Edexcel Economics (A) Theme 1 - Nature of Economics Vocabulary Flashcards

Vocabulary flashcards for Edexcel Economics (A) Theme 1: Introduction to Markets and Market Failure (Section 1.1 Nature of Economics).

Ceteris Paribus

A Latin phrase meaning 'all other things remaining equal', used by economists to isolate the relationship between specific variables by assuming all other factors remain constant.

Positive Statement

An objective statement made without value judgements or emotions that can be tested against evidence to be proven or disproven.

Normative Statement

A subjective statement based on value judgements or opinions that cannot be proven or disproven, often including words such as 'ought', 'should', or 'unwise'.

Scarcity

The fundamental economic problem that arises because human wants are infinite while available resources are finite.

Renewable Resource

An economic resource that can be replenished or replaced naturally at a rate equal to or greater than its rate of consumption.

Non-Renewable Resource

An economic resource that cannot be readily replaced by natural means at a rate equal to its consumption, such as fossil fuels like coal, oil, and gas.

Opportunity Cost

The cost of any choice expressed in terms of the next best alternative given up.

Production Possibility Frontier (PPF)

A curve showing the maximum possible combinations of capital and consumer goods that an economy can produce given its current resources and technology.

PPF Opportunity Cost Calculation (Diagram)

A diagram illustrating that moving from point A to point B yields $15$ additional consumer goods at an opportunity cost of $30$ capital goods.

Straight-Line PPF

A constant-opportunity-cost PPF where producing $1$ consumer good costs $3$ capital goods ($600/200 = 3$), and $1$ capital good costs $\frac{1}{3}$ of a consumer good ($200/600 = \frac{1}{3}$).

PPF Shifts

A diagram showing an outward shift (purple arrows) representing economic growth, and an inward shift (orange arrows) representing economic decline.

Resource Allocation Points on PPF

A diagram showing efficient production on the curve (A), inefficient production inside the curve (B), unobtainable production outside the curve (C), consumer goods production only (D), and capital goods production only (E).

Asymmetric PPF Shift (Capital Goods Fall)

A PPF pivot showing a decrease in maximum capital goods output while consumer goods potential remains unchanged, indicating a reduction in efficiency or resources affecting capital goods only.

Asymmetric PPF Shift (Consumer Goods Increase)

A PPF pivot showing an increase in maximum consumer goods output while capital goods output stays constant, caused by improved technology in consumer goods production.

Consumer Goods

Goods that are directly demanded and purchased by households and individuals for final consumption.

Capital Goods

Goods produced to assist in the future production of consumer goods and services, such as machinery and tools.

Specialisation

The concentration of an individual, firm, or country on the production of a limited range of goods or services.

Division of Labour

A production process in which labor is divided into specialized tasks to improve worker efficiency and output.

Theory of Comparative Advantage

An economic theory stating that countries should specialize in producing goods where they have a lower opportunity cost, leading to increased global output.

Medium of Exchange

A function of money that allows it to be accepted universally in payment for goods and services, avoiding the double coincidence of wants required in barter.

Measure of Value

A function of money that provides a unit of account to express and compare the relative worth of goods, services, and labor.

Store of Value

A function of money that enables purchasing power to be retained and saved for future use.

Method for Deferred Payment

A function of money that allows for credit transactions, enabling goods to be acquired in the present and paid for in the future.

Free Market Economy

An economic system where factors of production are privately owned and resources are allocated strictly through the price mechanism without government intervention.

Consumer Sovereignty

The concept that consumers dictate what is produced in a market economy through their purchasing decisions.

Command Economy

An economic system where factors of production (except labor) are state-owned, and resource allocation is determined by central government planning.

Mixed Economy

An economic system where both market forces and government planning play significant roles in allocating resources, typically with state control between $40\text{-}60\%$.

Adam Smith

An economist who observed productivity gains from dividing labor in a pin factory, advocated free markets, and introduced the concept of the 'invisible hand'.

Friedrich Hayek

An economist who argued that central planning reduces personal freedom and that individuals are best placed to decide resource needs based on local information.

Karl Marx

A philosopher and economist who argued that capitalism exploits labor value, predicting its inevitable collapse into a classless communist system where society owns production.