Edexcel Economics A Key Terms

A complete list of vocabulary flashcards covering foundational economics methodology, microeconomic market concepts, and macroeconomic national economy definitions.

Scarcity

Not having enough resources to make everything everyone wants, which serves as the core problem in economics.

Opportunity Cost

The cost of what you gave up to get something else (for example, spending $\pounds 5$ on a movie has the opportunity cost of the burger you could have bought instead).

Factors of Production

The ingredients needed to make goods, consisting of land (natural resources), labour (workers), capital (machinery), and enterprise (the business ideas).

Capital

Machinery that makes goods.

Ceteris Paribus

A Latin phrase meaning 'all other things staying the same' or 'all other things being equal,' which economists use to isolate and study one change at a time.

Economic Model

A simplified representation of economic reality used by economists to focus on particular relationships and explain human behaviour because the real economy is extremely complex.

Assumption

A simplification made by economists in their models to allow them to focus on particular relationships, which does not necessarily mean something is completely true in reality.

Basic Demand Model

A model suggesting that as price rises, quantity demanded falls, ceteris paribus (which does not mean consumers buy less every time price rises).

Positive Statement

A statement of fact that can be proven true or false.

Normative Statement

A statement that is an opinion or value judgement.

Price Elasticity of Demand (PED)

A measure of how much buyers change their habits when prices change; demand is highly elastic if a small price jump makes everyone stop buying.

Allocative Efficiency

Making the exact mix of goods that society actually wants and values most.

Productive Efficiency

Making goods at the absolute lowest possible cost without wasting resources.

Externalities

Side effects of a business activity that hit innocent bystanders, such as negative externalities (pollution) or positive externalities (an educated workforce).

Public Goods

Things like streetlights or national defence where no one can be blocked from using them, and one person using them does not stop anyone else from doing so.

Economies of Scale

Getting cheaper as a business gets bigger, where large factories usually make things cheaper per unit than small workshops.

Aggregate Demand (AD)

The total amount of spending in the entire economy by consumers, businesses, the government, and foreign buyers.

Aggregate Supply (AS)

The total amount of goods and services that all businesses in the economy are willing and able to sell.

Inflation

A steady increase in the general cost of living over time, causing money to buy less than it used to.

Fiscal Policy

How the government uses tax rates and its own spending to speed up or slow down the economy.

Monetary Policy

How the Central Bank uses interest rates and changes the money supply to keep inflation steady.

Balance of Payments

The national scoreboard tracking all money flowing into and out of the country through trade and investment.

Economics as a Social Science

A branch of science studying human behaviour regarding how individuals, firms, and governments make choices about scarce resources.