Edexcel AS/A Level Economics - Introduction to markets and market failure

All key terms for unit 1 of the Edexcel AS/A Level Economics qualification

Ceteris paribus

All things being equal: the assumption that, whilst the effects of a change in one variable are being investigated, all other variables are kept constant

Law

A theory or model which has been verified by empirical evidence

Normative economics

The study and presentation of policy prescriptions involving value judgements about the way in which scarce resources are allocated

Normative statement

A statement which cannot be supported or refuted because it is a value judgement

Positive economics

The scientific or objective study of the allocation of resources

Positive statement

A statement which can be supported or refuted by evidence

Scientific method

A method which subjects theories or hypotheses to falsification by empirical evidence

Social science

The study of societies and human behaviour using a variety of methods, including the scientific method

Theory or model

A hypothesis which is capable of refutation by empirical evidence

Base period

The period, such as a year or a month, with which all other values in a series are compared

Index number

An indicator showing the relative value of one number to another from a base of 100. It is often used to present an average of a number of statistics

Nominal values

Values unadjusted for the effects of inflation (i.e. values at current prices)

Real values

Values adjusted for inflation (i.e. values at constant prices)

Basic economic problem

Resources have to be allocated between competing uses because wants are infinite whilst resources are scarce

Capital

As a factor of production is the stock of manufactured resources used in the production of goods and services

Choice

Economic choices involve the alternative uses of scarce resources

Economic goods

Goods that are scarce because their use has an opportunity cost

Entrepeneurs

Individuals who seek out profitable opportunities for production and take risks in attempting to exploit these

Enterprise or entrepreneurship

As a factor of production is the seeking out of profitable opportunities for production and taking risks in attempting to exploit these

Factors of production

The inputs to the production process: land, labour, capital and enterprise or entrepreneurship

Fixed capital

Economic resources such as factories and hospitals which are used to transform working capital into goods and services

Free goods

Goods that are unlimited in supply and which therefore have no opportunity cost

Human capital

The value of the productive potential of an individual or group of workers; it is made up of the skills, talents, education and training of an individual or group and represents the value pf future earnings and production

Labour

As a factor of production is the workforce

Land

As a factor of production is all natural resources

Needs

The minimum that is necessary for a person to survive as a human being

Non-renewable resources

Resources, such as coal or oil, which once exploited cannot be replaced

Non-sustainable resource

A resource which can be economically exploited in such as a way that its stock is being reduced over time

Opportunity cost

The benefits forgone of the next best alternative

Renewable resources

Resources, such as fish stocks or forests, that can be exploited over and over again because they have the potential to renew themselves

Scarce resources

Resources that are limited in supply so that choices have to be made about their use

Sustainable resource

Renewable resource that is being economically exploited in such a way that it will not diminish or run out

Wants

Desires for the consumption of goods and services

Working or circulating capital

Resources that are in the production system waiting to be transformed into goods or other materials before being finally sold to the consumer

Capital goods

Goods that are used in the production of other goods such as factories, offices, roads, machines and equipment

Consumer goods

Goods and services that are used by people to satisfy their needs and wants

Margin

A point of possible change

Production possibility frontier (PPF)

A curve which shows the maximum potential level of output of one good given a level of output for all other goods in the economy