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A level - AQA Economics - Microeconomics key terminology
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A level - AQA Economics - Microeconomics key terminology All key terms and definitions for AQA Microeconomics are in one place.
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MICRO KEY TERMSAccelerator process: This is where any change in demand for goods/services beyond current capacity
will lead to a greater percentage increase in the demand for the capital goods that firms need to
produce those goods/ services.
Allocative efficiency: When the price of a good is equal to the price that consumers are happy to pay
for it. This will happen when all resources are allocated efficiently.
Asymmetric information: When buyers have more information than sellers (or the opposite) in a
market.
Average cost: Cost of production per unit of output — i.e. a firm’s total cost for a given period of
time, divided by the quantity produced
Barriers to entry and exit: Barriers to entry are any potential difficulties that make it hard for a firm
to enter a market. Barriers to exit are any potential difficulties that make it hard for a firm to leave a
market.
Cartel: A group of producers that agree to limit production in order to keep the price of goods or
services high.
Competition policy: Government policy aimed at reducing monopoly power in order to increase
efficiency and ensure fairness for consumers.
Concentration ratio: Shows how dominant firms are in a market or market share, e.g. if three firms in
a market have 90% market share then the three-firm concentration ratio is 90%.
Consumer surplus: When a consumer pays less for a good than they were prepared to, this
difference is the consumer surplus.
Consumption: The purchase/use of goods or services
Contestability: A market is contestable if it’s easy for new firms to enter the market - if barriers to
entry are low.
Cross elasticity of demand: A measure of how the quantity demanded of one good/service responds
to a change in the price of another good/service.
Demerit good: A good or service which has greater social costs when it’s consumed than private
costs. Demerit goods tend to be overconsumed.
Deregulation: Removing rules imposed by a government that can restrict the level of competition in
a market.
Derived demand: Demand for a good or factor of production due to its use in making another good
or providing a service.
Diminishing returns: The idea that if a firm increases one variable factor of production while other
factors stay fixed, then the marginal returns the firm gets from the variable factor will always
eventually begin to decrease.
A theory in economics that predicts that after some optimal level of capacity is reached, adding an
additional factor of production will actually result in smaller increases in output.
Diseconomies of scale: A firm is experiencing diseconomies of scale when the average cost of
production is rising as output rises.
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