Economics Definitions - Unit 1 (Microeconomics)

Definitions are a key part of the AS economics exam. The following includes definitions for the AQA Economics Unit 1 exam. Although being specifically written for AQA, the terms will still be useful for other exam boards. This list is not a complete guide but does cover some of the majority of terms used throughout the AS course.

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  • Created on: 20-04-16 13:09
Preview of Economics Definitions - Unit 1 (Microeconomics)

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Economics Definitions ­ Unit 1 (Microeconomics)
Definitions are a key part of the AS economics exam. The following includes definitions
for the AQA Economics Unit 1 exam. Although being specifically written for AQA, the
terms will still be useful for other exam boards. This list is not a complete guide but
does cover some of the majority of terms used throughout the AS course.
Term Definition
Economic activity The production of goods and services to
satisfy needs and wants.
Need Something that is necessary for human
survival.
Want Something that is desirable but is not
essential for human survival.
Economic welfare The happiness and well-being of and
individual or group within an economy.
Factors of production Inputs into the production process such as
land, labour, capital and enterprise.
Consumer goods Goods consumed by individuals or
households.
Capital goods Goods used in the production process of
other goods and services.
Economic problem This is the allocation of scarce resources to
satisfy the needs and wants of an economy.
Opportunity cost The cost of giving up the next best
alternative.
Trade-off A balance or compromise achieved
between two desirable but incompatible
wants or needs.
Demand The quantity of a good or service that
people are willing and able to buy at a given
price.
Market demand The total demand for goods and services
from all the consumers in a market.
Competitive market A market in which buyers and sellers can
easily enter and exit.
Equilibrium price The price at which planned demand equals
planned supply.
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Supply The quantity that a firm is willing and able to
sell at a given price.
Effective demand Demand backed up with the ability to pay.
Condition of demand A factor that determines the position of the
demand curve.
Normal good A good for which demand increases as
income increases.
Inferior good A good for which demand decreases as
income increases.
Elasticity The responsiveness of a second variable to
a change in the first variable.…read more

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Barter A medium of exchange which occurs when
there is a double coincidence of wants.
Money An effective medium of exchange which
allows specialisation.
Consumer surplus People that would have been willing to pay
more than the equilibrium price.
Producer surplus Businesses that would have been prepared
to supply at a price lower than the
equilibrium point.
Condition of supply A factor which determines the position of
the demand curve.
Substitute goods Two goods which can be used for the same
purpose.…read more

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Productive efficiency Occurs when it is impossible to produce
more of one good without producing less of
another.
Dynamic efficiency Occurs when a firm is actively reducing its
cost curves by implementing new
production processes.
Indirect tax A cost imposed by the government which
increases the supply costs faced by a
company. The burden is shared between
the consumer and the supplier.
Direct tax A tax levied directly onto income or profits.…read more

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Non-excludability Once provided no person can be excluded
from benefiting.
Non-rivalry Consumption by one person does not
reduce the amount available for
consumption by another.
Quai-public goods Products that are public in nature but do
not fully exhibit the features of non-rivalry
and non-excludability.
Public good A product which yields usefulness or utility.
Public bad A product which yields disutility,
dissatisfaction or displeasure.
Barriers to entry The existence of obstacles that prevent new
competitors from easily entering a market
or industry.…read more

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Price maker A firm possessing the power to set the
market price.
Competitive market A market in which firms strive to outdo each
other.
Concentrated market A market with very few firms.
Pure monopoly A market in which there is only one firm
present.
Imperfect competition Any market structure between the extremes
of perfect competition and pure monopoly.
Externality A cost or benefit that a third party incurs
who did not choose to incur that cost or
benefit.…read more

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Principal agent problem When decision making is deferred to an
expert who may not be making decisions in
the best interest of the clients.
Immobility of labour The inability of labour to move from one job
to another because of a variety of reasons.
Geographical immobility When workers find it difficult or impossible
to move to jobs in different areas.
Occupational immobility Occurs when workers find it difficult to
move between jobs because they lack or
cannot develop the skills required.…read more

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