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ECONOMICS MODULE 1 KEYWORDS
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1.1 ­ The
Economic
Problem
Economics How the economy and markets work in an efficient economy, addressing
the key issues affecting us today, and explaining why people have to make
choices and the consequences of their actions. It is a social science as it is…

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ECONOMICS MODULE 1 KEYWORDS
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Enterprise is the most mobile resource, both geographically and
Enterprise mobility
occupationally mobile.
Land mobility ­ Land is geographically immobile but it is also the most occupationally
geographically and mobile as people do not have the right skills for all jobs and may require
occupationally…

Page 3

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ECONOMICS MODULE 1 KEYWORDS
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1.2 ­ The
Allocation of
Resources in
Competitive
Markets
Ceteris paribus All other things being equal. This describes the relationship between one
variable and another assuming that the conditions stay the same. E.g.
demand and price.
Demand Demand is the amount that consumers are willing…

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PED Perfectly PED = 0. Whatever the change in price there is no change in quantity
Inelastic demanded. Price TR Profits
Price TR Profits


PED Inelastic PED= less than 1. For a 1% change in price the change in QD is less than 1%.
Price…

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Zero Cross Zero CPED if there is an absence of any discernible demand relationship.
Elasticity
Income Elasticity YED is the relationship between the proportionate change in real PDY and the
of Demand proportionate change in demand.


Income elasticity Formula: % Change in QD
of demand…

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Factors The number of firms in an industry. The level of spare capacity in an industry.
influencing PES Inventories/ stocks. Level of employment. Length of production process.
Availability of FOPs. Mobility of FOPs ­ other uses of them. Time period.


Market A market brings together…

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1.3 ­ Production
and Efficiency
When an individual, firm or economy focuses on a narrow range of
products or tasks. Specialisation allows a firm to have economies of scale
Specialisation which reduce per unit production costs which lower average costs of
production which enable a…

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1.4 ­ Market
Failure
Market Failure Market failure occurs whenever markets fail to deliver an efficient allocation
of resources because there has been a breakdown in one or more of the
three functions of price; signalling, rationing and incentivising. It results in a
loss of…

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Profits Profits are made when total revenue exceeds total cost. Total profit = total
revenue - total cost. Profit per unit supplied = price = average total cost.
The standard assumption is that private sector businesses seek to make
the highest profit possible from operating…

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ECONOMICS MODULE 1 KEYWORDS
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1.5 Government
Intervention in
the Market




Ad Valorem An indirect tax based on a percentage of the sales price of a good or
service. The best known example in the UK is Value Added Tax which is 20%.
Other examples include Insurance Premium Tax and…

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