Edexcel Economics A-Level - Theme 1: Introduction to Markets and Market Failure

This flashcard set covers key vocabulary and concepts from Edexcel Economics A-Level regarding markets and market failure.

Utility

The satisfaction gained from consuming a product.

Homo Economicus

The rational consumer who makes decisions by calculating utility.

Demand

The ability and willingness to buy a particular good at a given price.

Contraction in demand

A movement along the demand curve caused by an increase in price.

Extension in demand

A movement along the demand curve caused by a decrease in price.

Conditions of demand

Factors that cause the demand curve to shift.

PIRATES

Mnemonic for remembering the conditions of demand: Population, Income, Related goods, Advertising, Taste/fashion, Expectations, Seasons.

Cross elasticity of demand

Responsiveness of demand for one product to changes in the price of another product.

Price elasticity of demand (PED)

The responsiveness of demand to a change in the price of the good.

Unitary elastic

Where PED=1; quantity demanded changes by exactly the same percentage as price.

Inferior good

A good with a negative income elasticity of demand (YED<0).

Normal good

A good with a positive income elasticity of demand (YED>0).

Perfectly elastic

Where PED=infinity; a change in price causes quantity demanded to fall to 0.

Consumer surplus

The difference between the price consumers are willing to pay and the price they actually pay.

Producer surplus

The difference between the price suppliers are willing to produce at and the price they actually produce at.

Indirect tax

A tax on expenditure, where the business is responsible for paying the tax but the customer is charged.

Subsidy

A grant given by the government to encourage production or consumption.

Expectations

Future expectations that can impact the level of demand for goods.

Taste/fashion

Changes in consumer preferences that can affect demand.

Government legislation

Laws that can impact the demand for certain goods.

Price mechanism

The way the price system allocates resources in a free market economy.