AS Economics Key Terms


Key terms for AS AQA Economics
Fred Clayton
Flashcards by Fred Clayton, updated more than 1 year ago
Fred Clayton
Created by Fred Clayton over 9 years ago

Resource summary

Question Answer
Accelerator Process Where any change in demand for goods/services beyond current capacity leads to a greater % increase in demand for capital goods needed by firms to produce extra goods/services
Actual Economic Growth A measure of economic growth, adjusted for inflation
Aggregate Demand The total demand/spending in an economy at different price levels over a given time period C+I+G+(X-M)
Aggregate Supply The total amount of goods & services which can be supplied in an economy at different price levels over a given time period
Allocative Efficiency When the price of a good is = to price that consumers are willing to pay for it, which happens when all resources are allocated efficiently
Asymmetric Information When buyers have more information than sellers (or opposite) in a market
Balance of Payments A country's international transactions, i.e. a record of the flows of money into and out of a country
Budget Deficit When government spending is greater than it's revenue
Budget Surplus When government spending is less than its revenue
Cartel A group of producers that agree to limit production in order to control the price of goods and services
Circular Flow of Income The flow of national output, income & expenditure between households and firms national output=national income=national expenditure
Complementary Good A good that is often used with another good-these goods are in joint supply
Composite demand When a good is demanded for two or more different uses e.g. milk can be used in production of ice-cream & chocolate
Consumer Surplus When a consumer pays less for a good than they were prepared to, this amount of money is the consumer surplus
Cost-Push Inflation Inflation caused by the rising cost of the inputs to production
Cross Elasticity of Demand (XED) A measure of how the quantity of demanded of one good/service responds to a change in the price of another good/service
Current Account on the Balance of Payments A record of a country's international flows of money. Consists of: trade in goods, trade in services, international flows of income (salaries, interest, profit & dividends) & transfers
Cyclical Unemployment Unemployment caused by a shortage in demand in an economy e.g. when there's a slump
Demand-Pull Inflation Inflation caused by excessive growth in aggregate demand compared to aggregate supply
Demerit Good A good/service which has greater social costs when it's consumed than private costs. Demerit goods tend to be overconsumed
Deregulation Removing rules imposed by the government that can restrict the level of competition in a market
Derived Demand The demand for a good/factor of production due to its use in making another good/service
Disposable Income Income, including welfare benefits, that is available for households to spend after income tax has been paid
Dividend A share in a firm's profits that is given to the firm's shareholders
Economic Cycle The economic cycle (or the business/trade cycle) is the fluctuation in actual growth a time period (several years/decades)
Economic Growth An increase in an economy's productive potential. Measured as the rate of change of the GDP/GDP per capita
Economies of Scale The cost advantages of production on a large scale
Equilibrium When the quantity supplied is equal to the quantity demanded (market clearing price)
Equity Fairness
Exchange Rate Price at which one currency buys another
Externalities External costs/benefits to a 3rd party that isn't involved in the making, buying/selling & consumption of a specific good/service
Factors of Production The four inputs needed to make the things people want: land, labour, capital & enterprise
Fiscal Policy Government policy that determines the levels of government spending & taxation. Often used to increase/decrease AD in an economy
Free Market A market with no government intervention. Competition between different suppliers affects supply & demand, resulting in determining prices in a free market
Free Trade International trade without any restrictions from things such as trade barriers
Frictional Unemployment The unemployment experienced by workers between leaving one job and starting another
Government Failure Occurs when government intervention into a market causes a misallocation of resources
Gross Domestic Product (GDP) The total value of all the goods and services produced in a country in a year
Imperfect Information A situation where buyers &/or sellers don't have full knowledge regarding price, costs, benefits & availability of a good/service
Income Elasticity of Demand (YED) A measure of how the demand for a good/service responds to a change in real income
Inferior Good A good for which demand decreases as income rises e.g. low quality food
Inflation The sustained rise in the average price of goods & services over a period of time
Interest Money paid to the lender by someone who borrows capital. Often be a fixed %rate-known as interest rate
Investment The purchase of capital (e.g. new machinery) in the hope that this will help generate an increased level of output. Can also mean buying shares from the stock market- done in hope of making a future profit/receiving dividend payments
Joint Demand When two complementary goods are consumed together
Joint Supply When the production of one good involves the production of another
Long Run A time period in which all factors of production are variable so a firm can expand its capacity
Long Run Aggregate Supply (LRAS) In the long run it's assumed that, because factors & costs of production can change, an economy will run at full capacity-so LRAS is the productive potential of an economy
Macroeconomics This is the part of economics that looks at the economy as a whole e.g. trends in unemployment & economic growth
Marginal Propensity to Consume The proportion of an increase in income that people will spend (¬ save)
Market Where buyers & sellers exchange goods/services
Market Failure Where the price mechanism fails to allocate resources efficiently
Merit Good A good/service which provides greater social benefits when it's consumed than private benefits. Merit goods tend to be underconsumed
Microeconomics The part of economics concerned with individual people, individual firms & individual markets e.g. covers things like how changes in demand affects the price of a good in a market
Monetary Policy Government policy that involves controlling the total amount of 'money' in an economy (the money supply), & how expensive it is to borrow that money. It involves manipulating interest rates, exchange rates & restrictions on the supply of money
Monopoly A pure monopoly is a market with only one supplier. Some markets will be reffered to as a monopoly if there's more than one supplier, but one supplier dominates the market
Monopoly Power The ability of a firm to be a 'price maker' & influence the price of a particular good in a market
Mortgage A loan taken out to contribute to the cost of buying a house/other property
Multiplier Effect The process by which an injection into the circular flow of income creates a change in the size of national income that's greater than the injection's size
National Output All the goods & services produced in a country in a year
Normal Good A good for which demand increases as income rises e.g. clothing
Normative Statement A subjective statement which contains some kind of value judgement (opinion)
Opportunity Cost The benefit that's given up in order to do something else-it's the cost of the choice that's made
Output Gap The gap between the trend rate of economic growth & actual economic growth. Output gaps can be positive or negative
Perfect Information When buyers & sellers have full knowledge of prices, costs & availability of products
Positive Statement An objective statement that can be tested by reffering to the available evidence
Price Elasticity of Demand (PED) A measure of how quantitiy demanded of a good/service responds to a change in its price
Price Elasticity of Supply (PES) A measure of how the quantity supplied of a good/service responds to a change in its price
Price Instability When a small increase/decrease in the quantity supplied of a good/service can have a large impact on the price. Price instability us a feature of many markets for agricultural products
Price Mechanism When the changes in demand/supply of a good/service lead to changes in its price & the quantity bought/sold
Privitisation When a firm/whole industry changes from being run by the public sector to the private sector. It's an example of a supply-side policy
Producer Surplus When a producer receives more for a good than they were prepared to accept, this amount of money is the producer surplus
Production Possibility Frontier (PPF) A curve which shows all the maximum possible outputs of two goods/services using a fixed amount of inputs
Productive Efficiency Outputting the desired amounnt of good/services for the lowest average cost of production (this occurs on the PPF)
Productivity A measure of how efficiently a company/economy is producing its outputs
Protectionism When a government uses policies to control the level of international trade & protect its own economy, industries & firms
Public Good A good which people cannot be stopped from consuming, even if they've not paid for it, and the consumption of which doesn't prevent others from benefiting from it (e.g. national defence)
Purchasing Power Parity (PPP) An adjustment of an exchange rate to reflect the real purchasing power of the two currencies
Real Income A measure of the amount of goods/services that a consumer can afford to purchase with their income-adjusted for inflation
Recession A period where economic growth becomes negative. Typically there are falling demand, low levels of investment & rising unemployment during a recession
Revenue The total value of sales within a time period. It can be calculated using: price per unit x quantity sold
Seasonal Unemployment Unemployment due to uneven economic activity during the year
Shareholders Individuals (or firms) that owns shares in a company
Share A share represents a portion of a company's value-giving the share's owner a right to a portion of the company's profits
Short Run A time period in which a firm's capacity is fixed & at least one factor of production is fixed
Short Run Aggregate Supply (SRAS) This is aggregate supply when the factors of production are fixed
Speculation When things are bought (e.g. shares) in the hope that they will increase in value and can be sold for a profit at a later date
Structural Unemployment Unemployment usually caused by the decline of major industry, which is made worse by labour immobility (geographical/occupational)
Subsidy An amount of money paid by a government to the producer of a good/service to lower the price & increase demand for the good/service
Substitute Good A good that can be used as an alternative to another good e.g. soya milk & cow's milk
Supply-Side Policy Government policy that aims to increase AS in an economy e.g. a policy to increase the productive capacity of the economy
Trade Union An organisation of workers that acts to represent their interests e.g. to improve their pay
Tax An amount of money paid to a government. It's paid directly e.g. income tax, or indirectly e.g. excise duty
Unemployment The level of unemployment is the number of people who are looking for a job but cannot find one The rate of unemployment is the number of people out of work as a % of the labour force
Wage Rate The price of labour, i.e. the rate of pay to employ a worker
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