

What is the national minimum wage (NMW)?

Back 41

National Mininum Wage: A floor below which wages cannot legally fall

Front 42

What is classical unemployment (U/E)?

Back 42

Classical Unemployment (U/E): Unemployment due to real wages being above the market clearing level

Front 43

What is the economic system?

Back 43

Economic System: The institutional means for deciding how scarce resources are allocated in an economy (i.e. what to produuce, how to produce it and to whom should it go)

Front 44

What is a mixed economy?

Back 44

Mixed Economy: Where resource allocation is undertaken by state planning and market forces, depending on the product

Front 45

What is a capitalist economy (Free Market economy)?

Back 45

Capitalist Economy: Where markets determine resource allocation with minimal state intervention

Front 46

What is a command economy (Planned economy)?

Back 46

Command Economy: Where resources are allocated according to centralised state planning

Front 47

What is the stock market?

Back 47

Stock market: Institution where financial assets (e.g. company shares and government bonds) are traded

Front 48

What is the "invisible hand"?

Back 48

Invisible hand: Where resources are allocated by the decentralised decision making of consumers and producers acting through markets, without any centralised (state) planning

Front 49

What is consumer sovereignty?

Back 49

Consumer Sovereignty: The production of goods is directed by consumer demand

Front 50

What is "Laissez faire"?

Back 50

Laissez Faire: Where government does not interfere with the functioning of markets

Front 51

What is market failure?

Back 51

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

Front 52

What is government failure?

Back 52

Government Failure: Where government intervention causes inefficiency in resource allocation

Front 53

What is sales tax?

Back 53

Sales tax: Tax levied on the sale of goods e.g. VAT

Front 54

What is a subsidy?

Back 54

Subsidy: Government payments to producers for production of goods intended to lower the market price

Front 55

What is a minimum price (Price floor)?

Back 55

Minimum Price: A guaranteed price at which producers can sell all their output

Front 56

What is a maximum price (Price ceiling)?

Back 56

Maximum Price: Price above which producers or consumers cannot legally trade

Front 57

What is a buffer stock scheme?

Back 57

Buffer Stock Scheme: Scheme to maintain market price received by producers between a minimum and maximum (between a Price floor and Price ceiling)

Front 58

What is a tariff?

Back 58

Tariff: Tax levied on imports

Front 59

What is common agricultural policy (CAP)?

Back 59

Common Agricultural Policy (CAP): EU policy to support farmers in the EU with guaranteed minimum price and tariffs on imports

Front 60

What is a monopoly?

Back 60

Monopoly: A single seller in the market or industry (firm with over 25% of market share)

Front 61

What is a public good?

Back 61

Public Good: A good with non-ecludability and non-rivalry ( which is therefore almost impossible for private firms to sell profitably)

Front 62

What is a merit good?

Back 62

Merit Good: A good which consumers underconsume at market prices because they underestimate the long term benefits to themselves

Front 63

What is a demerit good?

Back 63

Demerit Good: A good which consumers overconsume at market price because they understimate the long term harm to themselves

Front 64

What is assymetric information?

Back 64

Assymetric Information: Situation where buyers more about the value of a product than sellers (or vice versa)

Front 65

What is a negative externality?

Back 65

Negative Externality: A side effect of market activity which harms third parties without compensation

Front 66

What is a positive externality?

Back 66

Positive Externality: A side effect of market activity which benefits third parties without them having to pay

Front 67

What is structural geographical unemployment?

Back 67

Structural Geographical Unemployment: Unemployment due to geographical mismatch between the job vacancies and the unemployed with those skills

Front 68

What is structural occupational unemployment?

Back 68

Structural Occupational Unemployment: Unemployment due to mismatch of skills demanded (in job vacancies) and skills supplied by the unemployed within that region

Front 69

What is property right?

Back 69

Property right: A legal entitlement (which can be bought or sold) to the exclusive use of a resource

Front 70

What is marginal private cost (MPC)?

Back 70

Marginal Private Cost (MPC): The addition to total cost to the firm from an extra unit of production

Front 71

What is marginal external cost (MEC)?

Back 71

Marginal External Cost (MEC): The additional (external) cost suffered by third parties from an extra unit of production

Front 72

What is marginal social cost (MSC)?

Back 72

Marginal Social Cost (MSC): The additional cost to society (i.e. firms + third parties) from an extra unit of production

Front 73

What is marginal private benefit (MPB)?

Back 73

Marginal Private Benefit (MPB): The additional benefit to the consumer from an extra unit of production

Front 74

What is marginal external benefit (MEB)?

Back 74

Marginal External Benefit (MEB): The additional (external) benfit to third parties from an extra unit of production

Front 75

What is marginal social benefit (MSB)?

Back 75

Marginal Social Benefit (MSB): The additionsal benefit to society (i.e. consumers + third parties) from an extra unit of production

Front 76

What is socially optimum production?

Back 76

Socially Optimum Production: Output where allocative efficiency is maximised (i.e. MSB = MSC)

Front 77

What is deadweight loss?

Back 77

Deadweight Loss: Net welfare lost from not producing at the socially optimal prduction

Front 78

What is optimal tax?

Back 78

Optimal Tax: Tax equal to marginal external cost (MEC) (persuading profit maximising firms to choose socially optimal production)

Front 79

What is road pricing?

Back 79

Road Pricing: Charging drivers for journeys they make, based in road location, length of journey and time of day

Front 80

What is regulation?

Back 80

Regulation: Rules from the government requiring firms to modify their production techniques, output or price

Front 81

What are tradble permits?

Back 81

Tradable permits: A legal right to pollute a fixed amount which can be bought or sold between firms

Front 82

What is a renewable energy certificate (or a renewable energy credit) (REC)?

Back 82

Renewable Energy Certificate (REC): A tradable document proving that a certain amount of energy was generated from renewable sources e.g. solar, wind

Front 83

What is carbon offsetting?

Back 83

Carbon Offsetting: System which generates credits for any activity which reduces net greenhouse gases

Front 84

What is cost benefit analysis?

Back 84

Cost Benefit Analysis: Technique used to assess whether public sector projects are likely to produce net welfare gains to society