Module 1 (micro) Keywords

A list of all the definitions (with examples) you need for the AQA syllabus, module 1 exam, separated into the topics listed in the syllabus.

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  • Created on: 27-03-12 20:47
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ECONOMICS MODULE 1 KEYWORDS
1
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
the study of human behaviour and theories are put forward to explain
behaviour. The purpose of economic activity is the production of goods and
services to satisfy wants and needs, therefore increasing economic welfare.
The study of the market for individual items. Involves the studying of the
Micro ­ economics
decisions and behaviour of customers, manufacturers and retailers.
Macro ­ economics The study of the whole economy. Involves govt decisions and is on much
larger scale.
Positive Statement A statement of fact which can be proved right or wrong, as it can be
scientifically tested.
Normative Statement A statement which is opinion or expresses a view of what it is good or bad,
wrong or right.
Value Judgement A normative statement given by government which can influence economic
decision making and government policy.
Economic Problem This is the problem of scarcity that our wants exceed our resources.
Fundamental Economic What goods and services to produce. How these goods and services
Questions should be produced. For whom should these goods and services be
produced?
Scarcity Resources are scarce; there are not enough resources to meet people's
wants as resources are in limited supply. Eg. Environment is a scarce
resource.
Opportunity Cost This is the best alternative forgone, or the sacrifice of a choice. Therefore it
represents the true cost of an action.
Productive Efficiency This is if we are producing the goods and services in the most efficient way
so we do not waste any of our planet's scarce resources (on the ppc). The
firm or economy is operating at full capacity, making full use of its
economic resources producing the maximum possible output from the
available resources, therefore having no opportunity cost.
Allocative Efficiency If we are producing the goods and services which match demand,
customers' preferences in terms of quality, quantity and type. This is
achieved on the ppc because it is not possible to make anyone better off
without making someone else worse off.
CELL. These are limited in supply. They are classified into capital, enterprise,
labour and land. These are factors of production or inputs. Capital is the
generation of future wealth. Enterprise combines all of the factors of
Resources
production and therefore has large risks. Land includes all natural resources
such as minerals and energy sources. Labour includes all productive efforts
of man.

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ECONOMICS MODULE 1 KEYWORDS
2
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 retraining to change their use.…read more

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ECONOMICS MODULE 1 KEYWORDS
3
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 to buy at a given price. The
law of demand states the relationship between price and demand is inverse.
At higher prices there will be lower demand, ceteris paribus and vice versa.…read more

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ECONOMICS MODULE 1 KEYWORDS
4
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 TR Profits
Price TR Profits
Unitary PED PED= -1. Price and demand change in the same proportion.
Price or TR and Profits stay the same.
PED Perfectly PED = coefficient is unlimited.…read more

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ECONOMICS MODULE 1 KEYWORDS
5
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 % Change in real PDY
(CONT)
Or QD X Orig PDY
%PDY Orig QD
Normal goods YED Positive YED because demand for a normal good rises with income.…read more

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ECONOMICS MODULE 1 KEYWORDS
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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 demand and supply. Markets bring together buyers
and sellers to interact, to trade and buy and sell products.…read more

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ECONOMICS MODULE 1 KEYWORDS
7
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 firm to lower its price and make it more price
competitive causing higher profits.…read more

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ECONOMICS MODULE 1 KEYWORDS
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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 economic and social welfare and resource allocation is not at the
optimum level.…read more

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ECONOMICS MODULE 1 KEYWORDS
9
Profits Profits are made when total revenue exceeds total cost. Total profit = total
revenue - total cost. Profit per unit supplied = price = average total cost.…read more

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ECONOMICS MODULE 1 KEYWORDS
10
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 the ad valorem tax on
cigarettes. Stamp duty on house purchases is also an ad valorem tax.…read more

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