Economics Unit 1 key terms

definition of edexcel unit 1

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Key Terms Unit 1 AS Economics
Scarcity ­ insufficient resources to provide for everyone's wants. Resources are finite compared to
human wants.
Normative statements ­ statements with a valid judgment, e.g. .... In statement 1/2
Positive statements ­ statements with data backed up, e.g. ... in statement 1/2
Opportunity cost ­ next best alternative foregone
Demand ­ the quantity of a good or service purchased at a given price over a given time period
Supply ­ quantity of a good or service that firms are willing to sell at a given price and over a given
period of time
A production possibility frontier (PPF) ­ shows the maximum potential level of output for two
goods or services that an economy can achieve when all its resources are fully and efficiently
employed, given the level of technology available. It can also be used to illustrate scarcity and
opportunity cost.
Free market economic systems ­ an economy where decisions on what, how and for whom to
produce are left to the operation of the price mechanism. Resources are privately owned and
economic decision making is decentralised among many individual consumers and producers.
There is minimum government intervention.
Planned economy ­ an economy where the concerned where the government makes the
decisions on what, how for whom to produce. The government has control of resources and
economic decision making is centralised. There is NO role for the price mechanism.
Mixed economy ­ an economy where decisions on what, how and for whom to produce are made
partly by the private sector and partly by the government.
Specialisation ­ when an individual, a firm, a region or a country concentrates on the production of
a limited range of goods and services.
Division of labour ­ a form of specialisation. where individuals concentrate on the production of a
particular good or service. Production is broken down into a series of tasks, conducted by different
workers.
PED ­ a measure of the sensitivity of quantity demanded to a change in the price of a good/service.
%change in QD / %change in Price
YED ­ a measure of the sensitivity of quantity demanded to a change in consumer incomes.
%change in QD / %change in income
XED ­ the responsiveness of demand for one good to a change in the price of another.
%change QD (product x) / %change Price (product Y)
PES ­ the responsiveness of the supply of a good to a change in its price

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Quantity supplied / %change in price
Elasticity >1, good is ELASTIC
Elasticity <1, good is INELASTIC
Elasticity =1, UNIT ELASTIC
Elasticity=0, PERFECTLY INELASTIC
Elasticity is infinite, PERFECTLY ELASTIC
Total revenue = price x quantity sold
Price mechanism ­ by which resources are allocated in a market economy
Geographic mobility of labour (geographical immobility) ­ occurs when people who have been
made redundant are unable to move to areas in which jobs are available and so remain unemployed.…read more

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Minimum price scheme ­ the Gov. can set a legally imposed mini. Price in a market which the
normal market price cannot fall
Market failure ­ occurs when market imperfections lead to an allocation of resources which is less
efficient than it might be
Government failure ­ occurs when gov.…read more

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