Edexcel A-Level Economics A Definitions

Absolute advantage When a country's output of a product per unit of input is greater than that of any other country. Absolute poverty When a person does not have the income or wealth to fulfil their basic needs. Aggregate Demand (AD) The total demand/spending in an economy at a given price level over a given period of time. Made up of consumption, investment, government spending and net external demand. Aggregate Supply (AS) The total amount of goods and services that can be supplied in an economy at a given price level over a given period of time. Aid The transfer of resources from one country to another. Allocative efficiency Where the price of a good is equal to the price consumers are willing to pay. This occurs when all resources are allocated efficiently. Asymmetric information Where buyers have more information than sellers in a market, or vice versa. Automatic stabilisers Parts of fiscal policy that automatically react to changes in the economic cycle. Average Cost (AC) The cost of production per unit of output. Average Revenue (AR) The revenue per unit sold. Backward vertical integration Where a firm merges with or takes over a firm further back in the production process. Balance of payments A record of the international transactions of an economy. Bank rate The official rate of interest set by the central bank (e.g. by the Monetary Policy Committee of the Bank of England) Barriers to entry Potential difficulties that make it hard for firms to enter a market. Barriers to exit Potential difficulties that make it hard for firms to leave a market. Black market Economic activity that occurs without taxation and government intervention. Budget deficit When government spending exceeds tax revenues. Budget surplus When tax revenues exceed government spending. Capital account of the balance of payments A part of the balance of payments that shows transfers of non-monetary and fixed assets into and out of the economy. Cartel A group of products who collude to limit output in order to keep prices high. Central bank The institution responsible for issuing banknotes in an economy, acting as a lender of last resort, and implementing monetary policy. Ceteris paribus All other things remaining equal Circular flow of income The flow of national output, income and expenditure between firms and households. Command economy An economy where only the government determines the allocation of resources. Comparative advantage When the opportunity cost of producing a good or service is lower than that of any other country. Competition policy Government policy aimed at reducing monopoly power in order to increase efficiency and to ensure fairness for consumers. Concentration ratio A measure of the dominance of firms in a market. Conglomerate integration Where a firm merges with or takes over a firm in a completely different market. Consumer surplus The difference between the price a consumer pays and the price they were willing to pay. Consumption The purchase of goods and services. Contestability The degree to which new entrants find it easy to enter the market. Cost-push inflation Inflation caused by rising costs of production. Cross elasticity of demand (XED) A measure of the responsiveness of demand of one good/service to a change in price of another good/service. Current account of the balance of payments A part of the balance of payments that consists of: trade in goods, trade in services, primary income and secondary income. Cyclical unemployment Unemployment caused by a lack of demand in the economy. Deflation The sustained fall in the average price of goods and services in an economy over a period of time. Demand-pull inflation Inflation caused by increased demand in the economy. Demand-side policy Government policy that aims to alter aggregate demand in the economy. Demerger Where a firm sells of a part/parts of its business to create separate firms. Deregulation Removing government legislation that could restrict competition. Derived demand The demand for a good or service due to its use in making another good or service. Developed countries Relatively rich, industrialised countries with a high GDP per capita. Developing countries Relatively poor countries that tend to rely on labour-intensive industries, with a low GDP per capita. Diseconomies of scale Where average cost rises as output rises. Disinflation A fall in the rate of inflation. Disposable income Income available for households to spend after their tax obligations are fulfilled. Dividend A share in a firm's profits paid to shareholders. Divorce of ownership from control When the owner of a firm ceases to control its day-to-day operations, which can lead to the principal-agent problem. Dynamic efficiency Where firms improve efficiency in the long run by investing in R&D of products, or investing in the production process. Economic cycle The fluctuation in actual growth rates over a period of time. Economic development An assessment of the standards of living and overall welfare of a country's population. Economic growth An increase in an economy's productive potential. Economic integration The process by which the economies of different countries become more closely linked. Economically active population The people in an economy who are old enough to and capable of working. Economies of scale Where average cost falls as output rises. Emerging countries Countries that are further along the development process than most developing countries, but are not yet fully developed. Equilibrium Where supply equals demand in a market or economy. Equity Fairness Exchange rate The price of one currency expressed in terms of another. Externalities The costs and benefits of the production and consumption of a good or service that are felt by third parties. Factors of production The four inputs used to produce what people want: land, labour, capital and enterprise. Financial account of the balance of payments A part of the balance of payments that shows the movements of financial assets. Financial sector Firms that provide financial services. Fiscal policy Government policy that determines the levels of government spending and taxation. Fixed costs Costs that do not vary with output in the short run.