Economics Edexcel A Level Paper 1
Definitions Test Quiz With Correct Ans
Principal-agent Problem - ANSPrincipal (Shareholders) has different objectives to Agent (Manager)
but the Agent is inclined to act in order to achieve their own objectives.
Public sector organisation - ANSWhen the government has control over the Business
Private sector organisation - ANSFirms are led by private individuals and left to the free market to
dictate
Profit organisation - ANSA profit organisation aims to maximise the financial benefits of its
shareholders and organisations
Not-for-profit organisation - ANSA not-for-profit organisation has a goal which aims to maximise
social welfare. They can make profits but they can only be reinvested back into the business/used for
a good cause or operation of the organisation
Vertical Integration - ANSOccurs when a firm merges with or takes over another firm in the same
industry, but a different stage of production.
Forward vertical integration - ANSWhen the firm joins together with another firm closer to the
consumer e.g coffee producer buying a café where coffee is produced
Backward Vertical Integration - ANSWhen the firm joins together with another firm closer to the
producer - this involved gaining control over suppliers e.g coffee producer buying a coffee farm
Horizontal integration - ANSMerger of two firms in the same industry in the same stage of production
e.g two car manufacturers merging to create one company e.g Tmobile and Orange created EE
Conglomerate Integration - ANSTwo completely different firms with no connection joining together
e.g Associated British Foods owns Primark - no association
, Organic Growth - ANSWhen firms growth happens as a result of increasing output, widening
customer base - internal growth. Investing into re-search and development
Demerger - ANSA demerger is when a large firm is deprecated into multiple smaller firms e.g a
Conglomerate breaks up
Profit Maximisation - ANSOccurs where Marginal Cost = Marginal Revenue, so each extra unit gives
no extra loss or extra revenue.
Revenue Maximisation - ANSOccurs where Marginal Revenue = 0, so each extra unit sold generates
no extra revenue.
Sales Maximisation - ANSWhen the firm aims to sell as much of their goods and services as possible
without making a loss. It occurs where Average Costs = Average Revenue
Satisficing - ANSWhen the firm is earning just enough profits to keep shareholders happy with the
dividends they receive. It occurs when there is a divorce of ownership/control - principal agent
problem
Profit - ANSEarning profit is an incentive for entrepreneurs - it rewards the risk that they take when
starting a new business. Earning profit sends a signal to other entrepreneurs and it will signal others
to enter the market
Normal profit - ANSSufficient profit is made to reward the factors of production used. It occurs when
Total Revenue = Total Cost (Breakeven)
Supernormal profit - ANSAny profit earned in addition to normal profit. When firms make
supernormal profit this will attract more firms to enter the market hoping to generate it too
Total Revenue - ANSThe Revenue received from the sale of a given level of output. It is calculated by
price x quantity sold
Average revenue - ANSThe average receipt per unit. It is calculated by Total Revenue ÷ Quantity sold
Definitions Test Quiz With Correct Ans
Principal-agent Problem - ANSPrincipal (Shareholders) has different objectives to Agent (Manager)
but the Agent is inclined to act in order to achieve their own objectives.
Public sector organisation - ANSWhen the government has control over the Business
Private sector organisation - ANSFirms are led by private individuals and left to the free market to
dictate
Profit organisation - ANSA profit organisation aims to maximise the financial benefits of its
shareholders and organisations
Not-for-profit organisation - ANSA not-for-profit organisation has a goal which aims to maximise
social welfare. They can make profits but they can only be reinvested back into the business/used for
a good cause or operation of the organisation
Vertical Integration - ANSOccurs when a firm merges with or takes over another firm in the same
industry, but a different stage of production.
Forward vertical integration - ANSWhen the firm joins together with another firm closer to the
consumer e.g coffee producer buying a café where coffee is produced
Backward Vertical Integration - ANSWhen the firm joins together with another firm closer to the
producer - this involved gaining control over suppliers e.g coffee producer buying a coffee farm
Horizontal integration - ANSMerger of two firms in the same industry in the same stage of production
e.g two car manufacturers merging to create one company e.g Tmobile and Orange created EE
Conglomerate Integration - ANSTwo completely different firms with no connection joining together
e.g Associated British Foods owns Primark - no association
, Organic Growth - ANSWhen firms growth happens as a result of increasing output, widening
customer base - internal growth. Investing into re-search and development
Demerger - ANSA demerger is when a large firm is deprecated into multiple smaller firms e.g a
Conglomerate breaks up
Profit Maximisation - ANSOccurs where Marginal Cost = Marginal Revenue, so each extra unit gives
no extra loss or extra revenue.
Revenue Maximisation - ANSOccurs where Marginal Revenue = 0, so each extra unit sold generates
no extra revenue.
Sales Maximisation - ANSWhen the firm aims to sell as much of their goods and services as possible
without making a loss. It occurs where Average Costs = Average Revenue
Satisficing - ANSWhen the firm is earning just enough profits to keep shareholders happy with the
dividends they receive. It occurs when there is a divorce of ownership/control - principal agent
problem
Profit - ANSEarning profit is an incentive for entrepreneurs - it rewards the risk that they take when
starting a new business. Earning profit sends a signal to other entrepreneurs and it will signal others
to enter the market
Normal profit - ANSSufficient profit is made to reward the factors of production used. It occurs when
Total Revenue = Total Cost (Breakeven)
Supernormal profit - ANSAny profit earned in addition to normal profit. When firms make
supernormal profit this will attract more firms to enter the market hoping to generate it too
Total Revenue - ANSThe Revenue received from the sale of a given level of output. It is calculated by
price x quantity sold
Average revenue - ANSThe average receipt per unit. It is calculated by Total Revenue ÷ Quantity sold
