AQA A-Level Economics : Microeconomics.Final Test 2026\2027.
Short-Termism
the tendency for government to focus excessively on short-term performance objectives at
the expense of longer-term strategic objectives e.g. lowering income tax
Scarcity
a situation in which unlimited wants exceed the finite resources available to fulfill those
wants
Ceteris Paribus
'all other things being equal'
Positive Statement
objective statements that can be proved e.g. homelessness is currently at 5% in Cambridge
Normative Statements
opinions that contain value judgments
Value Judgments
judgments about society that cannot be quantified and tested e.g. homelessness is too high
in Cambridge
Main Purpose of Economic Activity
to produce goods and services to satisfy consumers' wants and needs
The Economic Problem
involves working out how to allocate limited resources as effectively as possible to satisfy
people's unlimited wants and needs
Factors of Production - Land
all natural resources that are used to produce goods and services e.g. materials, water
Factors of Production - Labour
a combination of human capital (the value of workers' labour) and the labour force (the
working population)
Factors of Production - Enterprise
entrepreneurial actions (e.g. establishing businesses and taking risks) that individuals take
to try and make a profit
Factors of Production - Capital
,AQA A-Level Economics : Microeconomics.Final Test 2026\2027.
equipment used to generate goods and services within the production process e.g.
machinery
Three Main Economic Agents
- individuals : people/firms that produce goods or supply services
- consumers : people/firms who purchase the goods/services
- governments : establishes rules for economies
Opportunity Cost (Tradeoffs)
the benefit lost by not choosing next best alternative to a decision
Issues with Opportunity Cost (2)
- imperfect information may prevent consumers from picking the alternative
- barriers between switching to alternative
Production Possibility Frontier
illustrates the trade-offs facing an economy that produces only two goods. It shows the
maximum quantity of one good that can be produced for any given quantity produced of the
other
Why is the PPF Curved?
as the costs of production are not constant, and therefore the tradeoffs between producing
product A and product B differ at different quantities
Efficiency
using resources in such a way as to maximize the production of goods and services
Static Efficiency
when productive and allocative efficiency are both achieved at a particular point in time
Productive Efficiency
when it is impossible to produce more of one product without decreasing the quantity
produced of another product
Allocative Efficiency
a state of the economy in which production is able to meet consumer demand entirely
(marginal benefit = marginal cost)
Factors which Shift the PPF Outwards (3)
- reallocation of fixed resources
- improvements in technology
- increase in the supply of labour
,AQA A-Level Economics : Microeconomics.Final Test 2026\2027.
Command Economy
an economic system in which the government controls a country's economy
Marginal Product
the amount of extra output produced by an extra unit of input
Marginal Product of Labour
the amount of extra output produced by one more worker
Marginal Product of Capital
the amount of extra output produced by an extra unit of capital
Marginal Revenue
the change in total revenue from selling an extra good or service
Marginal revenue is positive / negative depending on...
the price elasticity of demand
Marginal Cost
the extra cost of production that a firm incurs when producing one more good or service
e.g. materials, labour
Marginal Utility
the extra benefit to an individual of consuming a good or service
(Law of) Diminishing Marginal Returns
the concept that the more of something you add, the lower the impact of each additional
unit, ceteris paribus
Diminishing Marginal Product
the marginal product of an input declines as the quantity of the input increases e.g. farmers
use the most fertile land to produce crops initially
(Law of) Diminishing Marginal Utility
decreasing satisfaction or usefulness as additional units of a product are used by
consumers
Budget Constraints
constraints that consumers face as a result of limited incomes
Total Utility
the total amount of satisfaction obtained from consumption of a product
Utility Maximization Formula
, AQA A-Level Economics : Microeconomics.Final Test 2026\2027.
P1 / P2 = MŪ / MÚ
(these should be equal)
Rational Agents
agents (people, governments or producers) who use utility theory to guide their decision-
making
Producers acting rationally will...
maximize their profit and attempt to increase their market share
Governments acting rationally will...
act in ways that maximise the welfare of their population e.g. reducing inflation
Consumers acting rationally will...
maximise their utility within the limits of their income and attempt to improve their work-life
balance
Behavioral Economists
believe individuals will act irrationally as they lack perfect information and their decision
making is restricted by time limits
Traditional Economists
assume that economic agents act rationally and want to maximise utility
Asymmetric Information
a situation in which one party to an economic transaction has less information than the
other party
Anchoring
when an individual uses a reference point from a previous decision (which is usually
irrelevant) to form the basis of a new decision
Availability Bias
the tendency for people to base their judgments on information that is readily available to
them
Habitual Behaviour
where someone repeats their decision-making actions many times
Social Norms
generally accepted modes of behaviour
Nudging
a system of guiding people into making more rational decisions
Short-Termism
the tendency for government to focus excessively on short-term performance objectives at
the expense of longer-term strategic objectives e.g. lowering income tax
Scarcity
a situation in which unlimited wants exceed the finite resources available to fulfill those
wants
Ceteris Paribus
'all other things being equal'
Positive Statement
objective statements that can be proved e.g. homelessness is currently at 5% in Cambridge
Normative Statements
opinions that contain value judgments
Value Judgments
judgments about society that cannot be quantified and tested e.g. homelessness is too high
in Cambridge
Main Purpose of Economic Activity
to produce goods and services to satisfy consumers' wants and needs
The Economic Problem
involves working out how to allocate limited resources as effectively as possible to satisfy
people's unlimited wants and needs
Factors of Production - Land
all natural resources that are used to produce goods and services e.g. materials, water
Factors of Production - Labour
a combination of human capital (the value of workers' labour) and the labour force (the
working population)
Factors of Production - Enterprise
entrepreneurial actions (e.g. establishing businesses and taking risks) that individuals take
to try and make a profit
Factors of Production - Capital
,AQA A-Level Economics : Microeconomics.Final Test 2026\2027.
equipment used to generate goods and services within the production process e.g.
machinery
Three Main Economic Agents
- individuals : people/firms that produce goods or supply services
- consumers : people/firms who purchase the goods/services
- governments : establishes rules for economies
Opportunity Cost (Tradeoffs)
the benefit lost by not choosing next best alternative to a decision
Issues with Opportunity Cost (2)
- imperfect information may prevent consumers from picking the alternative
- barriers between switching to alternative
Production Possibility Frontier
illustrates the trade-offs facing an economy that produces only two goods. It shows the
maximum quantity of one good that can be produced for any given quantity produced of the
other
Why is the PPF Curved?
as the costs of production are not constant, and therefore the tradeoffs between producing
product A and product B differ at different quantities
Efficiency
using resources in such a way as to maximize the production of goods and services
Static Efficiency
when productive and allocative efficiency are both achieved at a particular point in time
Productive Efficiency
when it is impossible to produce more of one product without decreasing the quantity
produced of another product
Allocative Efficiency
a state of the economy in which production is able to meet consumer demand entirely
(marginal benefit = marginal cost)
Factors which Shift the PPF Outwards (3)
- reallocation of fixed resources
- improvements in technology
- increase in the supply of labour
,AQA A-Level Economics : Microeconomics.Final Test 2026\2027.
Command Economy
an economic system in which the government controls a country's economy
Marginal Product
the amount of extra output produced by an extra unit of input
Marginal Product of Labour
the amount of extra output produced by one more worker
Marginal Product of Capital
the amount of extra output produced by an extra unit of capital
Marginal Revenue
the change in total revenue from selling an extra good or service
Marginal revenue is positive / negative depending on...
the price elasticity of demand
Marginal Cost
the extra cost of production that a firm incurs when producing one more good or service
e.g. materials, labour
Marginal Utility
the extra benefit to an individual of consuming a good or service
(Law of) Diminishing Marginal Returns
the concept that the more of something you add, the lower the impact of each additional
unit, ceteris paribus
Diminishing Marginal Product
the marginal product of an input declines as the quantity of the input increases e.g. farmers
use the most fertile land to produce crops initially
(Law of) Diminishing Marginal Utility
decreasing satisfaction or usefulness as additional units of a product are used by
consumers
Budget Constraints
constraints that consumers face as a result of limited incomes
Total Utility
the total amount of satisfaction obtained from consumption of a product
Utility Maximization Formula
, AQA A-Level Economics : Microeconomics.Final Test 2026\2027.
P1 / P2 = MŪ / MÚ
(these should be equal)
Rational Agents
agents (people, governments or producers) who use utility theory to guide their decision-
making
Producers acting rationally will...
maximize their profit and attempt to increase their market share
Governments acting rationally will...
act in ways that maximise the welfare of their population e.g. reducing inflation
Consumers acting rationally will...
maximise their utility within the limits of their income and attempt to improve their work-life
balance
Behavioral Economists
believe individuals will act irrationally as they lack perfect information and their decision
making is restricted by time limits
Traditional Economists
assume that economic agents act rationally and want to maximise utility
Asymmetric Information
a situation in which one party to an economic transaction has less information than the
other party
Anchoring
when an individual uses a reference point from a previous decision (which is usually
irrelevant) to form the basis of a new decision
Availability Bias
the tendency for people to base their judgments on information that is readily available to
them
Habitual Behaviour
where someone repeats their decision-making actions many times
Social Norms
generally accepted modes of behaviour
Nudging
a system of guiding people into making more rational decisions
