Edexcel A-Level Economics A 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.

Theme 4 4.1.2 Specialisation and Trade

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

Theme 4 4.2.1 Absolute and Relative Poverty

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

Theme 2 2.5.1 Causes of Growth

Also covered in 2.5.2

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.

Theme 2 2.2.1 Aggregate Demand

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.

Theme 2 2.3.1 Aggregate Supply

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

Theme 3 3.4.1 Efficiency

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

Theme 3 3.4.1 Efficiency

Acting against pure self-interest for moral or social reasons.

Theme 1 1.2.1 Rational decision making

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

Theme 1 1.3.1 Types of market failure

Also covered in 1.3.4

Non-discretionary changes in government spending and taxation that occur automatically in response to changes in economic activity, helping to stabilise the economic cycle without the government intervening.

Theme 4 4.5.3 Public Sector Finances

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

Theme 3 3.3.2 Costs

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

Theme 3 3.3.2 Costs

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

Theme 3 3.3.1 Revenue

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

Theme 3 3.3.2 Costs

Growth by merging with or taking over a supplier earlier in the supply chain. This can secure inputs and improve control over cost and quality. For example, if a car manufacturer merges with a tyre manufacturer, it is backward integrated.

Theme 3 3.1.2 Business Growth

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.

Theme 4 4.1.7 Balance of Payments

$G = T$.

Theme 2 2.6.2 Demand-Side Policies

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.

Theme 3 3.4.5 Monopoly

Decisions are made with limited information, time, and cognitive ability.

Theme 1 1.2.1 Rational decision making

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

Theme 2 2.6.2 Demand-Side Policies

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

Theme 2 2.6.2 Demand-Side Policies

Manufactured/Man-made resources

Theme 1 1.1.3 The economic problem

Records relatively minor capital transfers, such as debt forgiveness.

Theme 4 4.1.7 Balance of Payments

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

Theme 4 4.5.1 Public Expenditure

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

Theme 4 4.3.2 Factors Influencing 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.

Theme 1 1.1.4 Production Possibility Frontiers

An economic system based on private ownership of the factors of production with the aim of generating profit.

Theme 4 4.2.2 Inequality

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

Theme 1 1.1.1 Economics as a social science

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

Theme 2 2.4.1 National 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.

Theme 2 2.1.3 Employment and Unemployment

An economy where the government controls the allocation of resources and distribution of goods and services.

Theme 1 1.1.6 Types of Economies

e.g. European Union (EU)

Theme 4 4.1.5 Trading Blocs and the World Trade Organisation

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.

Theme 4 4.1.2 Specialisation and Trade

The main independent regulator of markets in the UK. They aim to protect competition and consumer interests in markets by investigating anti-competitive practices, reviewing mergers and enforcing consumer protection laws to ensure markets are fair.

Theme 3 3.6.1 Government Intervention

Government and regulator action to promote competition and protect consumers, covering merger control, action against anti-competitive practices and the regulation of monopoly power.

Theme 3 3.6.1 Government Intervention

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

Theme 4 4.1.8 Exchange Rates

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.

Theme 1 1.2.3 Price, Income and Cross Elasticities of Demand

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

Theme 4 4.3.1 Measures of 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.

Theme 3 3.4.4 Oligopoly

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

Theme 1 1.1.4 Production Possibility Frontiers

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.

Theme 1 1.2.8 Producer and Consumer Surplus

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.

Theme 3 3.4.7 Contestability

A method of appraising a project by valuing all its social costs and social benefits, not only the private ones, and proceeding where social benefit exceeds social cost.

Theme 1 1.4.1 Government intervention in markets

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

Theme 1 1.2.3 Price, Income and Cross Elasticities of Demand

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

Theme 4 4.1.7 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.

Theme 4 4.1.7 Balance of Payments

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.

Theme 4 4.5.1 Public Expenditure

e.g. MERCOSUR (Southern Common Market)

Theme 4 4.1.5 Trading Blocs and the World Trade Organisation

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.

Theme 2 2.1.3 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.

Theme 4 4.5.3 Public Sector Finances

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

Theme 2 2.1.2 Inflation

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

Theme 1 1.2.2 Demand

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

Theme 3 3.5.1 Demand for Labour

Policies used by the government or central bank to shift the aggregate demand (AD) curve in order to achieve macroeconomic objectives such as low inflation, low unemployment, and economic growth.

Theme 2 2.6.2 Demand-Side Policies

When a large firm splits into two or more separate, independent businesses.

Theme 3 3.1.3 Demergers

A good that generates negative externalities, imposing costs on society beyond the private costs incurred by the producer.

Theme 1 1.3.2 Externalities

The loss of value of capital goods over time due to wear and tear, obsolescence, or other factors. Depreciation reduces the productive capacity of the economy and must be accounted for when measuring net investment.

Theme 2 2.2.3 Investment

The removal of legal barriers and rules governing a market, intended to increase competition and efficiency by making entry easier.

Theme 2 2.6.3 Supply-Side Policies

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.

Theme 3 3.5.1 Demand for Labour

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.

Theme 3 3.3.2 Costs

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

Theme 4 4.5.2 Taxation

Deliberate changes in government spending and taxation to influence economic activity.

Theme 4 4.5.3 Public Sector Finances

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.

Theme 3 3.3.3 Economies and Diseconomies of Scale

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

Theme 2 2.1.2 Inflation

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

Theme 2 2.2.2 Consumption

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.

Theme 1 1.1.5 Specialisation and the division of labour

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

Theme 3 3.4.1 Efficiency

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

Theme 4 4.3.1 Measures of Development

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

Theme 4 4.3.1 Measures of Development

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

Theme 2 2.1.3 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.

Theme 3 3.3.3 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.

Theme 1 1.2.5 Price Elasticity of Supply (PES)

Choices swayed by marketing, impulse, or brand loyalty.

Theme 1 1.2.1 Rational decision making

Risk-taking to start/expand a business

Theme 1 1.1.3 The economic problem

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.

Theme 1 1.2.6 Price Determination

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

Theme 1 1.2.6 Price Determination

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

Theme 1 1.2.6 Price Determination

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

Theme 4 4.1.8 Exchange Rates

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

Theme 4 4.1.7 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.

Theme 4 4.1.7 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.

Theme 1 1.3.2 Externalities

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.

Theme 1 1.3.2 Externalities

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.

Theme 3 3.3.3 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.

Theme 1 1.3.2 Externalities

Also covered in 1.3.1

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

Theme 1 1.1.3 The economic problem

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

Theme 4 4.1.7 Balance of Payments

Markets where buyers and sellers can meet and engage in the trade of financial goods/services e.g. stocks, bonds and currencies.

Theme 4 4.4.1 Role of Financial Markets

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

Theme 4 4.5.3 Public Sector Finances

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

Theme 2 2.6.2 Demand-Side Policies

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

Theme 3 3.3.2 Costs

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

Theme 4 4.1.8 Exchange Rates

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

Theme 4 4.1.8 Exchange Rates

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

Theme 4 4.3.2 Factors Influencing Growth and Development

Growth by merging with or taking over a business later in the supply chain. This can secure outlets and capture more profit margin. For example, if a car manufacturer merges with a car dealership, it is forward integrated.

Theme 3 3.1.2 Business Growth

An economy that has no government intervention in the allocation of resources or distribution of goods and services.

Theme 1 1.1.6 Types of Economies

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.

Theme 1 1.3.3 Public goods

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

Theme 4 4.1.5 Trading Blocs and the World Trade Organisation

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.

Theme 2 2.1.3 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.

Theme 1 1.1.5 Specialisation and the division of labour

A framework for analysing strategic decision-making, where the outcome for each participant depends on the actions of others. In oligopoly, firms must consider the potential reactions of rivals when making decisions about price, output, and marketing strategies.

Theme 3 3.4.4 Oligopoly

The barriers that stop workers moving between areas to take up work, such as housing costs, family ties and regional differences in the cost of living.

Theme 3 3.5.2 Supply of Labour

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

Theme 4 4.2.2 Inequality

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

Theme 4 4.1.1 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.

Theme 1 1.4.2 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.

Theme 1 1.3.2 Externalities

Also covered in 1.4.1

GDP is the total monetary value of all final goods and services produced within a country's borders in a given year. It is the primary measure of economic activity and growth.

Theme 2 2.1.1 Economic Growth

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.

Theme 4 4.3.2 Factors Influencing Growth and Development

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.

Theme 4 4.3.1 Measures of Development

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

Theme 1 1.2.3 Price, Income and Cross Elasticities of Demand

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

Theme 4 4.2.2 Inequality

A figure expressing the value of a variable relative to a base year, which is set to 100. An index of 112 means the value is 12% above its base-year level.

Theme 2 2.1.2 Inflation

A tax levied on goods and services when they are purchased, such as VAT or sugar tax. It is paid indirectly by the consumer via the producer, so affects the supply curve rather than the demand curve.

Theme 1 1.2.9 Indirect taxes and subsidies

Also covered in 4.5.2

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

Theme 2 2.1.2 Inflation

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

Theme 1 1.3.4 Information gaps

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.

Theme 1 1.4.1 Government intervention in markets

Also covered in 1.3.2, 1.3.2, 1.3.2

Income from outside of the closed economy that enters the circular flow of income (Government Spending, Investment, and Exports).

Theme 2 2.4.2 Injections and Withdrawals

Inorganic growth is growth achieved through mergers or takeovers of other businesses.

Theme 3 3.1.2 Business Growth

The cost of borrowing and the reward for saving.

Theme 2 2.6.2 Demand-Side Policies

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.

Theme 3 3.3.3 Economies and Diseconomies of Scale

The ability of a country's goods and services to compete successfully in global markets.

Theme 4 4.1.9 International Competitiveness

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.

Theme 3 3.6.2 The Impact of Government Intervention

These aim to increase productive capacity through government spending.

Theme 2 2.6.3 Supply-Side Policies

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

Theme 2 2.2.3 Investment

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.

Theme 4 4.1.8 Exchange Rates

Human effort

Theme 1 1.1.3 The economic problem

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

Theme 2 2.1.3 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.

Theme 3 3.5.1 Demand for Labour

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.

Theme 4 4.5.2 Taxation

Natural resources

Theme 1 1.1.3 The economic problem

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

Theme 1 1.2.2 Demand

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

Theme 1 1.2.2 Demand

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.

Theme 3 3.4.5 Monopoly

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.

Theme 1 1.2.5 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.

Theme 2 2.3.1 Aggregate Supply

Also covered in 2.3.3

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.

Theme 4 4.2.2 Inequality

When $TR < TC$.

Theme 3 3.3.4 Normal Profits, Supernormal Profits and Losses

An exchange rate system where the central bank fixes the currency within a certain range, but allows it to fluctuate within that range.

Theme 4 4.1.8 Exchange Rates

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

Theme 3 3.3.2 Costs

The extra output produced by one more worker.

Theme 3 3.5.1 Demand for Labour

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

Theme 3 3.3.1 Revenue

Also covered in 3.5.1

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.

Theme 3 3.5.1 Demand for Labour

The extra satisfaction from consuming one more unit.

Theme 1 1.2.2 Demand

The point where market demand equals market supply.

Theme 1 1.2.6 Price Determination

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

Theme 1 1.3.1 Types of market failure

Also covered in 1.3.2

When individuals or institutions manipulate financial markets for their own benefit, often at the expense of other market participants. This can lead to market failure by distorting prices and reducing trust in the financial system.

Theme 4 4.4.2 Market Failure in the Financial Sector

These aim to increase productive capacity by removing government interventions.

Theme 2 2.6.3 Supply-Side Policies

A legal maximum price set below the equilibrium price, used to make essential goods and services such as food or rent more affordable for consumers. It causes a contraction in supply and an expansion in demand, leading to excess demand in the market.

Theme 1 1.4.1 Government intervention in markets

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.

Theme 4 4.3.1 Measures of Development

A good that generates positive externalities, benefiting society beyond the private benefits received by the consumer.

Theme 1 1.3.2 Externalities

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

Theme 3 3.3.3 Economies and Diseconomies of Scale

A legal minimum price set above the equilibrium price, used to guarantee income for producers such as farmers, or to discourage consumption of demerit goods. It causes an expansion in supply and a contraction in demand, leading to excess supply in the market.

Theme 1 1.4.1 Government intervention in markets

An economy that combines elements of both free market and command economies, with varying degrees of government intervention to correct market failures.

Theme 1 1.1.6 Types of Economies

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.

Theme 2 2.6.2 Demand-Side Policies

e.g. Eurozone

Theme 4 4.1.5 Trading Blocs and the World Trade Organisation

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.

Theme 3 3.4.5 Monopoly

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.

Theme 3 3.4.6 Monopsony

When individuals or institutions take on excessive risk because they do not bear the full consequences of their actions. In financial markets, this can lead to market failure in the following ways:

Theme 4 4.4.2 Market Failure in the Financial Sector

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

Theme 2 2.4.4 The Multiplier

The proportion of extra income spent on imports.

Theme 2 2.4.4 The Multiplier

The proportion of extra income saved.

Theme 2 2.4.4 The Multiplier

The proportion of extra income paid in tax.

Theme 2 2.4.4 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.

Theme 2 2.4.4 The Multiplier

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

Theme 4 4.5.3 Public Sector Finances

The total value of output, expenditure, and income generated in an economy over a period of time, usually a year.

Theme 2 2.4.1 National Income

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.

Theme 3 3.4.5 Monopoly

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.

Theme 1 1.3.2 Externalities

Non-profit organisations that operate independently of governments. They often focus on specific development issues such as education, healthcare, or human rights. NGOs can provide aid, implement development projects, and advocate for policy changes to support sustainable development.

Theme 4 4.3.3 Strategies Influencing Growth and Development

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

Theme 2 2.1.1 Economic Growth

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

Theme 1 1.3.3 Public goods

Also covered in 1.3.1

Finite and cannot be replenished once depleted (e.g., oil, coal, natural gas). Their use involves a high opportunity cost for future generations.

Theme 1 1.1.3 The economic problem

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

Theme 1 1.3.3 Public goods

Also covered in 1.3.1

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

Theme 3 3.3.4 Normal Profits, Supernormal Profits and Losses

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

Theme 1 1.1.2 Positive & normative economic statements

These aim to achieve a social, environmental, or charitable mission. Any surplus is reinvested into the cause rather than distributed as profit.

Theme 3 3.1.1 Sizes and Types of Firms

The barriers that stop workers moving between jobs or industries, usually because they lack the skills, qualifications or training the new occupation requires.

Theme 3 3.5.2 Supply of Labour

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.

Theme 3 3.4.4 Oligopoly

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

Theme 1 1.1.3 The economic problem

Organic growth is growth generated from within the business using its own resources.

Theme 3 3.1.2 Business Growth

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.

Theme 2 2.5.2 Output Gaps

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.

Theme 2 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.

Theme 3 3.4.2 Perfect Competition

A persistent current account deficit can lead to a build-up of foreign debt, which may 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.

Theme 4 4.1.7 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.

Theme 4 4.1.7 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.

Theme 2 2.6.4 Conflicts Between Objectives and Policies

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.

Theme 1 1.3.2 Externalities

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

Theme 1 1.1.2 Positive & normative economic statements

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

Theme 2 2.5.1 Causes of Growth

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.

Theme 3 3.4.5 Monopoly

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

Theme 1 1.2.3 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.

Theme 1 1.2.5 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.

Theme 1 1.2.7 Price Mechanism

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

Theme 3 3.1.1 Sizes and Types of Firms

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

Theme 1 1.3.2 Externalities

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

Theme 1 1.3.2 Externalities

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.

Theme 1 1.3.3 Public goods

Private sector organisations are owned by private individuals or shareholders. Their main objective is usually profit, and they include sole traders, partnerships, and companies.

Theme 3 3.1.1 Sizes and Types of Firms

The transfer of assets or services from the public sector to the private sector, on the argument that the profit motive raises efficiency.

Theme 3 3.6.1 Government Intervention

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.

Theme 1 1.2.8 Producer and Consumer Surplus

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.

Theme 1 1.1.4 Production Possibility Frontiers

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

Theme 3 3.4.1 Efficiency

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

Theme 3 3.4.1 Efficiency

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.

Theme 2 2.6.3 Supply-Side Policies

Output per unit of input per period of time. Rising productivity means more output from the same resources, which lowers unit costs.

Theme 2 2.6.3 Supply-Side Policies

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.

Theme 3 3.2.1 Business Objectives

These aim to generate financial returns for owners. Most private sector firms fall into this category.

Theme 3 3.1.1 Sizes and Types of Firms

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

Theme 4 4.5.2 Taxation

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

Theme 4 4.3.2 Factors Influencing 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.

Theme 4 4.5.2 Taxation

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.

Theme 1 1.3.3 Public goods

Public sector organisations are owned and funded by the government. Their main purpose is usually to provide a service, such as the NHS, state schools, or the BBC, and they are funded mainly through taxation.

Theme 3 3.1.1 Sizes and Types of Firms

An exchange rate that equalises the cost of an identical basket of goods between two countries. It is used to compare living standards more fairly than market exchange rates allow.

Theme 2 2.1.1 Economic Growth

A market structure where there is a single seller of a product with no close substitutes. For example, a local water company like Thames Water.

Theme 3 3.4.5 Monopoly

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.

Theme 4 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.

Theme 2 2.6.2 Demand-Side Policies

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.

Theme 4 4.1.5 Trading Blocs and the World Trade Organisation

How fast a variable is growing, as opposed to its level. Inflation falling is a fall in the rate of change of prices, not a fall in prices themselves.

Theme 2 Not yet covered in the revision notes

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.

Theme 1 1.2.1 Rational decision making

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.

Theme 2 2.1.1 Economic Growth

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.

Theme 2 2.1.2 Inflation

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.

Theme 2 2.1.3 Employment and Unemployment

A tax 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.

Theme 4 4.5.2 Taxation

Laws and rules implemented by the government and regulatory bodies to influence the behaviour of firms and individuals.

Theme 1 1.4.1 Government intervention in markets

Regulatory capture occurs when regulated firms gain too much influence over the regulators and shape the rules in their own favour rather than in consumers' interests.

Theme 3 3.6.2 The Impact of Government Intervention

Higher export prices compared with competitors usually indicate weaker competitiveness.

Theme 4 4.1.9 International Competitiveness

When household income is below a certain proportion of median income in an economy.

Theme 4 4.2.1 Absolute and Relative Poverty

Rising unit labour costs compared with competitors usually indicate weaker competitiveness.

Theme 4 4.1.9 International Competitiveness

Can be replenished over time (e.g., wind power, solar energy, forests). Their use can be sustainable.

Theme 1 1.1.3 The economic problem

How output responds when all factors of production are increased together in the long run. Returns are increasing, constant or decreasing as output rises by more than, the same as, or less than the inputs.

Theme 3 3.3.2 Costs

Relying on simple rules or past choices instead of a full calculation.

Theme 1 1.2.1 Rational decision making

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

Theme 1 1.1.3 The economic problem

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.

Theme 2 2.1.3 Employment and Unemployment

Data from which the regular within-year pattern has been removed, so that the underlying trend can be seen. Retail sales are seasonally adjusted to stop the December peak being read as growth.

Theme 2 Not yet covered in the revision notes

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.

Theme 1 1.2.5 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 in a period where at least one factor of production is fixed, such as the capital stock or technology.

Theme 2 2.3.1 Aggregate Supply

Also covered in 2.3.2

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

Theme 4 4.3.1 Measures of Development

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

Theme 1 1.3.2 Externalities

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

Theme 1 1.3.2 Externalities

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

Theme 1 1.2.8 Producer and Consumer Surplus

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

Theme 1 1.1.5 Specialisation and the division of labour

When investors buy assets with the expectation that their prices will rise, rather than based on the underlying value of the asset. This can lead to market bubbles, where asset prices become detached from their fundamental value, and can eventually burst, causing widespread financial instability and loss of wealth to individuals.

Theme 4 4.4.2 Market Failure in the Financial Sector

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.

Theme 3 3.4.1 Efficiency

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.

Theme 4 4.5.3 Public Sector Finances

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.

Theme 2 2.1.3 Employment and Unemployment

A per-unit payment from the government to producers to lower their costs of production.

Theme 1 1.2.9 Indirect taxes and subsidies

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.

Theme 1 1.3.2 Externalities

Also covered in 1.3.2

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.

Theme 1 1.2.9 Indirect taxes and subsidies

Costs that cannot be recovered if a firm leaves the market.

Theme 3 3.4.7 Contestability

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

Theme 3 3.3.4 Normal Profits, Supernormal Profits and Losses

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

Theme 1 1.2.4 Supply

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

Theme 3 3.5.2 Supply of Labour

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

Theme 2 2.6.3 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.

Theme 4 4.3.3 Strategies Influencing Growth and Development

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

Theme 4 4.1.6 Restrictions on Free Trade

The ratio of a country's export prices to its import prices, expressed as an index. An improvement means each unit of exports buys more imports.

Theme 4 4.1.4 Terms of Trade

$TC = TFC + TVC$

Theme 3 3.3.2 Costs

$P \times Q$

Theme 3 3.3.1 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.

Theme 1 1.3.2 Externalities

Also covered in 1.4.1

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

Theme 2 2.5.3 The Trade Cycle

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

Theme 3 3.5.3 Wage Determination

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.

Theme 4 4.1.5 Trading Blocs and the World Trade Organisation

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

Theme 4 4.5.1 Public Expenditure

Occurs when a multinational company sets the price for goods and services sold between its subsidiaries in different countries. This can be used to shift profits to low-tax jurisdictions, reducing the company's overall tax liability.

Theme 4 4.5.4 Macroeconomic Policies in a Global Context

The trend rate of growth is the long-term average growth rate of an economy, which is usually measured over a period of 10 years or more.

Theme 2 2.5.2 Output Gaps

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.

Theme 2 2.1.3 Employment and Unemployment

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

Theme 2 2.1.3 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.

Theme 2 2.1.3 Employment and Unemployment

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

Theme 1 1.1.2 Positive & normative economic statements

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

Theme 3 3.3.2 Costs

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

Theme 4 4.2.2 Inequality

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.

Theme 1 1.3.2 Externalities

Income that leaves the circular flow of income and is not passed on as spending (Savings, Taxation, and Imports).

Theme 2 2.4.2 Injections and Withdrawals

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

Theme 3 3.4.1 Efficiency