Edexcel A-level Economics Paper 1.
Economics - ANSWER-The study of the allocation of scarce resources.
Economic Goods - ANSWER-Resources that are scarce.
Short Run - ANSWER-A time period where at least one factor of production is fixed.
Long Run - ANSWER-A time period where all factors of production are variable.
Productivity - ANSWER-The output per unit of input.
The Economic Problem - ANSWER-Resources are scarce but wants are infinite.
Scarcity - ANSWER-The world's resources are limited, there are only limited amounts of
land, water, oil, food, etc..
Therefore, resources are scarce.
Free Goods - ANSWER-Goods that are unlimited in supply and therefore have no
opportunity cost.
Economic Agents - ANSWER-Consumer, Business and Governments.
Agents involved in Economic transactions.
Production Possibility Frontier - 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 - ANSWER-The next best alternative foregone.
Economic Growth - ANSWER-Increase an economy's productive potential.
Capital Goods - ANSWER-Goods intended for use in production, rather than by
consumers.
Consumer Goods - ANSWER-Goods designed for use by final consumers.
Renewable Resources - ANSWER-A resource whose stock level can be replenished
naturally over a period of time.
Non-renewable Resources - ANSWER-A resource whose stock level decreases over
time as it is consumed.
Ceteris Paribus - 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 - ANSWER-A statement based on facts which can be tested as true
or false and are value-free.
Normative Statement - ANSWER-A statement based on value judgements which cannot
be tested as true or false.
Adam Smith - ANSWER-The Father of Economics;
- The Invisible Hand (workings of the Price Mechanism)
- Specialisation
- Division of Labour
Division of Labour - ANSWER-Specialisation of workers on specific tasks in the
production process.
Specialisation - 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 - ANSWER-An exchange of goods/services for other goods/services.
- Does not involve money.
- Double coincidence of wants.
Money - ANSWER-Anything which is acceptable to a wide number of people and
organisations as payment for goods and services.
Free Market Economy - ANSWER-Where all resources are privately owned and
allocated via the price mechanism. There is minimal government intervention.
Command Economy - ANSWER-Where there is public ownership of resources and
these are allocated by the government.
Mixed Economy - ANSWER-Where some resources are owned and allocated by the
private sector and some by the public sector.
Market - ANSWER-A channel where goods and services are exchanged.
Utility - ANSWER-The capacity of a good or service to satisfy some human want.
Rational Decision Making - ANSWER-Where consumers allocate their expenditure on
goods and services to maximize utility, and producers allocate their resources to
maximize profits.
, Demand - ANSWER-The quantity of goods or services that will be bought at any given
price over a period of time.
Demand Curve - 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 - ANSWER-The additional satisfaction that a consumer gains for
consuming one additional unit of a product.
Diminishing Marginal Utility - ANSWER-As successive units of a good are consumed,
the utility gained from each extra unit will fall.
% Change - ANSWER-y2 - y1 / y1 × 100
Price Elasticity of Demand (PED) - ANSWER-The responsiveness of demand to
changes in price.
The value is always negative.
% ∆QD / % ∆P × 100
Unitary Price Elasticity (Ped) - ANSWER-Ped = 1
Perfectly Price Inelastic (Ped) - ANSWER-Ped = 0
Price Inelastic (Ped) - ANSWER-Ped is < 1
Perfectly Price Elastic (Ped) - ANSWER-Ped = ∞
Price Elastic (Ped) - ANSWER-Ped is > 1
Total Revenue - ANSWER-Price × Quantity
Income Elasticity of Demand (YED) - 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 - ANSWER-Inferior Good (As income increases,
QD decreases)
Positive Income Elasticity of Demand - ANSWER-Normal Good (As income increases,
QD increases)
Cross Price Elasticity of Demand (XED) - ANSWER-The responsiveness of demand for
one good to changes in the price of a related good. (Either substitutes or complements).
Economics - ANSWER-The study of the allocation of scarce resources.
Economic Goods - ANSWER-Resources that are scarce.
Short Run - ANSWER-A time period where at least one factor of production is fixed.
Long Run - ANSWER-A time period where all factors of production are variable.
Productivity - ANSWER-The output per unit of input.
The Economic Problem - ANSWER-Resources are scarce but wants are infinite.
Scarcity - ANSWER-The world's resources are limited, there are only limited amounts of
land, water, oil, food, etc..
Therefore, resources are scarce.
Free Goods - ANSWER-Goods that are unlimited in supply and therefore have no
opportunity cost.
Economic Agents - ANSWER-Consumer, Business and Governments.
Agents involved in Economic transactions.
Production Possibility Frontier - 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 - ANSWER-The next best alternative foregone.
Economic Growth - ANSWER-Increase an economy's productive potential.
Capital Goods - ANSWER-Goods intended for use in production, rather than by
consumers.
Consumer Goods - ANSWER-Goods designed for use by final consumers.
Renewable Resources - ANSWER-A resource whose stock level can be replenished
naturally over a period of time.
Non-renewable Resources - ANSWER-A resource whose stock level decreases over
time as it is consumed.
Ceteris Paribus - 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 - ANSWER-A statement based on facts which can be tested as true
or false and are value-free.
Normative Statement - ANSWER-A statement based on value judgements which cannot
be tested as true or false.
Adam Smith - ANSWER-The Father of Economics;
- The Invisible Hand (workings of the Price Mechanism)
- Specialisation
- Division of Labour
Division of Labour - ANSWER-Specialisation of workers on specific tasks in the
production process.
Specialisation - 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 - ANSWER-An exchange of goods/services for other goods/services.
- Does not involve money.
- Double coincidence of wants.
Money - ANSWER-Anything which is acceptable to a wide number of people and
organisations as payment for goods and services.
Free Market Economy - ANSWER-Where all resources are privately owned and
allocated via the price mechanism. There is minimal government intervention.
Command Economy - ANSWER-Where there is public ownership of resources and
these are allocated by the government.
Mixed Economy - ANSWER-Where some resources are owned and allocated by the
private sector and some by the public sector.
Market - ANSWER-A channel where goods and services are exchanged.
Utility - ANSWER-The capacity of a good or service to satisfy some human want.
Rational Decision Making - ANSWER-Where consumers allocate their expenditure on
goods and services to maximize utility, and producers allocate their resources to
maximize profits.
, Demand - ANSWER-The quantity of goods or services that will be bought at any given
price over a period of time.
Demand Curve - 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 - ANSWER-The additional satisfaction that a consumer gains for
consuming one additional unit of a product.
Diminishing Marginal Utility - ANSWER-As successive units of a good are consumed,
the utility gained from each extra unit will fall.
% Change - ANSWER-y2 - y1 / y1 × 100
Price Elasticity of Demand (PED) - ANSWER-The responsiveness of demand to
changes in price.
The value is always negative.
% ∆QD / % ∆P × 100
Unitary Price Elasticity (Ped) - ANSWER-Ped = 1
Perfectly Price Inelastic (Ped) - ANSWER-Ped = 0
Price Inelastic (Ped) - ANSWER-Ped is < 1
Perfectly Price Elastic (Ped) - ANSWER-Ped = ∞
Price Elastic (Ped) - ANSWER-Ped is > 1
Total Revenue - ANSWER-Price × Quantity
Income Elasticity of Demand (YED) - 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 - ANSWER-Inferior Good (As income increases,
QD decreases)
Positive Income Elasticity of Demand - ANSWER-Normal Good (As income increases,
QD increases)
Cross Price Elasticity of Demand (XED) - ANSWER-The responsiveness of demand for
one good to changes in the price of a related good. (Either substitutes or complements).
