Edexcel A-level Economics Paper 1
Economics -correct answer_The study of the allocation of scarce resources. Economic Goods
-correct answer_Resources that are scarce. Short Run -correct answer_A time period where at
least one factor of production is fixed. Long Run -correct answer_A time period where all
factors of production are variable. Productivity -correct answer_The output per unit of input.
The Economic Problem -correct answer_Resources are scarce but wants are infinite. Scarcity
-correct answer_The world's resources are limited, there are only limited amounts of land,
water, oil, food, etc.. Therefore, resources are scarce. Free Goods -correct answer_Goods that
are unlimited in supply and therefore have no opportunity cost. Economic Agents -correct
answer_Consumer, Business and Governments. Agents involved in Economic transactions.
Production Possibility Frontier -correct answer_The maximum potential output of a
combination of goods an economy can achieve when all its resources are fully and efficiently
employed, given the level of technology. Opportunity Cost -correct answer_The next best
alternative foregone. Economic Growth -correct answer_Increase an economy's productive
potential. Capital Goods -correct answer_Goods intended for use in production, rather than by
consumers. Consumer Goods -correct answer_Goods designed for use by final consumers.
Renewable Resources -correct answer_A resource whose stock level can be replenished
naturally over a period of time. Non-renewable Resources -correct answer_A resource whose
stock level decreases over time as it is consumed. Ceteris Paribus -correct answer_'All other
things (factors) remaining the same' The assumption that all other variables within a model
remain constant whilst the change is being considered. Positive Statement -correct answer_A
statement based on facts which can be tested as true or false and are value-free. Normative
Statement -correct answer_A statement based on value judgements which cannot be tested
as true or false. Adam Smith -correct answer_The Father of Economics; - The Invisible Hand
(workings of the Price Mechanism) - Specialisation - Division of Labour Division of Labour
-correct answer_Specialisation of workers on specific tasks in the production process.
Specialisation -correct answer_The process of breaking down the production process into
steps and then each worker is assigned a step. This would then increase labour productivity
(Output per Worker). Barter -correct answer_An exchange of goods/services for other
goods/services. - Does not involve money. - Double coincidence of wants. Money -correct
answer_Anything which is acceptable to a wide number of people and organisations as
payment for goods and services. Free Market Economy -correct answer_Where all resources
are privately owned and allocated via the price mechanism. There is minimal government
intervention. Command Economy -correct answer_Where there is public ownership of
resources and these are allocated by the government. Mixed Economy -correct
answer_Where some resources are owned and allocated by the private sector and some by
the public sector. Market -correct answer_A channel where goods and services are exchanged.
Utility -correct answer_The capacity of a good or service to satisfy some human want. Rational
Decision Making -correct answer_Where consumers allocate their expenditure on goods and
, services to maximize utility, and producers allocate their resources to maximize profits.
Demand -correct answer_The quantity of goods or services that will be bought at any given
price over a period of time. Demand Curve -correct answer_Shows the quantity of a good or
service that would be bought over a range of different price levels in a given period of time.
Slopes downward - Price and Quantity have an inverse (negative) relationship. Marginal Utility
-correct answer_The additional satisfaction that a consumer gains for consuming one
additional unit of a product. Diminishing Marginal Utility -correct answer_As successive units of
a good are consumed, the utility gained from each extra unit will fall. % Change -correct
answer_y2 - y1 / y1 × 100 Price Elasticity of Demand (PED) -correct answer_The
responsiveness of demand to changes in price. The value is always negative. % ∆QD / % ∆P
× 100 Unitary Price Elasticity (Ped) -correct answer_Ped = 1 Perfectly Price Inelastic (Ped)
-correct answer_Ped = 0 Price Inelastic (Ped) -correct answer_Ped is < 1 Perfectly Price
Elastic (Ped) -correct answer_Ped = ∞ Price Elastic (Ped) -correct answer_Ped is > 1 Total
Revenue -correct answer_Price × Quantity Income Elasticity of Demand (YED) -correct
answer_The responsiveness of demand to changes in income. %∆QD / %∆Y × 100 Negative
- Inferior Good (Y increases, QD decreases) Positive - Normal Good (Y increases, QD
increases). Negative Income Elasticity of Demand -correct answer_Inferior Good (As income
increases, QD decreases) Positive Income Elasticity of Demand -correct answer_Normal
Good (As income increases, QD increases) Cross Price Elasticity of Demand (XED) -correct
answer_The responsiveness of demand for one good to changes in the price of a related good.
(Either substitutes or complements). % ∆ inQD of Good A/ % ∆ in Price of Good B × 100
Negative Value - Complements (The 2 goods are in Joint Demand; as the Price of Good A
increases the Demand of Good B decreases). Positive Value - Substitutes (The 2 goods are in
Competitive Demand; as the Price of Good A increases, the Demand of Good B increases.)
Negative Cross Price Elasticity of Demand -correct answer_Complements (As the Price of one
good increases, the Demand for the second good decreases) The 2 goods are in Joint
Demand. Positive Cross Price Elasticity of Demand -correct answer_Substitutes (As the Price
of one good increases, the Demand for the second good increases) The 2 goods are in
Competitive Demand. Supply -correct answer_The quantity of a good or service that firms are
willing to sell at a given price over a given period of time. Supply Curve -correct answer_Shows
the quantity of a good or service that firms are willing to sell to a market over a range of
different price levels in a given period of time. An upward sloping curve - Price and Supply
have a direct relationship. Price Elasticity of Supply -correct answer_The responsiveness of
supply to changes in price. Pes = %∆QS / %∆P Equilibrium Price -correct answer_The price at
which the Quantity Demanded and Quantity Supplied are equal, ceteris paribis. "Market
Clearing Price" Excess Supply -correct answer_Where the QS exceeds the QD for a good at
the current market price. QS > QD Excess Demand -correct answer_When the QD exceeds
the QS for a good at the current market price. QD > QS Adam Smith's Invisible Hand -correct
answer_A hidden hand of the market operating in a competitive market through the pursuit of
self-interest allocated resources in society's best interest. Price Mechanism -correct
Economics -correct answer_The study of the allocation of scarce resources. Economic Goods
-correct answer_Resources that are scarce. Short Run -correct answer_A time period where at
least one factor of production is fixed. Long Run -correct answer_A time period where all
factors of production are variable. Productivity -correct answer_The output per unit of input.
The Economic Problem -correct answer_Resources are scarce but wants are infinite. Scarcity
-correct answer_The world's resources are limited, there are only limited amounts of land,
water, oil, food, etc.. Therefore, resources are scarce. Free Goods -correct answer_Goods that
are unlimited in supply and therefore have no opportunity cost. Economic Agents -correct
answer_Consumer, Business and Governments. Agents involved in Economic transactions.
Production Possibility Frontier -correct answer_The maximum potential output of a
combination of goods an economy can achieve when all its resources are fully and efficiently
employed, given the level of technology. Opportunity Cost -correct answer_The next best
alternative foregone. Economic Growth -correct answer_Increase an economy's productive
potential. Capital Goods -correct answer_Goods intended for use in production, rather than by
consumers. Consumer Goods -correct answer_Goods designed for use by final consumers.
Renewable Resources -correct answer_A resource whose stock level can be replenished
naturally over a period of time. Non-renewable Resources -correct answer_A resource whose
stock level decreases over time as it is consumed. Ceteris Paribus -correct answer_'All other
things (factors) remaining the same' The assumption that all other variables within a model
remain constant whilst the change is being considered. Positive Statement -correct answer_A
statement based on facts which can be tested as true or false and are value-free. Normative
Statement -correct answer_A statement based on value judgements which cannot be tested
as true or false. Adam Smith -correct answer_The Father of Economics; - The Invisible Hand
(workings of the Price Mechanism) - Specialisation - Division of Labour Division of Labour
-correct answer_Specialisation of workers on specific tasks in the production process.
Specialisation -correct answer_The process of breaking down the production process into
steps and then each worker is assigned a step. This would then increase labour productivity
(Output per Worker). Barter -correct answer_An exchange of goods/services for other
goods/services. - Does not involve money. - Double coincidence of wants. Money -correct
answer_Anything which is acceptable to a wide number of people and organisations as
payment for goods and services. Free Market Economy -correct answer_Where all resources
are privately owned and allocated via the price mechanism. There is minimal government
intervention. Command Economy -correct answer_Where there is public ownership of
resources and these are allocated by the government. Mixed Economy -correct
answer_Where some resources are owned and allocated by the private sector and some by
the public sector. Market -correct answer_A channel where goods and services are exchanged.
Utility -correct answer_The capacity of a good or service to satisfy some human want. Rational
Decision Making -correct answer_Where consumers allocate their expenditure on goods and
, services to maximize utility, and producers allocate their resources to maximize profits.
Demand -correct answer_The quantity of goods or services that will be bought at any given
price over a period of time. Demand Curve -correct answer_Shows the quantity of a good or
service that would be bought over a range of different price levels in a given period of time.
Slopes downward - Price and Quantity have an inverse (negative) relationship. Marginal Utility
-correct answer_The additional satisfaction that a consumer gains for consuming one
additional unit of a product. Diminishing Marginal Utility -correct answer_As successive units of
a good are consumed, the utility gained from each extra unit will fall. % Change -correct
answer_y2 - y1 / y1 × 100 Price Elasticity of Demand (PED) -correct answer_The
responsiveness of demand to changes in price. The value is always negative. % ∆QD / % ∆P
× 100 Unitary Price Elasticity (Ped) -correct answer_Ped = 1 Perfectly Price Inelastic (Ped)
-correct answer_Ped = 0 Price Inelastic (Ped) -correct answer_Ped is < 1 Perfectly Price
Elastic (Ped) -correct answer_Ped = ∞ Price Elastic (Ped) -correct answer_Ped is > 1 Total
Revenue -correct answer_Price × Quantity Income Elasticity of Demand (YED) -correct
answer_The responsiveness of demand to changes in income. %∆QD / %∆Y × 100 Negative
- Inferior Good (Y increases, QD decreases) Positive - Normal Good (Y increases, QD
increases). Negative Income Elasticity of Demand -correct answer_Inferior Good (As income
increases, QD decreases) Positive Income Elasticity of Demand -correct answer_Normal
Good (As income increases, QD increases) Cross Price Elasticity of Demand (XED) -correct
answer_The responsiveness of demand for one good to changes in the price of a related good.
(Either substitutes or complements). % ∆ inQD of Good A/ % ∆ in Price of Good B × 100
Negative Value - Complements (The 2 goods are in Joint Demand; as the Price of Good A
increases the Demand of Good B decreases). Positive Value - Substitutes (The 2 goods are in
Competitive Demand; as the Price of Good A increases, the Demand of Good B increases.)
Negative Cross Price Elasticity of Demand -correct answer_Complements (As the Price of one
good increases, the Demand for the second good decreases) The 2 goods are in Joint
Demand. Positive Cross Price Elasticity of Demand -correct answer_Substitutes (As the Price
of one good increases, the Demand for the second good increases) The 2 goods are in
Competitive Demand. Supply -correct answer_The quantity of a good or service that firms are
willing to sell at a given price over a given period of time. Supply Curve -correct answer_Shows
the quantity of a good or service that firms are willing to sell to a market over a range of
different price levels in a given period of time. An upward sloping curve - Price and Supply
have a direct relationship. Price Elasticity of Supply -correct answer_The responsiveness of
supply to changes in price. Pes = %∆QS / %∆P Equilibrium Price -correct answer_The price at
which the Quantity Demanded and Quantity Supplied are equal, ceteris paribis. "Market
Clearing Price" Excess Supply -correct answer_Where the QS exceeds the QD for a good at
the current market price. QS > QD Excess Demand -correct answer_When the QD exceeds
the QS for a good at the current market price. QD > QS Adam Smith's Invisible Hand -correct
answer_A hidden hand of the market operating in a competitive market through the pursuit of
self-interest allocated resources in society's best interest. Price Mechanism -correct
