AQA Unit 1 Defonitions

This is a list of all the definitions that are needed for the 5-mark part a) definitions for AQA Economics AS Unit 1

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  • Created on: 20-05-12 17:19
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Basic Economic Problem Resources are Scarce but wants are infinite
Production Possibility Frontier A curve showing the maximum potential level of
output of one good given a level of output for all
other goods in the economy
Barriers to Entry Factors which make it difficult or impossible for
firms to enter an industry
Free Good A good that doesn't have costs of production or
Government Failure Occurs when government intervention leads to a
net welfare loss compared to the free market
Occurs when the cost of govt intervention
exceeds the benefit
Externality Spillover costs or benefits to third parties
Public good A good that would not be provided by the
market mechanism (it is non-rival and
Free Rider A person who receives benefits that others have
paid for without making any contribution
Market A set of arrangements by which buyers and
sellers communicate to exchange goods and
Division of Labour and specialisation Economics agents produce certain good and
services and trade the surplus with others.
Merit Good A good that is underprovided by the market
Capital Goods and services used to produce other
goods and services
Buffer Stocks A govt intervention that tries to limit the
fluctuations of the price of a commodity
Equilibrium The price at which demand equals supply. There
is not tendency to change.
Complement An increase in demand for one good will lead to
an increase in demand for the other
Substitute An increase in demand for one good will lead to
an decrease in demand for the other
Functions of the Price Mechanism Signalling, Incentive, Rationing/Allocation
Demerit Good A good which is over provided if left to the
market mechanism
Regulation Govt rules or laws
Average Cost Total Cost divided by the quantity. As production
increases, the AC curve falls initially before
Tradeable Pollution Permit The govt sells permits to create a certain amount
of pollution. If firms pollute less than the value of
their permits they can sell their permits.

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Factor Immobility When there are difficulties in switching factors
of production from one use to another.…read more

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Market Failure Occurs when there is an inefficient allocation of
resources in the market
Ad Valorem Tax A charge by govt on firms as a % of the value of
the good
Inferior Good A good whose demand falls when incomes rise
Specific (unit) tax A charge by govt on firms as a fixed rate for
each unit of the good
Subsidy A payment by govt to suppliers to encourage
production of the good…read more


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