Edexcel A-Level Economics
Absolute advantage - Answer-when country's output of a product per unit of input is greater than that of any other country
Absolute poverty - Answer-when person does not have income or wealth to fulfil their basic needs
Aggregate Demand (AD) - Answer-total demand/...
Edexcel A-Level Economics
Absolute advantage - Answer-when country's output of a product per unit of input is greater than
that of any other country
Absolute poverty - Answer-when person does not have income or wealth to fulfil their basic
needs
Aggregate Demand (AD) - Answer-total demand/spending in an economy at a given price level
over a given period of time - [C + G + I + (X-M)]
Aggregate Supply (AS) - Answer-total amount of goods/services that can be supplied in an
economy at a given price level over a given period of time
Aid - Answer-transfer of resources from one country to another
Allocative efficiency - Answer-where price of a good is equal to price consumers are willing to
pay - occurs when all resources are allocated efficiently
Asymmetric information - Answer-where buyers have more information than sellers in a market,
or vice versa
Average Cost (AC) - Answer-cost of production per unit of output
Average Revenue (AR) - Answer-revenue per unit sold
Backward vertical integration - Answer-where a firm merges with or takes over a firm further
back in the production process
Balance of payments - Answer-record of international transactions of an economy
Bank rate - Answer-official rate of interest set by the central bank (e.g. by the Monetary Policy
Committee of the Bank of England)
Barriers to entry - Answer-potential difficulties that make it hard for firms to enter a market
Barriers to exit - Answer-potential difficulties that make it hard for firms to leave a market
Black market - Answer-economic activity that occurs without taxation + gov intervention
Budget deficit - Answer-when G exceeds tax revenues
Budget surplus - Answer-when tax revenues exceed G
Capital account of the balance of payments - Answer-part of balance of payments that shows
transfers of non-monetary and fixed assets into and out of economy
Cartel - Answer-group of producers who collude to limit output to keep prices high
,Central bank - Answer-institution responsible for issuing banknotes in an economy, acting as a
lender of last resort, + implementing monetary policy
Ceteris paribus - Answer-all other things remaining equal
Circular flow of income - Answer-flow of national output, income + expenditure between firms +
households
Comparative advantage - Answer-when opportunity cost of producing a good/service is lower
than that of any other country
Competition policy - Answer-gov policy aimed at reducing monopoly power to increase
efficiency + ensure fairness for consumers
Concentration ratio - Answer-measure of dominance of firms in a market
Conglomerate integration - Answer-where a firm merges with or takes over a firm in a
completely different market
e.g. Walt Disney Company & American Broadcasting Company merger - 1995: Disney
purchased ABC, gaining control of ESPN's sports coverage
Consumer surplus - Answer-difference between price a consumer pays and price they were
willing to pay
Contestability - Answer-degree to which new entrants find it easy to enter market
Cross elasticity of demand (XED) - Answer-measure of responsiveness of demand of one
good/service to a change in price of another good/service
Current account of the balance of payments - Answer-part of balance of payments consisting of:
trade in goods/services, net primary income + net secondary income
Cyclical unemployment - Answer-unemployment caused by lack of demand in economy
Demand-side policy - Answer-gov policy that aims to alter AD in economy
Demerger - Answer-where a firm sells of a part/parts of its business to create separate firms
Deregulation - Answer-removing gov legislation that could restrict competition
Derived demand - Answer-demand for a good/service due to its use in making another
good/service e.g. labour
Developed countries - Answer-relatively rich, industrialised countries with a high GDP per capita
Developing countries - Answer-relatively poor countries that tend to rely on labour-intensive
industries, with a low GDP per capita
Diseconomies of scale - Answer-where average cost rises as output rises
Dividend - Answer-share in a firm's profits paid to shareholders
,Divorce of ownership from control - Answer-when owner of a firm ceases to control its day-to-
day operations - can lead to principal-agent problem
Dynamic efficiency - Answer-where firms improve efficiency in long run by investing in R&D of
products, or investing in production process
Economic cycle - Answer-fluctuation in actual growth rates over a period of time
Economic development - Answer-assessment of standards of living and overall welfare of a
country's population based on (acc. Michael Todaro):
- availability + distribution of life-sustaining goods e.g. food, shelter, health
- increase in standards of living
- expansion + economic + social choices
Economic growth - Answer-increase in an economy's productive potential
Economic integration - Answer-process by which economies of different countries become more
closely linked
Economically active population - Answer-people in an economy who are old enough to +
capable of working
Economies of scale - Answer-where average cost falls as output rises
Emerging countries - Answer-countries that are further along development process than most
developing countries, but not yet fully developed (BRICS)
Exchange rate - Answer-price of one currency expressed in terms of another
Externalities - Answer-costs + benefits of production + consumption of a good/service that are
felt by third parties
Financial account of the balance of payments - Answer-part of balance of payments that shows
movements of financial assets
Financial sector - Answer-firms that provide financial services
Fiscal policy - Answer-gov policy that determines levels of G + taxation + gov borrowing
Fixed costs - Answer-costs that do not vary with output in short run
Foreign Direct Investment (FDI) - Answer-when a firm in one country makes an investment in a
different country
Forward vertical integration - Answer-where a firm merges with/takes over a firm further forward
in production process
Free market - Answer-market where there is no gov intervention
, Free rider problem - Answer-once a public good is provided, is no way to stop people who have
not paid for good from benefiting from it
Free trade - Answer-international trade with no restrictions
Frictional unemployment - Answer-unemployment experienced by people who are between jobs
Full employment - Answer-where everyone who is of working age + who wants a job can get
one at current wage rates
Globalisation - Answer-increasing integration of economies internationally
Government failure - Answer-when gov intervention to correct market failure results in a
misallocation of resources
Gross Domestic Product (GDP) - Answer-total value of all goods/services produced in an
economy in a year
Gross National Income (GNI) - Answer-GDP, plus any income earned on investments/assets
abroad, minus any income paid to foreigners on domestic investments/assets
Gross National Product (GNP) - Answer-total output of citizens of a country, regardless of if they
are resident in that country
Hit-and-run tactics - Answer-when a firm enters a market while supernormal profits can be made
+ leaves once prices have been driven down to normal profit levels
Human capital - Answer-economic value of a person's skills, experience and training
Human Development Index - Answer-measure of a country's economic development that takes
into account:
- health (life expectancy)
- education (mean years of schooling adults +25 + expected years of schooling current 5 year
olds can expect)
- standards of living (real GNI per capita)
Imperfect information - Answer-situation where buyers and/or sellers do not have complete
information about goods/services in a market
Income elasticity of demand (YED) - Answer-measure of responsiveness of demand to changes
in real income
Inflation - Answer-sustained rise in average price of goods/services in an economy over a
period of time
Inorganic growth - Answer-firm growing through mergers and takeovers
Labour immobility - Answer-when labour cannot move to new jobs, or cannot switch between
occupations
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