Edexcel unit 2 economics

A list of all the key terms needed.

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Economic terms to learn
Added value means the value of output minus the cost of inputs. Adding value can enhance
the attractiveness of the product to consumers and is the key to profit.
Aggregate demand refers to the total of all the demand in an economy, from consumers,
investment, government expenditure and the balance between exports and imports.
Aggregate demand curve a diagrammatic representation of the total level of demand in the
economy at different price levels.
Aggregate supply curve a diagrammatic representation of total quantities of output in the
economy at different price levels.
Allocative efficiency occurs when resources are allocated between competing uses in a way
that matches the requirements of consumers to the greatest possible extent. It is associated
with consumer sovereignty.
Bank rate is the rate of interest, generally set by central banks, around which other interest
rates tend to be set. It is sometimes called base rate. For example, when the bank of England
changes the Bank rate, other UK interest rates often make a similar shift.
Bankruptcy is a situation in which an individual of a business had insufficient cash or other
assets with which to settle debts. A business will be forced to crease trading. Legally, the term
bankrupt is not applied to companies `insolvent' is the term used.
Barriers to entry are obstacles which make it difficult for new firms to enter a market. High
startup costs requiring heavy investment, patents, and collusion between existing firms, can all
create barriers.
Benefits a gain. We sometimes use this term as shorthand for benefits provided from
government funding. Such benefits can be in kind (e.g. health care) or in cash (e.g. state
pensions).
Boom a time of rapid economic growth typically linked with lower unemployment and rising
inflation.
Bottlenecks are constraints causing delay, from narrow staircases in schools to shortages of
skilled labour in the economy.
Brands identify a product or its packaging in such a way that it is clearly differentiated from
competing products.
Brand loyalty may be achieved if the distinguishing features of the product create a sense of
uniqueness that will induce customers to make repeat purchases and avoid competing
products. This may make demand for the brand less price elastic.
Brand proliferation one producer sells multiple brands, to reach different market segments or
as a competitive strategy.
Broad trends are tendencies in the overall economy, generally seen in macroeconomic data
(e.g. price indices, confidence levels) and in social trend data. Broad trends tend to be less
specific than data about the situation of an individual business.

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Bulk buying economies occur when businesses are purchasing large enough quantities to be
changed a lower price per unit, either because unit supplier costs are reduced or because the
buyer has market power.
Bundling is the practise of selling products as a group or package rather than individually. This
can be seen as anticompetitive if some bundled items are sold competitively by other
businesses.
Capital goods are productive assets, acquired by investment, which are expected to make a
contribution to future output.…read more

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Contestability refers to the ease with which new firms can enter a market. Competition is
always likely in contestable markets. Barriers to entry reduce contestability.
Contingency planning means preparing for unwelcome or unlikely but possible problems.
Conventional wisdom a widely accepted view which is not necessarily as true as it once
might have been.
Corporate social responsibility accepting that organisations must take account of their
impacts on the community and environment, show consideration and behave ethically.…read more

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Effective demand is the combination of desire for a product or service with the ability and
readiness to pay.
Entrepreneurs people who take responsibility for organising business activity and carry
business risks.
Entrepreneurial organisations have a relatively fluid structure in which multilateral lines of
communication allow everyone to be in touch with everyone else. They facilitate innovation and
readiness to carry out the risk associated with business decisions. An entrepreneurial culture is
likely to have loose lines of authority that may particularly benefit small businesses.…read more

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Homogenous products are identical to one another. It is impossible to distinguish one
producer's output from another's. They are closely associated with strong competition.
Human capital refers to the knowledge and skills embodied in people. These are now known
to increase productivity very markedly.
Human relations approach emphasises human relationships in motivation. Followers of the
human relations approach can often trace their ideas back to Mayo.
Imperfect competition covers any market situation between the extremes of perfect
competition and monopoly.…read more

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Lagging indicators are measures which are slow to reflect the current state of economic
activity. Unemployment levels are often a lagging indicator.
Leading indicators are early signals of the direction of economic activity, such as the state of
confidence or capital goods orders.
Lean Production a term used to describe the range of wastesaving measures inspired by
Japanese manufacturing firms. These include just in time (JIT), shorter product development
times and flexible specialisation.…read more

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Monopolistic competition describes a market with many sellers, easy entry and exit and
product differentiation. Competition is likely to be stiff, but there is scope for the individual
business to flourish if it can attract enough customers.
Monopoly a market in which there is a single supplier. This is the literal meaning of the term.
However, within the UK legal system having 25% or more of the market is seen as an indicator
of monopoly power.…read more

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Organisational Structures is the way in which management is organised, both horizontally
(layers of hierarchy) within an organisation. To be effective, the chain of command should be
clear, with no one answerable to two people. An organisational chart should show:
the different business functions and divisions
who is answerable to whom
the span of control in each division
the official channels of communication
Outsourcing buying components, services or finished products from independent suppliers,
rather than producing them inhouse.…read more

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Price takers are businesses with undifferentiated products that face high price elasticity of
demand in a competitive market. Following market price is the only way to reach satisfactory
sales levels.
Product when the term is used in a marketing context refers to goods and services sold, and
the way they can be differentiated to enhance their appeal to customers. This may involve new
models or different types of service, image and even personality.…read more

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Risk bearing economies when a business has a single product, a single market or perhaps a
single new product, it is highly vulnerable if that product fails. Businesses with many products
and markets are diversified and can spread risk by offsetting losses in one area against profits
elsewhere.
Role culture a culture in which the position someone holds determines their responsibilities
and activities, rather than their personal qualities.
Satisficers are people who are not attempting to maximise income, growth or any other
individual objective.…read more

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