Economics Edexcel [Definitions] Exam
Questions With Sure Answers
Globalisation - ANSRefers to the increasing integration and interdependence of the World's national
economies into a single international market. It involves the free trade of goods and services, the
free movement of capital and labour and the free interchange of technology and intellectual capital
Developed economy - ANSAn economy that that is economically developed and its population has a
high GDP per capita e.g USA, Australia
Developing economy - ANSAn economy that that is less economically developed and its population
has a low GDP per capita e.g African countries
Emerging economy - ANSAn economy that that is developing economically and its population has a
rising GDP per capita and a rising middle class e.g BRIC
Absolute advantage - ANSA country has it in the production of a good or service if it can produce it
using fewer resources and at a lower cost than another country
Comparative advantage - ANSOccurs when a country can produce a good or service at a lower
opportunity cost than another country. This means they have to give up producing less of another
good than another country, using the same resources
Specialisation of trade - ANSWhen a country has absolute advantage in producing a particular good
or service, they tend to produce this at the highest output possible in order to trade it with other
countries
Free trade area - ANSWhere countries agree to trade goods with other members without
protectionist barriers
Customs union - ANSCountries in this agreement have an established common trade policy with the
rest of the world e.g they might use a common external tariff. They also have free trade between
members. The EU is an example of a Customs union
, Common market - ANSEstablishes free trade in goods and services, a common external tariff and
allows free movement of capital and labour across borders - when the EU was established it was a
common market. EU citizens can work in any country in the EU
Monetary union/currency union - ANSMembers of this share the same currency. More economically
integrated than a customs union and free trade area. A common central monetary policy is
established when a monetary union is formed and monetary unions use the same interest rate.
Tariffs - ANSTaxes on imports to a country. The impact of them is that the quantity demanded of
domestic groups increases whilst the quantity demanded of imports decreases. They result in higher
prices for consumers and a loss in consumer surplus
Quota - ANSLimits the quantity of a foreign produced good that is sold on the domestic market. It
sets a physical limit on a specific food imported in particular period of time. Leads to a rise in prices
of imported goods so therefore demand for them falls.
Subsidies to domestic producers - ANSMakes domestic goods relatively cheaper when compared to
imported goods, encourages domestic production to rise in supply so average price falls and
consumption increases
Voluntary export restraints - ANSWhen two countries make an agreement to limit the volume of
exports to each other over a period of time. They are used when governments want to protect
domestic industries from competing imports
Embargoes - ANSA complete ban on trade with a particular country - usually politically motivated
Excessive administration/red tape - ANSIncreases the cost of trading, hence discourages imports,
makes it difficult to trade with countries importing red tape and is particularly harmful for developing
countries which are unable to access these markets
Protectionism - ANSThe restriction on the free movement of trade between countries
Balance of Payments - ANSA record of all financial transactions made between consumers, firms and
government from one country with other countries. It includes the current account, the capital and
the financial account.
Questions With Sure Answers
Globalisation - ANSRefers to the increasing integration and interdependence of the World's national
economies into a single international market. It involves the free trade of goods and services, the
free movement of capital and labour and the free interchange of technology and intellectual capital
Developed economy - ANSAn economy that that is economically developed and its population has a
high GDP per capita e.g USA, Australia
Developing economy - ANSAn economy that that is less economically developed and its population
has a low GDP per capita e.g African countries
Emerging economy - ANSAn economy that that is developing economically and its population has a
rising GDP per capita and a rising middle class e.g BRIC
Absolute advantage - ANSA country has it in the production of a good or service if it can produce it
using fewer resources and at a lower cost than another country
Comparative advantage - ANSOccurs when a country can produce a good or service at a lower
opportunity cost than another country. This means they have to give up producing less of another
good than another country, using the same resources
Specialisation of trade - ANSWhen a country has absolute advantage in producing a particular good
or service, they tend to produce this at the highest output possible in order to trade it with other
countries
Free trade area - ANSWhere countries agree to trade goods with other members without
protectionist barriers
Customs union - ANSCountries in this agreement have an established common trade policy with the
rest of the world e.g they might use a common external tariff. They also have free trade between
members. The EU is an example of a Customs union
, Common market - ANSEstablishes free trade in goods and services, a common external tariff and
allows free movement of capital and labour across borders - when the EU was established it was a
common market. EU citizens can work in any country in the EU
Monetary union/currency union - ANSMembers of this share the same currency. More economically
integrated than a customs union and free trade area. A common central monetary policy is
established when a monetary union is formed and monetary unions use the same interest rate.
Tariffs - ANSTaxes on imports to a country. The impact of them is that the quantity demanded of
domestic groups increases whilst the quantity demanded of imports decreases. They result in higher
prices for consumers and a loss in consumer surplus
Quota - ANSLimits the quantity of a foreign produced good that is sold on the domestic market. It
sets a physical limit on a specific food imported in particular period of time. Leads to a rise in prices
of imported goods so therefore demand for them falls.
Subsidies to domestic producers - ANSMakes domestic goods relatively cheaper when compared to
imported goods, encourages domestic production to rise in supply so average price falls and
consumption increases
Voluntary export restraints - ANSWhen two countries make an agreement to limit the volume of
exports to each other over a period of time. They are used when governments want to protect
domestic industries from competing imports
Embargoes - ANSA complete ban on trade with a particular country - usually politically motivated
Excessive administration/red tape - ANSIncreases the cost of trading, hence discourages imports,
makes it difficult to trade with countries importing red tape and is particularly harmful for developing
countries which are unable to access these markets
Protectionism - ANSThe restriction on the free movement of trade between countries
Balance of Payments - ANSA record of all financial transactions made between consumers, firms and
government from one country with other countries. It includes the current account, the capital and
the financial account.
