Edexcel Economics Unit 1

These are flashcards with the key terms and definition for Edexcel Economics Unit 1 

  • Created by: T.Smith
  • Created on: 06-12-12 19:18
Scarcity
Arises because there are insufficient resources to provide for everyones wants.
1 of 100
The Basic Economic Problem
Wants are infinite, resources are scarce
2 of 100
Opportunity Cost
The value of the next best alternative forgone.
3 of 100
PPF
Production Possibility Frontier - 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.
4 of 100
Economic Goods
A consumable item that is useful to people but scarce in relation to its demand, so that human effort is required to obtain it.
5 of 100
Free Goods
Abundant in supply and needs no conscious effort to obtain (e.g. air)
6 of 100
Factors of Production
Land, Labour, Capital and Entrepreneurship
7 of 100
Specialisation
When you concentrate on a specific job or task to increase efficiency
8 of 100
Division of Labour
When workers concentrate on a specific job or task to increase productivity and efficiency
9 of 100
Productivity
An economic measure of output per unit of input
10 of 100
Primary Sector
The production of raw materials (e.g. farming and mining)
11 of 100
Secondary Sector
The manufacturing of the raw materials (e.g. factories)
12 of 100
Tertiary Sector
The selling of these goods and services (e.g. retail and banking )
13 of 100
Utility
Total satisfaction of consuming a good or service
14 of 100
Stakeholders
A party that has an interest in an enterprise or project. The primary stakeholders in a typical corporation are its investors, employees, customers and suppliers.
15 of 100
Real Value
Value adjusted for inflation
16 of 100
Nominal Value
Value not adjusted for inflation
17 of 100
Positive Statement
Statement based on facts
18 of 100
Normative Statement
Statement based on judgement/opinion
19 of 100
C.A.P
Common Agricultural Policy - a system of European Union agricultural subsidies and programmes
20 of 100
Free Market Economy
Decision on the allocation of resources are left with the price mechanism and there is NO government intervention.
21 of 100
Mixed Economy
Decision on the allocation of resources are decided partly by the private sector and partly by the government
22 of 100
Command Economy
All decisions on the allocation of resources are decided by the government - everyone works for the government
23 of 100
The Law of Demand
The higher the price, the lower the demand.
24 of 100
The Law of Supply
The higher the price, the more supplied.
25 of 100
Consumer Surplus
The difference between what the consumers is willing to pay and how much they actually pay.
26 of 100
Producer Surplus
The difference between how much a producer is willing to sell their good/service for and how much they actually sell it for.
27 of 100
Market Mechanism
Demand and Supply
28 of 100
Equilibrium Price
The point where supply equals demand
29 of 100
Complements
Goods/services that go well together (e.g strawberries and cream)
30 of 100
Substitutes
An alternative for a good/service (e.g. Coke and Pepsi)
31 of 100
Competitive Demand
Substitutes have competitive demand
32 of 100
Derived Demand
When goods are demanded only when they are needed for the production of other goods (e.g. steel to make cars)
33 of 100
Joint Demand
The demand for two products are equal - complementary goods have joint demand
34 of 100
Joint Supply
When two (or more) goods are produced together so that a change in supply of one will mean a change in supply in the other (e.g. Beef and leather)
35 of 100
Elastic
A situation in which the supply and demand for a good or service can vary significantly due to the price - follows the laws of demand and supply.
36 of 100
Inelastic
An economic term used to describe the situation in which the supply and demand for a good are unaffected when the price of that good or service changes - it doesn't follow the law of demand and supply, price does not affect demand
37 of 100
Price elasticity of demand
% change in quantity demanded / % change in price
38 of 100
Income elasticity of demand
% change in quantity demanded / % change in income
39 of 100
Cross Elasticity of Demand
% change in quantity demanded in good X / % change in price in another good Y - measures the proportionate response of the quantity demanded of one good to the proportionate change in price of another.
40 of 100
Price elasticity of supply
% change in quantity supplied / % change in price
41 of 100
Normal Good
A product which when income increase, demand increases (e.g. food)
42 of 100
Inferior Good
A good which when demand falls when income rises (e.g. Public Transport) as people can afford better quality goods
43 of 100
Giffen Good
A special type of inferior good that goes against the law of demand. For example; if the price of public transport/bread increases poor people will still buy it because they can't afford the alternative.
44 of 100
Luxury Good
A good which demand increases as income increases (e.g. Coca-Cola)
45 of 100
Veblen Good
A good which people pay ridiculous amounts of money for status value (e.g. diamonds)
46 of 100
Speculative Good
When business buy a good with a low price with the expectation that the value of the good will increase in the future (e.g. housing )
47 of 100
Quality Good
People assume that at the price is high, it is better quality. So although price increases, demand also increases (e.g. Waitrose over Tesco)
48 of 100
Indirect Tax
A tax of your expenditure (e.g VAT and excise duties)
49 of 100
Ad Valorem Tax
A percentage tax dependent on base price
50 of 100
Direct tax
A tax you have no choice but to pay (e.g. Income tax)
51 of 100
Specific/Unit Tax
Regardless of price/value of good that tax is fixed. It changes dependent on the amount or volume purchased.
52 of 100
Subsidy
Grant given by the government to encourage production
53 of 100
Incidence of Tax
Burden of tax. Both consumer and business pay part of tax
54 of 100
Rationing
When prices are high, demand for the product will be low meaning that there would be less resources to make the product.
55 of 100
Signaling
Signal as to what is happening in the market. Prices are low -> surplus, Prices are high -> high demand etc.
56 of 100
Incentive
Price makes you increase your demand
57 of 100
Static efficiency
Exists at a point in time & focuses on how much output can be produced from the resources available -> How well you use your resources at a point in time
58 of 100
Dynamic efficiency
Concerned with the productive efficiency of a firm over a period of time -> how well you use your resources over a period of time
59 of 100
Allocative efficiency
Occurs when goods and services are distributed according to consumers preferences -> full use of resources
60 of 100
Productive efficiency
Occurs when the maximum number goods and services are produced with a given amount of inputs -> maximum output per head
61 of 100
Market Failure
When resources aren't allocated efficiently
62 of 100
Private costs
Something that negatively affects a firm/business or individual (e.g Opportunity cost)
63 of 100
Social costs
Something that negatively affects a society (e.g. Visual pollution)
64 of 100
Private benefits
Revenue/profit -> benefit that the individual or business receives from a decision
65 of 100
Social benefit
Benefit that the society receives from a decision (e.g. Infrastructure)
66 of 100
Marginal cost/benefit
Cost/benefit of producing one more unit
67 of 100
Welfare loss [triangle]
The loss of consumer plus producer surplus in imperfect markets (when compared with perfect competition).
68 of 100
Regulation
Rules (e.g. You have to be over 18 to buy alcohol)
69 of 100
Positive externalities
Benefits of decision for third party or business/individual
70 of 100
Negative externalities
Disadvantages of a decision
71 of 100
Public good
A good that everyone benefits form. They are non-rivalrous and non-exclusive (e.g. Street Lighting)
72 of 100
Merit good
A free good that is unprovided by the private sector and is associated with positive externalities (e.g. education and healthcare (NHS))
73 of 100
Quasi Public Good
A good which may not posses perfectly the characteristics of being exclusive but is non-rivalrous (e.g. having to pay congestion charge)
74 of 100
Free rider problem
A person or organisation that receives benefits that others have paid for, without making any contributions themselves (e.g people on benefits)
75 of 100
Demerit good
Goods that provide large negative externalities. The government intervention to correct this market failure by placing taxes on these goods or persuading consumers via advertising (e.g. Cigarettes and alcohol)
76 of 100
Geographical immobility
Inability to move form one location to another e.g. because of family, childcare, rent/housing prices
77 of 100
Occupational immobility
Inability to move from one job to another (e.g. Lack of qualification/training)
78 of 100
Structural Unemployment
When there is no demand for certain jobs (e.g. Coal mining, chimney sweeping)
79 of 100
Asymmetric information
A situation where a buyer or seller has more information that the other party (e.g. food & antiques)
80 of 100
Principal Agent Problem
The principals are consumers who uses the good/service. The agent is the buyer who makes the economic decisions. However, both principal and agent don't always have the same goals.
81 of 100
Buffer Stock Scheme
Aims to stabilise prices and prevent producers going out of businesses. If there is surplus of the product, government buy and store stock (to reduce supply and keeps prices higher). If there is a shortage, government sell from its buffer stock.
82 of 100
Government failure
This occurs when govt intervention to overcome market failure fails. Also govt intervention may make things worse.
83 of 100
Public Choice Theory
Public choice theory is a branch of economics that developed from the study of taxation and public spending.
84 of 100
Minimum Wage
The lowest amount that you can pay workers.
85 of 100
Labour Force Survey
The number of people, of a working age, that are not working
86 of 100
Claimant count
The number of people claiming benefits
87 of 100
Symmetric information
Both buyers and sellers have potential access to the same information.
88 of 100
Akerlof's model
Because of assymmetric information, sellers have to accept a lower price for their good/service (below equilibrium price) e.g. second hand cars
89 of 100
Adverse selection
Assymmetric information causing exploitation (e.g. if a buyer has a risky lifestyle & the insurance company - seller - doesn't know this & is exploited, also seen with gas tariffs)
90 of 100
Moral hazard
Buyers and sellers do not always act moral in the market (e.g. Fraudulent insurance claim)
91 of 100
Inadequate information
Government doesn't have enough information to make decisions that affect the economy (e.g. modular GCSE's)
92 of 100
Conflicting objectives
Opportunity cost in government's decisions (e.g. tax increase to invest is NHS but upsets people)
93 of 100
Administrative costs
Cost of scheme is not covered by what we get back from it (e.g. member of EU & child support agency)
94 of 100
Market distortions
Government intervention distorts the market (e.g. surplus, farmers over supply as they know that they are going to get a subsidy)
95 of 100
Local Interests
Can be shown by local and central MP's (e.g. if local MP allows central MP's to build infrastructure, which may disappoint local residents)
96 of 100
Favouring minorities
Where the government favour the minority to get the vote (the minority of people that vote) e.g. middle class
97 of 100
Conflicting personal interests
When politicians act in their own interests instead of taking into account the interest of their constituency (e.g. Reality TV programmes)
98 of 100
Short-termism
Government want to get the short term profit but will bring a negative impact in the long term
99 of 100
Regulatory capture
Private businesses/monopolies need to be regulated by the government. However, regulatory capture is when the interests they set out to protect are ignored, if they regulate businesses too much will want to do business other country,govt less tax
100 of 100

Other cards in this set

Card 2

Front

Wants are infinite, resources are scarce

Back

The Basic Economic Problem

Card 3

Front

The value of the next best alternative forgone.

Back

Preview of the back of card 3

Card 4

Front

Production Possibility Frontier - 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.

Back

Preview of the back of card 4

Card 5

Front

A consumable item that is useful to people but scarce in relation to its demand, so that human effort is required to obtain it.

Back

Preview of the back of card 5
View more cards

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