EDEXCEL A-LEVEL ECONOMICS TERMS DEFINITIONS #2
Absolute advantage - correct answer When a country's output of a product per unit of
input is greater than that of any other country.
Absolute poverty - correct answer When a person does not have the income or wealth
to fulfil their basic needs.
Aggregate Demand (AD) - correct answer 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) - correct answer 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 - correct answer The transfer of resources from one country to another.
Allocative efficiency - correct answer 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 - correct answer Where buyers have more information than
sellers in a market, or vice versa.
Automatic stabilisers - correct answer Parts of fiscal policy that automatically react to
changes in the economic cycle.
Average Cost (AC) - correct answer The cost of production per unit of output.
Average Revenue (AR) - correct answer The revenue per unit sold.
Backward vertical integration - correct answer Where a firm merges with or takes over a
firm further back in the production process.
Balance of payments - correct answer A record of the international transactions of an
economy.
Bank rate - correct answer 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 - correct answer Potential difficulties that make it hard for firms to enter
a market.
Barriers to exit - correct answer Potential difficulties that make it hard for firms to leave a
market.
,Black market - correct answer Economic activity that occurs without taxation and
government intervention.
Budget deficit - correct answer When government spending exceeds tax revenues.
Budget surplus - correct answer When tax revenues exceed government spending.
Capital account of the balance of payments - correct answer A part of the balance of
payments that shows transfers of non-monetary and fixed assets into and out of the
economy.
Cartel - correct answer A group of products who collude to limit output in order to keep
prices high.
Central bank - correct answer The institution responsible for issuing banknotes in an
economy, acting as a lender of last resort, and implementing monetary policy.
Ceteris paribus - correct answer All other things remaining equal
Circular flow of income - correct answer The flow of national output, income and
expenditure between firms and households.
Command economy - correct answer An economy where only the government
determines the allocation of resources.
Comparative advantage - correct answer When the opportunity cost of producing a
good or service is lower than that of any other country.
Competition policy - correct answer Government policy aimed at reducing monopoly
power in order to increase efficiency and to ensure fairness for consumers.
Concentration ratio - correct answer A measure of the dominance of firms in a market.
Conglomerate integration - correct answer Where a firm merges with or takes over a
firm in a completely different market.
Consumer surplus - correct answer The difference between the price a consumer pays
and the price they were willing to pay.
Consumption - correct answer The purchase of goods and services.
Contestability - correct answer The degree to which new entrants find it easy to enter
the market.
Cost-push inflation - correct answer Inflation caused by rising costs of production.
,Cross elasticity of demand (XED) - correct answer 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 - correct answer A part of the balance of
payments that consists of: trade in goods, trade in services, primary income and
secondary income.
Cyclical unemployment - correct answer Unemployment caused by a lack of demand in
the economy.
Deflation - correct answer The sustained fall in the average price of goods and services
in an economy over a period of time.
Demand-pull inflation - correct answer Inflation caused by increased demand in the
economy.
Demand-side policy - correct answer Government policy that aims to alter aggregate
demand in the economy.
Demerger - correct answer Where a firm sells of a part/parts of its business to create
separate firms.
Deregulation - correct answer Removing government legislation that could restrict
competition.
Derived demand - correct answer The demand for a good or service due to its use in
making another good or service.
Developed countries - correct answer Relatively rich, industrialised countries with a high
GDP per capita.
Developing countries - correct answer Relatively poor countries that tend to rely on
labour-intensive industries, with a low GDP per capita.
Diseconomies of scale - correct answer Where average cost rises as output rises.
Disinflation - correct answer A fall in the rate of inflation.
Disposable income - correct answer Income available for households to spend after
their tax obligations are fulfilled.
Dividend - correct answer A share in a firm's profits paid to shareholders.
Divorce of ownership from control - correct answer When the owner of a firm ceases to
control its day-to-day operations, which can lead to the principal-agent problem.
, Dynamic efficiency - correct answer Where firms improve efficiency in the long run by
investing in R&D of products, or investing in the production process.
Economic cycle - correct answer The fluctuation in actual growth rates over a period of
time.
Economic development - correct answer An assessment of the standards of living and
overall welfare of a country's population.
Economic growth - correct answer An increase in an economy's productive potential.
Economic integration - correct answer The process by which the economies of different
countries become more closely linked.
Economically active population - correct answer The people in an economy who are old
enough to and capable of working.
Economies of scale - correct answer Where average cost falls as output rises.
Emerging countries - correct answer Countries that are further along the development
process than most developing countries, but are not yet fully developed.
Equilibrium - correct answer Where supply equals demand in a market or economy.
Equity - correct answer Fairness
Exchange rate - correct answer The price of one currency expressed in terms of
another.
Externalities - correct answer The costs and benefits of the production and consumption
of a good or service that are felt by third parties.
Factors of production - correct answer The four inputs used to produce what people
want: land, labour, capital and enterprise.
Financial account of the balance of payments - correct answer A part of the balance of
payments that shows the movements of financial assets.
Financial sector - correct answer Firms that provide financial services.
Fiscal policy - correct answer Government policy that determines the levels of
government spending and taxation.
Fixed costs - correct answer Costs that do not vary with output in the short run.
Absolute advantage - correct answer When a country's output of a product per unit of
input is greater than that of any other country.
Absolute poverty - correct answer When a person does not have the income or wealth
to fulfil their basic needs.
Aggregate Demand (AD) - correct answer 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) - correct answer 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 - correct answer The transfer of resources from one country to another.
Allocative efficiency - correct answer 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 - correct answer Where buyers have more information than
sellers in a market, or vice versa.
Automatic stabilisers - correct answer Parts of fiscal policy that automatically react to
changes in the economic cycle.
Average Cost (AC) - correct answer The cost of production per unit of output.
Average Revenue (AR) - correct answer The revenue per unit sold.
Backward vertical integration - correct answer Where a firm merges with or takes over a
firm further back in the production process.
Balance of payments - correct answer A record of the international transactions of an
economy.
Bank rate - correct answer 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 - correct answer Potential difficulties that make it hard for firms to enter
a market.
Barriers to exit - correct answer Potential difficulties that make it hard for firms to leave a
market.
,Black market - correct answer Economic activity that occurs without taxation and
government intervention.
Budget deficit - correct answer When government spending exceeds tax revenues.
Budget surplus - correct answer When tax revenues exceed government spending.
Capital account of the balance of payments - correct answer A part of the balance of
payments that shows transfers of non-monetary and fixed assets into and out of the
economy.
Cartel - correct answer A group of products who collude to limit output in order to keep
prices high.
Central bank - correct answer The institution responsible for issuing banknotes in an
economy, acting as a lender of last resort, and implementing monetary policy.
Ceteris paribus - correct answer All other things remaining equal
Circular flow of income - correct answer The flow of national output, income and
expenditure between firms and households.
Command economy - correct answer An economy where only the government
determines the allocation of resources.
Comparative advantage - correct answer When the opportunity cost of producing a
good or service is lower than that of any other country.
Competition policy - correct answer Government policy aimed at reducing monopoly
power in order to increase efficiency and to ensure fairness for consumers.
Concentration ratio - correct answer A measure of the dominance of firms in a market.
Conglomerate integration - correct answer Where a firm merges with or takes over a
firm in a completely different market.
Consumer surplus - correct answer The difference between the price a consumer pays
and the price they were willing to pay.
Consumption - correct answer The purchase of goods and services.
Contestability - correct answer The degree to which new entrants find it easy to enter
the market.
Cost-push inflation - correct answer Inflation caused by rising costs of production.
,Cross elasticity of demand (XED) - correct answer 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 - correct answer A part of the balance of
payments that consists of: trade in goods, trade in services, primary income and
secondary income.
Cyclical unemployment - correct answer Unemployment caused by a lack of demand in
the economy.
Deflation - correct answer The sustained fall in the average price of goods and services
in an economy over a period of time.
Demand-pull inflation - correct answer Inflation caused by increased demand in the
economy.
Demand-side policy - correct answer Government policy that aims to alter aggregate
demand in the economy.
Demerger - correct answer Where a firm sells of a part/parts of its business to create
separate firms.
Deregulation - correct answer Removing government legislation that could restrict
competition.
Derived demand - correct answer The demand for a good or service due to its use in
making another good or service.
Developed countries - correct answer Relatively rich, industrialised countries with a high
GDP per capita.
Developing countries - correct answer Relatively poor countries that tend to rely on
labour-intensive industries, with a low GDP per capita.
Diseconomies of scale - correct answer Where average cost rises as output rises.
Disinflation - correct answer A fall in the rate of inflation.
Disposable income - correct answer Income available for households to spend after
their tax obligations are fulfilled.
Dividend - correct answer A share in a firm's profits paid to shareholders.
Divorce of ownership from control - correct answer When the owner of a firm ceases to
control its day-to-day operations, which can lead to the principal-agent problem.
, Dynamic efficiency - correct answer Where firms improve efficiency in the long run by
investing in R&D of products, or investing in the production process.
Economic cycle - correct answer The fluctuation in actual growth rates over a period of
time.
Economic development - correct answer An assessment of the standards of living and
overall welfare of a country's population.
Economic growth - correct answer An increase in an economy's productive potential.
Economic integration - correct answer The process by which the economies of different
countries become more closely linked.
Economically active population - correct answer The people in an economy who are old
enough to and capable of working.
Economies of scale - correct answer Where average cost falls as output rises.
Emerging countries - correct answer Countries that are further along the development
process than most developing countries, but are not yet fully developed.
Equilibrium - correct answer Where supply equals demand in a market or economy.
Equity - correct answer Fairness
Exchange rate - correct answer The price of one currency expressed in terms of
another.
Externalities - correct answer The costs and benefits of the production and consumption
of a good or service that are felt by third parties.
Factors of production - correct answer The four inputs used to produce what people
want: land, labour, capital and enterprise.
Financial account of the balance of payments - correct answer A part of the balance of
payments that shows the movements of financial assets.
Financial sector - correct answer Firms that provide financial services.
Fiscal policy - correct answer Government policy that determines the levels of
government spending and taxation.
Fixed costs - correct answer Costs that do not vary with output in the short run.
