ECONOMICS IGCSE EDEXCEL

Advalorem tax

Tax levied as a percentage of the price of a good.

Aggregate demand

Total demand in the economy including consumption, investment, government expenditure and exports minus imports.

Anti-competitive practices or restrictive trade practices

An attempt by firms to prevent or restrict competition.

Assisted areas

Areas designated as having problems by the UK or EU and are eligible for support.

Average costs

The cost per unit of output; it is equal to total cost divided by output.

Backward vertical integration

Merging with a firm that operates in the previous stage of production.

Balance of payments

A record of all transactions relating to international trade.

Balance of trade or visible balance

The difference between visible exports and visible imports.

Barriers to entry

Obstacles that might discourage a firm from entering a market.

Base rate

The rate of interest set by the MPC which influences all other rates in the economy.

Basic economic problem

Allocation of a nation's scarce resources between competing uses that represent infinite wants.

Boom

The peak of the economic cycle where GDP is growing at its fastest.

Budget

The government's spending and revenue plans for the next year.

Budget deficit

The amount by which government spending exceeds government revenue.

Budget surplus

The amount by which government revenue exceeds government spending.

Capital intensive

Where production relies more heavily on machinery relative to labour.

Cartel

Where a group of firms or countries join together and to agree on pricing or output levels in the market.

Choice

Deciding between alternative uses of scare resources.

Collusion

Agreements between firms to restrict competition.

Competition

The rivalry that exists between firms when trying to sell goods to the same group of customers.

Competition Commission

A government body that carries out investigations into mergers and markets where there may be some consumer exploitation.

Complementary goods

Goods purchased together because they are consumed together.

Conglomerate or diversifying merger

The merging of firms involved in completely different business activities.

Consumer price index (CPI)

A measure of the general price level; used in the UK and across the Eurozone.

Contractionary fiscal policy

Fiscal measures designed to dampen demand in the economy.

Cost-push inflation

Inflation caused by rising business costs.

Costs

The expenses incurred when producing goods and services.

Current account

Part of the balance of payments where all exports and imports are recorded.

Cyclical or demand deficient unemployment

Unemployment caused by falling demand as result of a downturn in the economic cycle.

De-industrialisation

The decline in manufacturing.

Deflation

A period where the level of aggregate demand is falling.

Demand

The amount a good will be bought at given prices over a period of time.

Demand curve

Line drawn on a graph which shows how much of a good will be bought at different prices.

Demand-pull inflation

Inflation caused by too much demand in the economy relative to supply.

Depression or slump

The bottom of the economic cycle where GDP starts to fall with significant increases in unemployment.

Derived demand

Demand that arises because there is demand for another good.

Devaluation

The depreciation or fall in the value of a currency.

Developing countries

Poorer, less economically developed nations in the world.

Development aid

Money and other forms of assistance that is given to less developed countries by governments in developed countries.

Direct taxes

Taxes levied on the income earned by firms and individuals.

Discretionary expenditure

Non-essential spending or spending that is not automatic.

Diseconomies of scale

Rising average costs when a firm becomes too big.

Dividends

Payments made to shareholders from profit.

Division of labour

The breaking down of the production process into small parts with each worker allocated to a specific task.

Downturn

A period in the economic cycle where GDP grows, but more slowly.

Dumping

Where an overseas firm sells large quantities of a product below cost in the domestic market.

Economic growth

The increase in national income over time.

Economic policy

The range of actions taken by the government to help achieve its macroeconomic objectives.

Economies of scale

Falling average costs due to expansion.

Economy

System that attempts to solve the basic economic problem.

Effective demand

The amount people are willing to pay for a good at given prices over a given period of time backed by the ability to pay.

Efficiency

Minimising costs and the use of resources.

Elastic demand

A change in price results in a greater change in demand.

Entrepreneur

An individual who organises the other factors of production and risks their own money in a business venture.

Equilibrium price

Price where supply and demand are equal.

Excess demand

Where demand is greater than supply and there are shortages in the market.

Excess supply

Where supply is greater than demand and there are unsold goods in the market.

Exchange rate

The price of one currency in terms of another.

Expansionary fiscal policy

Fiscal measures designed to stimulate demand in the economy.

Exporter

Firms that sell overseas.

Exports

Goods and services sold overseas.

External economies of scale

The cost benefits that all firms in the industry can enjoy when the industry expands.

Externalities

The spillover effects of consumption or production. They affect others and can be positive or negative.

Factors of production

The resources used to produce goods and services. They include land, labour, capital and enterprise.

Fiscal policy

Decisions about government spending, taxation and levels of borrowing which affect aggregate demand in the economy.

Fixed capital

The stock of 'man-made' resources such as machines and tools used to help make goods and services.

Fixed costs

Costs that do not vary with the level of output.

Foreign direct investment (FDI) or inward investment

Business investment undertaken by a firm in another country, building a factory for example.

Foreign exchange market

The markets where foreign currencies can be bought and sold.

Forward vertical integration

Merging with a firm that operates in the next stage of production.

Free trade

Trade between nations that is completely without government restrictions.

Frictional unemployment

When workers are unemployed for a short period of time as they move from one job to another.

Globalisation

The growing integration of the world's economies.

Gross domestic product (GDP)

An internationally recognised measure of national income.

Horizontal integration

The merging of two firms which are in exactly the same line of business.

Human capital

The value of the workforce or an individual worker.

Imports

Goods and services bought from overseas.

Income elasticity of demand

The responsiveness of demand to a change in income.

Index linked/linking

Where certain government payments are linked to increases in the RPI.

Indirect taxes

Taxes levied on spending in the economy.

Inelastic demand

A change in price results in a proportionately smaller change in demand.

Infant industries

New industries yet to establish themselves.

Inferior good

A good for which demand will fall if income rises or rise if income falls.

Inflation

A general and persistent rise in prices.

Innovation

The commercial exploitation of a new invention.

Interdependence

Where the actions of one large firm in an oligopolistic market will have a direct effect on others.

Internal economies of scale

The cost benefits that an individual firm can enjoy when it expands.

Inverse relationship (between price and quantity demanded)

When price goes up the quantity demanded falls and when the price goes down the quantity demanded rises.

Invisible trade

Trade in services.

Labour

The people used to production.

Labour intensive

Where production relies more heavily on labour relative to machinery.

Lateral integration

The merging of two firms that produce similar goods but are not in competition with each other.

Macroeconomic objectives

The aims of a government relating to key economic performance indicators such as economic growth, inflation and unemployment.

Macroeconomics

The study of the economy as a whole.

Market

A set of arrangements allowing buyers and sellers to communicate and exchange goods and services.

Market clearing price

Price where the amount supplied in a market matches exactly the amount demanded.

Market failure

Where markets lead to inefficiency.

Market system or price mechanism

The automatic determination of prices and the allocation of resources by the operation of markets in the economy.

Merger

The joining together of two or more businesses, usually to make one new one.

Microeconomics

The study of individual parts of the economy.