AQA A-Level Economics Glossary

a situation in which a country can produce more of a good with the same resources than another country. This is based on productivity and efficiency.

Macroeconomics 2.6.2 Trade

exists when individuals cannot afford the basic necessities for survival, such as food, water, shelter, and healthcare.

Microeconomics 1.7.2 the Problem of Poverty

Aggregate demand is the total demand for all goods and services in an economy at a given average price level and in a given time period.

Macroeconomics 2.2.2 Aggregate Demand and Aggregate Supply Analysis

The total output of goods and services that firms in an economy are willing and able to supply at each price level in a given period.

Macroeconomics 2.2.2 Aggregate Demand and Aggregate Supply Analysis

Resources are allocated to produce the optimal mix of goods and services that meet the wants and needs of society, maximising society's welfare.

Microeconomics 1.5.10 Market Structure, Static Efficiency, Dynamic Efficiency and Resource Allocation

The firm is not producing at the point where P = MC, so there is underproduction and a deadweight welfare loss to society.

Microeconomics 1.5.10 Market Structure, Static Efficiency, Dynamic Efficiency and Resource Allocation

the idea that individuals may make decisions that are not in their own best interests, but are intended to benefit others. e.g. donating to charity or volunteering.

Microeconomics 1.2.3 Aspects of Behavioural Economic Theory

the idea that individuals may be influenced by the first piece of information they receive when making a decision, even if it is not relevant or accurate. e.g. a consumer may see a £100 product discounted to £80 and perceive it as a good deal, without checking the price at other stores.

Microeconomics 1.2.3 Aspects of Behavioural Economic Theory

when one party in a transaction has more or better information than the other, distorting the market outcome.

Microeconomics 1.8.2 The Meaning of Market Failure

Also covered in 1.2.2, 1.8.6

Features of government spending and taxation that dampen the economic cycle without any deliberate decision, as tax receipts fall and benefit payments rise automatically in a downturn.

Macroeconomics 2.5.1 Fiscal Policy

the idea that individuals may be influenced by information that is readily available to them, rather than seeking out all the relevant information. e.g. deciding not to fly due to a recent plane crash, even though the risk of flying is statistically very low.

Microeconomics 1.2.3 Aspects of Behavioural Economic Theory

$AC = \frac{TC}{Q}$

Microeconomics 1.4.4 Costs of Production

$AFC = \frac{TFC}{Q}$

Microeconomics 1.4.4 Costs of Production

The mean output produced per unit of a variable factor, typically labour.

Microeconomics 1.4.3 The Law of Diminishing Returns and Returns to Scale

$\frac{TR}{Q}$. This is the price per unit and also the firm's demand curve.

Microeconomics 1.4.6 Marginal, Average and Total Revenue

$AVC = \frac{TVC}{Q}$

Microeconomics 1.4.4 Costs of Production

A record of all financial transactions between one country and the rest of the world over a period, made up of the current account, the capital account and the financial account.

Macroeconomics 2.6.3 The Balance of Payments

A statement of a bank's assets and liabilities at a particular point in time.

Macroeconomics 2.4.2 Commercial Banks and Investment Banks

$G = T$.

Macroeconomics 2.5.1 Fiscal Policy

Obstacles that make it difficult for new firms to enter a market, such as high sunk costs, patents, brand loyalty or control of a key input. They allow existing firms to sustain supernormal profit.

Microeconomics 1.5.1 Market Structures

The reference year against which all other years are compared. The value of the variable in the base year is set to 100, and every other year is expressed relative to it.

Macroeconomics 2.1.3 Uses of Index Numbers

the assumption that individuals are not always rational decision makers and that their decisions may be influenced by a range of psychological and social factors, which may lead to them making decisions that do not maximise their utility.

Microeconomics 1.2.3 Aspects of Behavioural Economic Theory

A tradable debt security issued by a government or a firm in order to borrow money. The buyer lends the issuer a sum of money and, in return, receives a fixed interest payment each year plus repayment of the original sum on a set date in the future.

Macroeconomics 2.4.1 The Structure of Financial Markets and Financial Assets

the idea that individuals are limited in their ability to make rational decisions due to a lack of information, time or ability to process information.

Microeconomics 1.2.3 Aspects of Behavioural Economic Theory

the idea that individuals may not always act in their own best interests due to a lack of self control.

Microeconomics 1.2.3 Aspects of Behavioural Economic Theory

$G > T$. This means government spending is greater than tax revenue, so the government must borrow and national debt rises.

Macroeconomics 2.5.1 Fiscal Policy

$T > G$. This means tax revenue is greater than government spending, so the surplus can be used to repay debt.

Macroeconomics 2.5.1 Fiscal Policy

Manufactured/Man-made resources

Microeconomics 1.1.3 Economic Resources

Records relatively minor capital transfers, such as debt forgiveness.

Macroeconomics 2.6.3 The Balance of Payments

is long-term investment in infrastructure and assets such as roads, hospitals, and schools.

Macroeconomics 2.5.1 Fiscal Policy

Refers to the rapid outflow of financial assets and capital from a country due to economic or political instability.

Macroeconomics 2.6.5 Economic Growth and Development

Goods bought by firms to produce other goods and services, such as machinery, tools and factories, rather than to satisfy consumer wants directly.

Microeconomics 1.1.5 Production Possibility Diagrams

The ratio of a bank's capital - shareholders' funds and retained profit - to its risk-weighted assets.

Macroeconomics 2.4.4 Regulation of the Financial System

A national bank that provides financial and banking services for a country's government and commercial banks. It is responsible for managing the country's currency, money supply, and interest rates. The central bank in the UK is the Bank of England.

Macroeconomics 2.4.3 Central Banks and Monetary Policy

A Latin phrase meaning ‘all other things being equal’ or ‘all other factors held constant’.

Microeconomics 1.1.1 Economic Methodology

The model showing income moving between households and firms, with injections from investment, government spending and exports, and withdrawals through saving, taxation and imports.

Macroeconomics 2.2.1 The Circular Flow of Income

A measure of unemployment based on the number of people claiming unemployment-related benefits. It usually gives a lower figure than the Labour Force Survey, because not everyone seeking work claims.

Macroeconomics 2.1.2 Macroeconomic Indicators

A bank that accepts deposits from households and firms, makes loans to them, and provides a payments system. Also known as a retail bank or high street bank.

Macroeconomics 2.4.2 Commercial Banks and Investment Banks

e.g. European Union (EU)

Macroeconomics 2.6.2 Trade

natural resources that are non-excludable but rivalrous, such as fish in the ocean or grazing land.

Microeconomics 1.8.3 Public Goods, Private Goods and Quasi-Public Goods

a situation in which a country can produce a good at a lower opportunity cost than another country. This is based on the trade-offs between producing different goods.

Macroeconomics 2.6.2 Trade

refers to the number of businesses in a market and the degree of rivalry between them. The spectrum of competition ranges from perfect competition to pure monopoly, with various market structures in between.

Microeconomics 1.5.1 Market Structures

Government interventions aimed at improving competitiveness in markets, and ensuring that consumer interests are protected.

Microeconomics 1.8.7 Competition Policy

is when a government deliberately pushes down the value of its currency to make exports cheaper and gain a trade advantage.

Macroeconomics 2.6.4 Exchange Rate Systems

Goods bought and used together, so that a fall in the price of one raises demand for the other. They have a negative cross elasticity of demand.

Microeconomics 1.3.6 The interrelationship between markets

when the market fails to provide a good or service at all e.g. public goods like national defence or street lighting.

Microeconomics 1.8.2 The Meaning of Market Failure

combine several single indicators into one index to provide a more rounded view of development.

Macroeconomics 2.6.5 Economic Growth and Development

The share of total market output or revenue held by the largest firms in a market. A five-firm concentration ratio of 80% means the five largest firms account for 80% of the market.

Microeconomics 1.5.5 Oligopoly

Goods and services bought by households to satisfy wants directly, rather than to produce something else.

Microeconomics 1.1.5 Production Possibility Diagrams

The main measure of the price level in the UK. It is a weighted price index that tracks the average change in the prices of a representative "basket" of goods and services bought by households. The annual percentage change in the CPI is the headline rate of inflation.

Macroeconomics 2.1.3 Uses of Index Numbers

The difference between what a consumer is willing to pay (their valuation) and what they actually pay. It is a measure of consumer welfare/benefit.

Microeconomics 1.5.11 Consumer and Producer Surplus

Spending by households on goods and services. It is the largest component of aggregate demand.

Macroeconomics 2.2.3 The Determinants of Aggregate Demand

A market in which barriers to entry and exit are low and sunk costs are minimal, so the threat of new entry keeps incumbent firms from earning supernormal profit.

Microeconomics 1.5.9 Contestability

is a process in which new innovations and technologies replace older ones, leading to the destruction of existing businesses and industries.

Microeconomics 1.5.8 The Dynamics of Competition and Competitive Market Processes

The process by which commercial banks make loans that create new bank deposits, thereby increasing the money supply.

Macroeconomics 2.4.2 Commercial Banks and Investment Banks

XED measures the responsiveness of quantity demanded for Good A to a change in the price of Good B.

Microeconomics 1.3.2 Price, Income and Cross Elasticities of Demand

e.g. Eurozone

Macroeconomics 2.6.4 Exchange Rate Systems

Records trade in goods and services, primary income, and secondary income.

Macroeconomics 2.6.3 The Balance of Payments

A position in which the money leaving a country to pay for imports, income and transfers exceeds the money entering it, so the current account balance is negative.

Macroeconomics 2.6.3 The Balance of Payments

is day-to-day spending on public sector wages, such as payments to teachers and nurses, and on the consumption of goods and services such as medicines and utilities.

Macroeconomics 2.5.1 Fiscal Policy

e.g. MERCOSUR (Southern Common Market)

Macroeconomics 2.6.2 Trade

Caused by a lack of aggregate demand in the economy, leading to job losses during economic downturns or recessions. For example, during the 2008 financial crisis, many businesses reduced their workforce due to falling demand for goods and services.

Macroeconomics 2.3.2 Employment and Unemployment

A deficit that occurs due to the economic cycle, typically widening during recessions and narrowing during booms, as tax revenue and government spending fluctuate with economic activity.

Macroeconomics 2.5.1 Fiscal Policy

Making the desired option the option that is automatically selected if the consumer does not make an active choice. e.g. organ donation opt-out systems.

Microeconomics 1.2.4 Behavioural Economics and Economic Policy

A sustained decrease in the general/average price level, giving a negative inflation rate.

Macroeconomics 2.3.3 Inflation

The quantity of a good/service consumers are willing and able to buy at a given price in a given time period.

Microeconomics 1.3.1 The determinants of the demand for goods and services

refers to the quantity of workers that firms are willing and able to employ at a given wage rate.

Microeconomics 1.6.1 Demand for Labour, Marginal Productivity Theory

goods that exhibit negative externalities in their consumption or production, and are therefore over-provided by the market. Examples include tobacco, alcohol, and sugary food.

Microeconomics 1.8.5 Merit and Demerit Goods

Also covered in 1.8.4

The loss of value of capital goods over time due to wear and tear or obsolescence.

Macroeconomics 2.2.3 The Determinants of Aggregate Demand

Refers to the removal or reduction of government regulations and restrictions on businesses and industries. Deregulation aims to promote competition, efficiency, and innovation in the market.

Microeconomics 1.8.8 Public Ownership, Privatisation, Regulation and Deregulation of Markets

Demand for a good or factor that arises not for its own sake but because it is needed to produce something else. Demand for labour is derived from demand for the output that labour produces.

Microeconomics 1.3.6 The interrelationship between markets

The phenomenon where adding more of a variable input (like labour) to a fixed input (like machinery) results in smaller increases in output after each input is added. This is because the fixed input becomes a constraint, leading to inefficiencies.

Microeconomics 1.4.3 The Law of Diminishing Returns and Returns to Scale

Also covered in 1.4.4

are levied on income or profits, such as income tax, corporation tax, and National Insurance.

Macroeconomics 2.5.1 Fiscal Policy

The unfair treatment of individuals based on characteristics such as gender, ethnicity, age, or disability, rather than their abilities or qualifications.

Microeconomics 1.6.7 Discrimination in the Labour Market

are the reasons why ATC starts to increase as the size/output of a business becomes too large. These are internal to the firm and cause LRAC to rise.

Microeconomics 1.4.5 Economies and Diseconomies of Scale

A decrease in the rate of inflation. Prices are still rising, but at a slower pace.

Macroeconomics 2.3.3 Inflation

Income available for spending after direct taxes and after adding government transfer payments such as benefits.

Macroeconomics 2.2.3 The Determinants of Aggregate Demand

A form of specialisation where the production process is split into separate tasks, with each worker assigned a specific, repetitive task - this enables the worker to become highly skilled and efficient at that task.

Microeconomics 1.4.2 Specialisation, Division of Labour and Exchange

Firms can reinvest supernormal profits into research and development, leading to innovation and improved quality products and productive efficiency over time.

Microeconomics 1.5.10 Market Structure, Static Efficiency, Dynamic Efficiency and Resource Allocation

is a broader concept. It includes economic growth but also considers improvements in living standards, welfare, and quality of life.

Macroeconomics 2.6.5 Economic Growth and Development

is a narrower concept that is measured by increases in real GDP.

Macroeconomics 2.6.5 Economic Growth and Development

People of working age who are not seeking work, such as full-time students, early retirees, the long-term sick, and discouraged workers.

Macroeconomics 2.3.2 Employment and Unemployment

The fall in long-run average cost as a firm increases its scale of output. Internal economies come from the growth of the firm itself; external economies come from the growth of the industry.

Microeconomics 1.4.5 Economies and Diseconomies of Scale

A measure of how responsive one variable is to a change in another, calculated as the percentage change in the first divided by the percentage change in the second.

Microeconomics 1.3.4 Price Elasticity of Supply (PES)

Risk-taking to start/expand a business

Microeconomics 1.1.3 Economic Resources

Everyone receives an equal share of resources or opportunities. This is objective and measurable.

Microeconomics 1.7.1 The Distribution of Income and Wealth

The price at which the quantity demanded equals the quantity supplied, so there is no tendency for price to change. It is also called the market-clearing price.

Microeconomics 1.3.5 The Determination of Equilibrium Market Prices

Everyone receives a "fair" share of resources. This is subjective and open to debate.

Microeconomics 1.7.1 The Distribution of Income and Wealth

The amount by which quantity demanded exceeds quantity supplied when price is below equilibrium, creating a shortage that puts upward pressure on price.

Microeconomics 1.3.5 The Determination of Equilibrium Market Prices

The amount by which quantity supplied exceeds quantity demanded when price is above equilibrium, creating a surplus that puts downward pressure on price.

Microeconomics 1.3.5 The Determination of Equilibrium Market Prices

The price of one currency expressed in terms of another. It determines the domestic price of imports and the foreign price of exports.

Macroeconomics 2.6.4 Exchange Rate Systems

These aim to reduce overall demand in the economy, which can reduce imports. Examples include contractionary fiscal policy and higher interest rates.

Macroeconomics 2.6.3 The Balance of Payments

These aim to switch demand away from imports and towards domestically produced goods and services. Examples include tariffs, quotas, and devaluation of the currency.

Macroeconomics 2.6.3 The Balance of Payments

The benefit of an economic activity that accrues to third parties rather than to the producer or consumer, measured as social benefit minus private benefit.

Microeconomics 1.8.4 Positive and Negative Externalities in Consumption and Production

The cost of an economic activity that falls on third parties rather than on the producer or consumer, measured as social cost minus private cost.

Microeconomics 1.8.4 Positive and Negative Externalities in Consumption and Production

are the reasons outside of the business why as size/output of all firms in an entire industry increases. They are external to the individual firm and cause the LRAC curve to shift downwards for all firms in the industry, reducing costs.

Microeconomics 1.4.5 Economies and Diseconomies of Scale

a positive or negative spillover effect that affects a third party not directly involved in the economic transaction. Also known as external costs or external benefits.

Microeconomics 1.8.4 Positive and Negative Externalities in Consumption and Production

Also covered in 1.8.2

refers to the inability of factors of production (land, labour, capital, and entrepreneurship) to move freely between different uses or locations.

Microeconomics 1.8.6 Market Imperfections

The resources used to produce goods and services: land, labour, capital and enterprise.

Microeconomics 1.1.3 Economic Resources

Records flows of investment, such as FDI and portfolio investment, as well as changes in foreign exchange reserves.

Macroeconomics 2.6.3 The Balance of Payments

occurs when a firm charges each consumer the maximum price they are willing to pay, capturing all consumer surplus as profit e.g. auctions.

Microeconomics 1.5.7 Price Discrimination

The amount by which government spending exceeds taxation revenue in a given period. This resets each year.

Macroeconomics 2.5.1 Fiscal Policy

Managed by the government. It is the manipulation of government spending (G) and taxation (T) to meet a desired macroeconomic objective.

Macroeconomics 2.5.1 Fiscal Policy

Costs that do not vary with output, such as rent and salaries.

Microeconomics 1.4.4 Costs of Production

an exchange rate system where the central bank fixes the currency at a certain value, often by pegging it to another currency.

Macroeconomics 2.6.4 Exchange Rate Systems

an exchange rate system determined by market forces of demand and supply for a currency, with no government intervention.

Macroeconomics 2.6.4 Exchange Rate Systems

Occurs when a country does not have enough foreign currency to pay for essential imports, which can limit economic growth and development.

Macroeconomics 2.6.5 Economic Growth and Development

the idea that individuals may be influenced by the way information is presented to them, rather than the actual information itself. e.g. a consumer may be more likely to buy a product that is advertised as "90% fat free" rather than "10% fat".

Microeconomics 1.2.3 Aspects of Behavioural Economic Theory

The problem that, because a public good is non-excludable, people can consume it without paying. Firms therefore cannot charge for it and the free market fails to provide it.

Microeconomics 1.8.3 Public Goods, Private Goods and Quasi-Public Goods

e.g. USMCA (the United States-Mexico-Canada Agreement)

Macroeconomics 2.6.2 Trade

Short-term unemployment that occurs when people are between jobs, such as recent graduates or those who have voluntarily left a job to find a better one. For example, a software engineer may leave their current position to search for a role that offers better career growth or a higher salary. During this search period, they are considered frictionally unemployed.

Macroeconomics 2.3.2 Employment and Unemployment

The four roles money performs: a medium of exchange, a measure of value, a store of value and a method of deferred payment.

Microeconomics 1.4.2 Specialisation, Division of Labour and Exchange

The study of how interdependent firms make decisions when the best choice for each depends on what rivals do. It is used to explain collusion and price rigidity in oligopoly.

Microeconomics 1.5.5 Oligopoly

when workers are unable to move to areas with higher wages due to housing costs, family commitments, or other factors.

Microeconomics 1.8.6 Market Imperfections

A measure of income or wealth inequality derived from the Lorenz curve, running from 0 for perfect equality to 1 for perfect inequality.

Microeconomics 1.7.1 The Distribution of Income and Wealth

is the increasing integration and interdependence of the world's economies.

Macroeconomics 2.6.1 Globalisation

when government intervention to correct a market failure results in a larger net welfare loss or a less efficient allocation of resources than before the intervention.

Microeconomics 1.8.10 Government failure

the government can provide merit goods directly, such as public education or healthcare. This ensures that these goods are available to all consumers, regardless of their ability to pay.

Microeconomics 1.8.4 Positive and Negative Externalities in Consumption and Production

Also covered in 1.8.9

The total value of all goods and services produced within a country's borders, regardless of who owns the factors of production.

Macroeconomics 2.1.4 Uses of National Income Data

GDP plus net income from abroad - the income earned by a country's residents from overseas assets, minus the income earned by foreign residents from assets located domestically. (GNI is also referred to as GNP.)

Macroeconomics 2.1.4 Uses of National Income Data

Suggests that economic growth is directly related to the level of savings and investment in an economy. A higher savings rate allows for more investment in capital goods, which can lead to increased productivity and economic growth.

Macroeconomics 2.6.5 Economic Growth and Development

the idea that individuals may be influenced by the decisions of others, rather than making their own independent decision. e.g. buying an Xbox because all your friends have one, even though you prefer the games available on a PlayStation.

Microeconomics 1.2.3 Aspects of Behavioural Economic Theory

A composite measure of development combining life expectancy, mean and expected years of schooling, and gross national income per head, scored between 0 and 1.

Macroeconomics 2.6.5 Economic Growth and Development

YED measures the responsiveness of quantity demanded to a change in consumer income.

Microeconomics 1.3.2 Price, Income and Cross Elasticities of Demand

is the unequal distribution of earnings, such as wages, rent, interest, and profit. Income is a flow of money over a period of time.

Microeconomics 1.7.1 The Distribution of Income and Wealth

A number used to express the value of a variable relative to a chosen base value, which is set equal to 100. Index numbers make it easy to compare how a variable has changed over time and to express those changes in percentage terms.

Macroeconomics 2.1.3 Uses of Index Numbers

are levied on spending, such as VAT and excise duties.

Macroeconomics 2.5.1 Fiscal Policy

A sustained increase in the general/average price level of goods and services in an economy.

Macroeconomics 2.3.3 Inflation

Also covered in 2.1.3

a situation where one party lacks the information needed to make an informed decision.

Microeconomics 1.2.2 Imperfect Information

Also covered in 1.8.6

the government can provide information about the benefits/costs of certain goods, such as public health campaigns about the importance of vaccinations or the health costs of smoking. This can increase/decrease the D=MPB curve, internalising the externality.

Microeconomics 1.8.9 Government intervention in markets

Also covered in 1.8.4, 1.8.4, 1.8.4

the process of developing an existing product, process or idea to improve it, make it more efficient, or adapt it for a new purpose by adding new features.

Microeconomics 1.4.8 Technological Change

the cost of borrowing and the reward for saving.

Macroeconomics 2.4.3 Central Banks and Monetary Policy

the reasons within a business why Average Total Costs fall as size/output of the business increase. These are internal to the firm and cause LRAC to fall.

Microeconomics 1.4.5 Economies and Diseconomies of Scale

Government action to correct market failure or to change the outcome a free market would produce, through measures such as taxation, subsidies, regulation and direct provision.

Microeconomics 1.8.9 Government intervention in markets

These aim to increase productive capacity through government spending.

Macroeconomics 2.5.2 Supply-Side Policies

the creation entirely new and original products, processes or ideas that have not existed before.

Microeconomics 1.4.8 Technological Change

Spending by firms on capital goods, such as machinery, factories, and technology, in order to increase future productive capacity.

Macroeconomics 2.2.3 The Determinants of Aggregate Demand

A bank that does not take deposits from the general public, but instead provides services to firms, governments and institutional investors, such as raising finance, advising on takeovers and trading securities.

Macroeconomics 2.4.2 Commercial Banks and Investment Banks

The pattern by which a depreciation first worsens the current account, because contracts and habits fix quantities in the short run, and only improves it once demand has had time to respond.

Macroeconomics 2.6.4 Exchange Rate Systems

Human effort

Microeconomics 1.1.3 Economic Resources

The total of those in employment and those unemployed who are actively seeking work.

Macroeconomics 2.3.2 Employment and Unemployment

Output per worker, or output per hour worked, over a given period. It is the main measure of how efficiently labour is being used.

Microeconomics 1.4.1 Production & Productivity

The curve showing that tax revenue rises with the tax rate up to a point and falls beyond it, because very high rates discourage work, encourage avoidance and shrink the tax base.

Macroeconomics 2.5.1 Fiscal Policy

Natural resources

Microeconomics 1.1.3 Economic Resources

There is an inverse relationship between price and quantity demanded (QD). As price rises, QD falls (ceteris paribus).

Microeconomics 1.3.1 The determinants of the demand for goods and services

As more units are consumed, the extra utility gained from the next unit falls.

Microeconomics 1.3.1 The determinants of the demand for goods and services

Defined by the Competition and Markets Authority (CMA) as a firm with a market share of 25% or more. For example, Google has a market share of over 90% in the search engine market in the UK, making it a legal monopoly.

Microeconomics 1.5.6 Monopoly

The ease with which an asset can be converted into cash without loss of value.

Macroeconomics 2.4.2 Commercial Banks and Investment Banks

The proportion of a bank's assets that are held in liquid form, such as cash, reserves at the central bank and easily marketable securities.

Macroeconomics 2.4.4 Regulation of the Financial System

A period where all factors of production are variable. Firms can build new factories, hire more workers, etc. Supply is therefore more price elastic in the long run.

Microeconomics 1.3.4 Price Elasticity of Supply (PES)

Long-run aggregate supply is the total potential output of an economy when all factors of production are fully and efficiently employed.

Macroeconomics 2.2.2 Aggregate Demand and Aggregate Supply Analysis

Also covered in 2.2.6

An increase in the economy's productive capacity. This is the maximum possible output the economy could produce if all resources were fully employed. Also known as potential growth.

Macroeconomics 2.3.1 Economic Growth and the Economic Cycle

A diagram plotting the cumulative share of income against the cumulative share of population. The further the curve lies below the 45-degree line of perfect equality, the greater the inequality.

Microeconomics 1.7.1 The Distribution of Income and Wealth

When $TR < TC$.

Microeconomics 1.4.7 Profit

Requiring consumers to make the desired choice legally. e.g. requiring car owners to have third-party insurance.

Microeconomics 1.2.4 Behavioural Economics and Economic Policy

$\frac{\Delta TC}{\Delta Q}$, which is the additional cost incurred when producing one more unit.

Microeconomics 1.4.4 Costs of Production

The extra output produced by one more worker.

Microeconomics 1.6.1 Demand for Labour, Marginal Productivity Theory

The additional output produced by employing one more unit of a variable factor, typically labour.

Microeconomics 1.4.3 The Law of Diminishing Returns and Returns to Scale

$\frac{\Delta TR}{\Delta Q}$. This is the additional revenue from selling one more unit.

Microeconomics 1.4.6 Marginal, Average and Total Revenue

Also covered in 1.6.1

The extra revenue a firm gains from employing one more unit of a factor, found by multiplying its marginal physical product by marginal revenue. It is the firm's demand curve for labour.

Microeconomics 1.6.1 Demand for Labour, Marginal Productivity Theory

The extra satisfaction from consuming one more unit.

Microeconomics 1.3.1 The determinants of the demand for goods and services

The point where market demand equals market supply.

Microeconomics 1.3.5 The Determination of Equilibrium Market Prices

when the free market, through the price mechanism, fails to allocate scarce resources efficiently, leading to a social welfare loss.

Microeconomics 1.8.2 The Meaning of Market Failure

Also covered in 1.8.4

These aim to increase productive capacity by removing government interventions.

Macroeconomics 2.5.2 Supply-Side Policies

this decreases the price of the demerit good, causing an expansion in D=MPC.

Microeconomics 1.8.4 Positive and Negative Externalities in Consumption and Production

The middle value when data are ranked in order, so that half the values lie above it and half below. Median income is often preferred to mean income because it is not pulled upwards by a few very high earners.

Microeconomics 1.7.1 The Distribution of Income and Wealth

goods that exhibit positive externalities in their consumption or production, and are therefore under-provided by the market. Examples include education, healthcare, and public libraries.

Microeconomics 1.8.5 Merit and Demerit Goods

Also covered in 1.8.4

is the lowest level of output at which a firm can achieve the lowest possible average total cost in the long run.

Microeconomics 1.4.5 Economies and Diseconomies of Scale

this increases the price of the demerit good, causing a contraction in D=MPC.

Microeconomics 1.8.4 Positive and Negative Externalities in Consumption and Production

Managed by the Bank of England, which is independent. It is the manipulation of interest rates and the money supply to meet a desired macroeconomic objective.

Macroeconomics 2.4.3 Central Banks and Monetary Policy

The total amount of money available in an economy at a particular point in time.

Macroeconomics 2.4.1 The Structure of Financial Markets and Financial Assets

A market structure in which a single firm supplies the whole market. In UK competition law a firm with a market share of 25% or more is treated as having monopoly power.

Microeconomics 1.5.6 Monopoly

is the ability of a firm to set prices above the competitive level due to a lack of competition. Any firm with 25% or more market share is considered to have monopoly power.

Microeconomics 1.8.6 Market Imperfections

Also covered in 1.8.2

A market with a single or dominant buyer, which can use its buying power to force down the price it pays - for example an employer that is the main purchaser of labour in a local market.

Microeconomics 1.6.4 The Determination of Relative Wage rates and Levels of Employment in Imperfectly Competitive Labour Markets

The risk that banks take excessive risks because they do not bear the full cost of failure, believing they will be bailed out.

Macroeconomics 2.4.4 Regulation of the Financial System

The proportion of extra income spent on domestic goods and services.

Macroeconomics 2.2.4 The Multiplier

The proportion of extra income spent on imports.

Macroeconomics 2.2.4 The Multiplier

The proportion of extra income saved.

Macroeconomics 2.2.4 The Multiplier

The proportion of extra income paid in tax.

Macroeconomics 2.2.4 The Multiplier

The multiplier is the process by which an initial injection, such as an increase in government spending, investment, or exports, leads to a larger final increase in national income and real GDP.

Macroeconomics 2.2.4 The Multiplier

The total amount of money that a government owes to creditors. This is the accumulation of past deficits and surpluses over time.

Macroeconomics 2.5.1 Fiscal Policy

The total value of all goods and services produced in an economy over a given period. It can be measured in three equivalent ways - as total output, total income, or total expenditure - because one person's spending is another person's income, and all income is ultimately earned by producing output.

Macroeconomics 2.1.4 Uses of National Income Data

Also covered in 2.2.1

A market in which economies of scale are so large relative to demand that one firm can supply the whole market at a lower average cost than two or more could. Water and rail infrastructure are examples.

Microeconomics 1.5.6 Monopoly

The level of unemployment that exists when the economy is at full employment, consisting of frictional and structural unemployment.

Macroeconomics 2.3.2 Employment and Unemployment

A cost imposed on a third party not involved in the transaction, so social cost exceeds private cost and the market over-produces relative to the socially optimal level.

Microeconomics 1.8.4 Positive and Negative Externalities in Consumption and Production

Exports minus imports (X - M), a component of aggregate demand. A surplus ($X > M$) adds to AD, while a deficit ($X < M$) subtracts from it.

Macroeconomics 2.2.3 The Determinants of Aggregate Demand

Gross domestic product measured at current prices, with no adjustment for inflation. It rises when prices rise even if output has not changed.

Macroeconomics 2.1.2 Macroeconomic Indicators

it is impossible or extremely costly to prevent non-payers from consuming the good once it is provided.

Microeconomics 1.8.3 Public Goods, Private Goods and Quasi-Public Goods

Also covered in 1.8.2

one person's consumption does not reduce the amount available for others.

Microeconomics 1.8.3 Public Goods, Private Goods and Quasi-Public Goods

Also covered in 1.8.2

The minimum profit required to keep a firm in the industry, so $TR = TC$. Also known as the break-even point.

Microeconomics 1.4.7 Profit

Subjective statements that express an opinion or a value judgement about what ought to be.

Microeconomics 1.1.1 Economic Methodology

a concept in behavioural economics that refers to subtle interventions or changes in the choice architecture that influence people's behaviour in a predictable way without restricting their freedom of choice.

Microeconomics 1.2.4 Behavioural Economics and Economic Policy

when workers are unable to move between different occupations due to a lack of skills or qualifications.

Microeconomics 1.8.6 Market Imperfections

A market structure dominated by a few large firms, with high barriers to entry and interdependence, so each firm must consider how rivals will react to its decisions.

Microeconomics 1.5.5 Oligopoly

the value of the next best alternative foregone when making an economic decision.

Microeconomics 1.1.4 Scarcity, Choice and the Allocation of Resources - students must learn the basic economic problem of scarcity, choice and the allocation of resources, and how this leads to opportunity cost

An output gap is the difference between the actual level of real GDP and the potential level of real GDP, which is the level of output produced when the economy is at full capacity.

Macroeconomics 2.3.1 Economic Growth and the Economic Cycle

when the market fails to provide a good or service in the socially optimal quantity, leading to either:

Microeconomics 1.8.2 The Meaning of Market Failure

The difference between two percentages, found by subtracting one from the other. A rise in interest rates from 4% to 6% is a rise of two percentage points, but a 50% increase - the two are not interchangeable.

Macroeconomics Not yet covered in the revision notes

A market structure with many buyers and sellers, an identical product, perfect information and no barriers to entry, in which firms are price takers and earn only normal profit in the long run.

Microeconomics 1.5.3 Perfect Competition

a persistent current account deficit can lead to a build-up of foreign debt, which may be require higher taxes or spending cuts in the long term. It can also lead to a loss of confidence in the domestic currency resulting in depreciation and reduced Foreign Direct Investment (FDI) inflows.

Macroeconomics 2.6.3 The Balance of Payments

a persistent current account surplus can lead to inflationary pressures in the domestic economy due to increased aggregate demand. It can also lead to over-reliance on exports and vulnerability to external shocks, such as a global recession or changes in trading partners' demand.

Macroeconomics 2.6.3 The Balance of Payments

The curve showing the short-run inverse relationship between unemployment and the rate of inflation. In the long run it is taken to be vertical at the natural rate of unemployment.

Macroeconomics 2.3.4 Possible Conflicts Between Macroeconomic Policy Objectives

A benefit received by a third party not involved in the transaction, so social benefit exceeds private benefit and the market under-produces relative to the socially optimal level.

Microeconomics 1.8.4 Positive and Negative Externalities in Consumption and Production

Objective statements that describe'what is', 'what was', or 'what will be' in the economy.

Microeconomics 1.1.1 Economic Methodology

Charging different prices to different consumers for the same good, where the price difference does not reflect a difference in costs. It requires market power, the ability to separate consumers and different price elasticities of demand.

Microeconomics 1.5.7 Price Discrimination

PED measures the responsiveness of quantity demanded to a change in the good's own price.

Microeconomics 1.3.2 Price, Income and Cross Elasticities of Demand

Measures the responsiveness of quantity supplied to a change in the good's own price. It helps us understand how easily, quickly or cheaply producers can increase output when the price rises.

Microeconomics 1.3.4 Price Elasticity of Supply (PES)

The way changing prices allocate scarce resources in a free market, through the rationing, incentive and signalling functions of price.

Microeconomics 1.8.1 How markets and prices allocate resources

Managers may pursue their own objectives, such as higher salaries, sales maximisation, or perks, instead of the owners' goal of profit maximisation.

Microeconomics 1.5.2 The Objectives of Firms

the benefits/utility derived from consumption received by the consumers directly involved in the transaction.

Microeconomics 1.8.4 Positive and Negative Externalities in Consumption and Production

the costs of production incurred by the producers directly involved in the transaction.

Microeconomics 1.8.4 Positive and Negative Externalities in Consumption and Production

A good that is rival and excludable, so one person's consumption prevents another's and non-payers can be shut out. Most goods traded in markets are private goods.

Microeconomics 1.8.3 Public Goods, Private Goods and Quasi-Public Goods

Refers to the transfer of ownership of enterprises from the government to the private sector. It aims to increase efficiency, promote competition, and reduce the financial burden on the government.

Microeconomics 1.8.8 Public Ownership, Privatisation, Regulation and Deregulation of Markets

The difference between the price a producer is willing to accept (their cost of supply) and the price they actually receive. It is a measure of producer welfare/profit.

Microeconomics 1.5.11 Consumer and Producer Surplus

The process of combining various resources (inputs) and the factors of production to create goods and services (outputs).

Microeconomics 1.4.1 Production & Productivity

A curve that shows the maximum potential output combinations of two goods or services an economy can achieve when all its resources are fully and efficiently employed.

Microeconomics 1.1.5 Production Possibility Diagrams

Resources are used in the most efficient way possible, minimising costs of production and maximising output.

Microeconomics 1.5.10 Market Structure, Static Efficiency, Dynamic Efficiency and Resource Allocation

The firm is not producing at the minimum point of the AC curve, so there is higher than necessary costs.

Microeconomics 1.5.10 Market Structure, Static Efficiency, Dynamic Efficiency and Resource Allocation

The maximum possible output of an economy that occurs when all resources and factors of production are being utilised to their maximum. Also known as the full employment level of output.

Macroeconomics 2.5.2 Supply-Side Policies

A measure of the efficiency of production, typically measuring the output produced per unit of input used.

Microeconomics 1.4.1 Production & Productivity

The objective of producing at the level of output where marginal cost equals marginal revenue, so that the gap between total revenue and total cost is at its greatest.

Microeconomics 1.5.2 The Objectives of Firms

The objective of maximising the return earned on the bank's assets for its shareholders.

Macroeconomics 2.4.2 Commercial Banks and Investment Banks

A tax where the percentage of income paid in tax rises as income rises. Examples include income tax and inheritance tax.

Macroeconomics 2.5.1 Fiscal Policy

Legal rights to own, use, and transfer property e.g. land, buildings, and intellectual property.

Macroeconomics 2.6.5 Economic Growth and Development

A tax where the percentage of income paid in tax remains constant regardless of income level. There are few examples of purely proportional taxes, but some flat-rate taxes can be considered proportional.

Macroeconomics 2.5.1 Fiscal Policy

A good that is non-rival and non-excludable, so it will not be provided by the free market. National defence and street lighting are examples.

Microeconomics 1.8.3 Public Goods, Private Goods and Quasi-Public Goods

Refers to the ownership of enterprises by the government. It aims to provide essential goods and services, ensure equitable distribution, and control natural monopolies. Nationalisation is a form of public ownership where private enterprises are taken over by the government.

Microeconomics 1.8.8 Public Ownership, Privatisation, Regulation and Deregulation of Markets

An exchange rate that equalises the price of an identical basket of goods and services between two countries. It reflects how much a currency can actually buy within its own economy, rather than what it trades for on foreign exchange markets.

Macroeconomics 2.1.4 Uses of National Income Data

a market structure where a single firm is the sole producer of a good or service with no close substitutes. Pure Monopolies have complete monopoly power and can set prices without concern for competition.

Microeconomics 1.8.6 Market Imperfections

Also covered in 1.5.6

Values that divide a distribution into equal-sized groups when the data are ranked in order. Quartiles divide it into four groups and deciles into ten; they are used to describe how income is spread.

Microeconomics Not yet covered in the revision notes

A monetary policy in which the central bank creates money electronically to buy financial assets, mainly government bonds, in order to raise their price, lower yields and increase lending.

Macroeconomics 2.4.3 Central Banks and Monetary Policy

goods that are either:

Microeconomics 1.8.3 Public Goods, Private Goods and Quasi-Public Goods

A physical limit on the quantity of a good that may be imported over a period. It restricts supply and so raises the domestic price.

Macroeconomics 2.6.2 Trade

The assumption that economic agents weigh up costs and benefits and choose the option that maximises their own welfare - consumers maximising utility and firms maximising profit.

Microeconomics 1.2.1 Consumer Behaviour

Gross domestic product adjusted for inflation, so that it measures the change in the volume of output rather than the change in prices. It is the measure used to judge economic growth.

Macroeconomics 2.1.4 Uses of National Income Data

Income adjusted for inflation, measuring the quantity of goods and services it will actually buy. Real income falls when prices rise faster than nominal income.

Macroeconomics 2.2.3 The Determinants of Aggregate Demand

Occurs when wages are set above the market-clearing level, leading to excess supply of labour. This can be caused by minimum wage laws or trade union negotiations.

Macroeconomics 2.3.2 Employment and Unemployment

A tax where where the percentage of income paid in tax falls as income rises. Examples include VAT and demerit good taxes e.g. tobacco and alcohol duties.

Macroeconomics 2.5.1 Fiscal Policy

Refers to the imposition of rules and standards by the government or regulatory bodies to control the behaviour of firms and protect consumers, workers, and the environment. Regulation can take various forms, such as price controls, quality standards, safety regulations, and environmental regulations.

Microeconomics 1.8.8 Public Ownership, Privatisation, Regulation and Deregulation of Markets

Refers to a situation where regulatory agencies are dominated or influenced by the industries they are supposed to regulate. This can lead to regulations that benefit the industry rather than the public interest.

Microeconomics 1.8.8 Public Ownership, Privatisation, Regulation and Deregulation of Markets

exists when household income is below a certain proportion of median income in an economy,

Microeconomics 1.7.2 the Problem of Poverty

Limiting the number of options available to consumers to simplify decision-making and reduce choice overload. e.g. simplifying menu options in a restaurant.

Microeconomics 1.2.4 Behavioural Economics and Economic Policy

a concept that describes how output changes if all inputs are increased proportionally. This can only occur in the long run, when all factors of production are variable.

Microeconomics 1.4.3 The Law of Diminishing Returns and Returns to Scale

a general principle derived from practice or experience rather than theory. e.g. buying the same meal deal from a supermarket because it is the same as what you bought last week, rather than considering other options that may be better value for money.

Microeconomics 1.2.3 Aspects of Behavioural Economic Theory

when there are finite resources (e.g., land, labour, capital) but infinite human wants and needs.

Microeconomics 1.1.4 Scarcity, Choice and the Allocation of Resources - students must learn the basic economic problem of scarcity, choice and the allocation of resources, and how this leads to opportunity cost

Caused by fluctuations in demand for certain types of labour at different times of the year. For example, a ski instructor may be unemployed during the summer months when there is no demand for skiing lessons.

Macroeconomics 2.3.2 Employment and Unemployment

occurs when a firm charges different prices based on the quantity purchased or the version of the product, such as bulk discounts or premium versions. Also known as Purchasing Economies of Scale.

Microeconomics 1.5.7 Price Discrimination

The objective of minimising the risk of losses from bad debts and risky investments.

Macroeconomics 2.4.2 Commercial Banks and Investment Banks

A period where at least one factor of production is fixed (e.g., factory size, number of machines). Supply is typically more price inelastic in the short run as firms cannot instantly expand all inputs.

Microeconomics 1.3.4 Price Elasticity of Supply (PES)

Short-run aggregate supply is the total planned output of goods and services in an economy at a given price level, assuming that at least one factor of production, such as capital or technology, is fixed.

Macroeconomics 2.2.2 Aggregate Demand and Aggregate Supply Analysis

Also covered in 2.2.5

An increase in real GDP over time. It is measured by the percentage change in the actual output of goods and services. Also known as actual growth.

Macroeconomics 2.3.1 Economic Growth and the Economic Cycle

measure one aspect of development, such as the infant mortality rate, literacy rate, or access to clean water.

Macroeconomics 2.6.5 Economic Growth and Development

the total benefits to society of consuming a good, including both private and external benefits.

Microeconomics 1.8.4 Positive and Negative Externalities in Consumption and Production

the total costs to society of producing a good, including both private and external costs.

Microeconomics 1.8.4 Positive and Negative Externalities in Consumption and Production

The sum of consumer and producer surplus (Triangle A + Triangle B). It represents the total welfare in the market.

Microeconomics 1.5.11 Consumer and Producer Surplus

Occurs when individuals, firms, regions, or countries concentrate on producing a specific good or service.

Microeconomics 1.4.2 Specialisation, Division of Labour and Exchange

Resources are both allocated and utilised in the most efficient way possible at a given point in time. This requires both allocative and productive efficiency.

Microeconomics 1.5.10 Market Structure, Static Efficiency, Dynamic Efficiency and Resource Allocation

A deficit that exists even when the economy is operating at its potential output, indicating a fundamental imbalance between government spending and taxation that is not related to the economic cycle.

Macroeconomics 2.5.1 Fiscal Policy

Caused by a mismatch between the skills of workers and the requirements of available jobs, often due to technological change or shifts in the economy. For example, the decline of coal mining and the rise of renewable energy has led to structural unemployment in certain regions.

Macroeconomics 2.3.2 Employment and Unemployment

provide financial incentives for producers to increase output, shifting S=MSC downward and internalising the positive externality.

Microeconomics 1.8.4 Positive and Negative Externalities in Consumption and Production

provide financial incentives for consumers to choose goods or services that have positive externalities, such as subsidies for public transport or renewable energy. This reduces demand for the demerit good as consumers switch to the subsidised alternatives.

Microeconomics 1.8.4 Positive and Negative Externalities in Consumption and Production

Also covered in 1.8.4

A payment from government to producers that lowers their costs, shifting supply to the right so that output rises and price falls. It is used to encourage goods with positive externalities.

Microeconomics 1.3.3 The Determinants of the Supply of Goods and Services

are costs that cannot be recovered if a firm leaves the market.

Microeconomics 1.5.9 Contestability

Any profit above normal profit, so $TR > TC$.

Microeconomics 1.4.7 Profit

The quantity of a good/service producers are willing and able to produce/sell at a given price in a given time period.

Microeconomics 1.3.3 The Determinants of the Supply of Goods and Services

is the quantity of workers willing and able to work at a given wage rate.

Microeconomics 1.6.2 Influences upon the Supply of Labour to different markets

Policies that aim to increase the productive potential/capacity of the economy by shifting the long-run aggregate supply (LRAS) curve to the right.

Macroeconomics 2.5.2 Supply-Side Policies

Development that meets the needs of the present without reducing the ability of future generations to meet their own needs, by not depleting the natural capital growth depends on.

Macroeconomics 2.6.5 Economic Growth and Development

The risk that the failure of one financial institution triggers the failure of others and a wider financial crisis.

Macroeconomics 2.4.4 Regulation of the Financial System

A tax on imported goods, which raises their price to domestic consumers, reduces the quantity imported and raises revenue for the government.

Macroeconomics 2.6.2 Trade

occurs when a firm charges different prices to different consumer groups based on characteristics such as age, location, or income e.g. train tickets.

Microeconomics 1.5.7 Price Discrimination

$TC = TFC + TVC$

Microeconomics 1.4.4 Costs of Production

The total output produced by a firm.

Microeconomics 1.4.3 The Law of Diminishing Returns and Returns to Scale

$P \times Q$

Microeconomics 1.4.6 Marginal, Average and Total Revenue

the government can set a cap on total emissions and auction permits that firms must purchase to emit pollutants. These can then be traded on a secondary market. This increases firms costs of production, resulting in S=MPC shifting upward and internalising the external cost. It also incentivises firms to invest in cleaner technologies.

Microeconomics 1.8.4 Positive and Negative Externalities in Consumption and Production

Also covered in 1.8.9

The trade cycle is the fluctuation in real GDP over time, with periods of boom and recession.

Macroeconomics 2.3.1 Economic Growth and the Economic Cycle

an organisation formed by workers to protect their rights, improve pay and secure better working conditions.

Microeconomics 1.6.5 The Influence of Trade Unions in Determining Wages and Levels of Employment

A group of countries that agree to reduce or remove trade barriers between themselves, ranging from a free trade area through a customs union to a single market.

Macroeconomics 2.6.2 Trade

the assumption that individuals are rational decision makers who endeavour to maximise their utility.

Microeconomics 1.2.3 Aspects of Behavioural Economic Theory

are payments where no good or service is received in return, such as pensions, unemployment benefits, and subsidies.

Macroeconomics 2.5.1 Fiscal Policy

occurs when workers are in jobs that underutilise their skills or when they want to work more hours than they currently do. For example, a qualified teacher working part-time as a barista due to a lack of teaching vacancies is underemployed.

Macroeconomics 2.3.2 Employment and Unemployment

An individual of working age who is without work, but is willing and able to work, and is actively seeking employment.

Macroeconomics 2.3.2 Employment and Unemployment

The number of people unemployed as a percentage of the labour force - that is, of those in work plus those unemployed and actively seeking work.

Macroeconomics 2.1.2 Macroeconomic Indicators

The satisfaction or happiness a consumer derives from consuming goods and services.

Microeconomics 1.2.1 Consumer Behaviour

a view about what is morally or subjectively important. These judgements underpin all normative statements.

Microeconomics 1.1.1 Economic Methodology

Costs that vary directly with output, such as raw materials and hourly wages.

Microeconomics 1.4.4 Costs of Production

When workers with similar skills and qualifications are paid differently based on characteristics unrelated to their job performance, such as gender, ethnicity, or age.

Microeconomics 1.6.7 Discrimination in the Labour Market

is the unequal distribution of assets, such as property, shares, and savings. Wealth is a stock of monetary value at a point in time.

Microeconomics 1.7.1 The Distribution of Income and Wealth

The loss of social welfare that arises when output is not at the socially optimal level, shown as the shaded triangle between the marginal social cost and marginal social benefit curves. Also called deadweight loss.

Microeconomics 1.8.4 Positive and Negative Externalities in Consumption and Production

A lack of competition or lack of profit incentive causes a firm to become organisationally slack (lazy), leading to higher ATC.

Microeconomics 1.5.10 Market Structure, Static Efficiency, Dynamic Efficiency and Resource Allocation