List of Definitions for Unit 1 Competitive Markets How They Work and Why They Fail GCE Edexcel
The list of useful glossaries for Unit 1: Competitive Markets: How They Work and Why They Fail:
1. Production possibility frontier/ curve: A curve that shows the maximum combination of two goods that can be produced in an economy if all resources are fully and efficiently utilised
2. Opportunity cost: the next best alternative foregone
3. Economic growth: when there is an outward shift of PPF
4. Specialisation/ division of labour: when a task is broken into many small repetitive parts each done by a small group of people or individuals
5. Labour productivity: output per worker
6. Capital productivity: output per capital/ machine employed
7. Positive statement: a statement that can be testified/ verified true or false by referring to available evidence/ a statement that its truth cannot be argued
8. Normative statement: a statement that contains subjective/ value judgement that cannot be testified/ a statement that is arguable
9. Command/ centrally planned economy: an economic system where government, through a planning process will allocate resources in society
10. Free market/ market/ free enterprise/ capitalist economy: an economic system which resolves the basic economic problem through the market mechanism/ demand and supply
11. Mixed economy: an economic system where both the free market mechanism and government planning process work together to allocate economic resources/ an economic system which has elements of both capitalism and socialism
12. Price mechanism: the interaction of demand and supply to resolve the issue of scarcity and infinite wants
13. Consumer surplus: the difference between what consumers are willing and able to pay and what they are actually paying at market price
14. Producer surplus: difference between the market price and the lowest price firms are willing and able to sell at
15.PED (Price elasticity of demand): measurement of the responsiveness of quantity demanded for a good to a change in price
16. Inelastic demand: when a change in price leads to less than proportionate change in quantity demanded
17. Elastic demand: when a change in price leads to greater than proportionate change in quantity demanded
18. XED (Cross elasticity of demand): measurement of the responsiveness of demand for a good to a change in the price of another good
19. Complement goods: a good that is used in conjunction with another good
20. Substitute goods: goods that can be used in place of another
21. YED (Income elasticity of demand): measurement of the responsiveness of demand for a good to a change in income
22. Normal goods: goods where people will demand more when there is an increase in income
23. Inferior goods: goods where people will demand less when there is an increase in income
24. PES (Price elasticity of supply): measurement of the responsiveness of quantity supplied for a good to a change in price
25. Subsidy: a grant that is given by government to reduce the production cost of a good
26. Indirect tax: a charge that is levied by the government upon the consumption of a good
27. VAT (Value Added Tax): a tax/ charge that is levied at each stage of production process and at final sale
28. Specific/ unit tax: tax that is levied on volume
29. Ad-valorem tax: tax that is levied as a percentage of the value of the good
30. Incidence of tax: upon who the burden of taxation falls onto
31. Market failure: when the interaction of demand and supply leads to inefficient allocation of resources
32. Government failure: when government intervention to resolve economic problems leads to net welfare loss
33. NMW (National Minimum Wage): a minimum wage that employers are obliged to pay, below which is illegal for them to hire workers
34. MGP (Minimum Guaranteed Price): A scheme set up by the EU government to increase the income of farmers
35. Buffer stock scheme: a scheme whereby the related organisation intervenes in the open market by buying up and selling the product so as to maintain price within a targeted range
36. Public goods: goods that have the characteristics of non-rivalry and non-excludability
37. Free rider: people who get to benefit from the consumption of a good or service when it is someone else that actually pays for it
38. Merit goods: goods and services that are beneficial for the entire society but will be under-provided and hence under-consumed if left to the market force
39. Demerit goods: goods and services that are perceived as harmful for the entire society but will be over-provided and hence over-consumed if left to the m
40. Private benefits: benefits that are directly gained by individuals or firms when they engage in an economic activity
41. External benefits/ positive externalities: benefits accrued by a third party which is not directly part of an economic activity/ positive spillover effect/ when social benefits are greater than private benefits
42. Private costs: costs that are directly incurred by individuals or firms when they engage in an economic activity
43. External costs/ negative externalities: costs accrued by a third party which is not directly part of an economic activity/ negative spillover effect/ when social costs are greater than private costs
44. Tradable pollution permits: permits to pollute that can be bought and sold in an open market which is introduced to limit emissions
45. Property rights: rights to ownership of an asset such as land
46. Occupational immobility of labour: a situation where workers find it difficult to move from one job to another due to mismatch of skills
47. Geographical immobility: a situation where workers find it difficult to move from one place to another in search for jobs
48. Asymmetric information: when one party is better informed than the other
49. Competitive demand: when two or more goods are substitutes for one another
50. Composite demand: when a good is demanded for two or more uses (e.g. milk for yoghurt, cheese making, butter or drinking)
51. Derived demand: when the demand for one good is the result of rise in demand for another good (e.g. lecturers and GCE Edexcel A-Levels)
52. Joint demand: when two or more goods are needed simultaneously to allow an economic activity to take place
53. Joint supply: an economic process that can yield two or more different outputs at the same time
54. Excess demand/ shortage: when quantity demanded is greater than quantity supplied
55. Excess supply/ surplus: when quantity supplied is greater than quantity demanded
56. Demand: the quantity of goods purchased at any given price holding other factors constant
57. Supply: the quantity of goods supplied at any given price, holding other factors constant
58. Ceteris paribus: is an assumption that other variables/ factors are constant whilst one change is being considered
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