Pearson Edexcel Level 3 Advanced GCE in Economics A (9EC0) Glossary

Comprehensive vocabulary flashcards covering the core microeconomic and macroeconomic concepts defined in the Pearson Edexcel Level 3 Advanced GCE in Economics A specification.

Ceteris paribus

The assumption used in building economic models that all other influencing factors are held constant.

Positive economic statement

Objective statements that can be tested, amended, or rejected by referring to available evidence.

Normative economic statement

Subjective statements that contain value judgements and cannot be proven or disproven by evidence.

Scarcity

The basic economic problem where there are unlimited human wants but finite resources.

Opportunity cost

The cost of the next best alternative foregone when an economic decision is made.

Production Possibility Frontier (PPF)

A curve that depicts the maximum productive potential of an economy and illustrates opportunity cost through marginal analysis.

Division of labour

The process where production is broken down into a sequence of stages and workers are assigned to specific tasks, as referenced by Adam Smith.

Medium of exchange

One of the four functions of money that allows for the purchase of goods and services.

Command economy

An economic system where the state makes decisions about the allocation of resources, often associated with Karl Marx.

Diminishing marginal utility

The concept that as a consumer consumes more of a product, the extra satisfaction gained from each additional unit decreases, influencing the shape of the demand curve.

Price Elasticity of Demand (PED)

A measure of the responsiveness of the quantity demanded of a good to a change in its price.

Price mechanism

The system where price changes act as signals, incentives, and rationing devices to allocate resources in a market.

Consumer surplus

The difference between the price that consumers are willing and able to pay for a good and the price they actually pay.

Market failure

A situation in which the free market mechanism leads to a misallocation of resources, such as through externalities, public goods, or information gaps.

Public good

A good that is non-rivalry and non-excludable, often leading to the free-rider problem.

Asymmetric information

An information gap that occurs when one party in a transaction has more or better information than the other.

Government failure

When government intervention in a market results in a net welfare loss or a more inefficient allocation of resources.

Purchasing Power Parity (PPP)

An adjustment made to exchange rates to reflect the actual buying power of currencies in their own countries, used for international comparisons of living standards.

Consumer Prices Index (CPI)

The official measure used in the UK to calculate the rate of inflation.

Claimant count

A measure of unemployment that counts the number of people receiving unemployment-related benefits.

Structural unemployment

Unemployment resulting from industrial reorganization or a mismatch of skills in the labour market.

Aggregate Demand (AD)

The total planned expenditure on goods and services in an economy at a given price level, represented by the formula $C + I + G + (X - M)$.

The Multiplier

The process by which an initial change in an injection (such as investment) leads to a larger final change in real national output, calculated as $\frac{1}{1 - MPC}$.

Output gap

The difference between the actual level of real GDP and the long-term trend or potential level of GDP.

Quantitative easing

A monetary policy instrument involving asset purchases by the central bank to increase the money supply.

Supply-side policies

Government actions designed to increase the productive potential of the economy by improving the efficiency of markets.

Principal-agent problem

A conflict in priorities between the owners of a firm (shareholders) and those who control it (managers), also known as the divorce of ownership from control.

Organic growth

When a business grows internally by expanding its own operations rather than through mergers or takeovers.

Satisficing

A business objective where managers aim for a level of profit that is 'good enough' to satisfy shareholders while pursuing other goals.

Allocative efficiency

Occurs when resources are distributed in such a way that the value consumers place on a good equals the marginal cost of producing it ($P = MC$).

Oligopoly

A market structure dominated by a small number of large firms characterized by interdependence and high barriers to entry.

Monopsony

A market situation where there is only one buyer, giving that buyer significant power over suppliers or workers.

Comparative advantage

The ability of a country to produce a specific good or service at a lower opportunity cost than its trading partners.

Human Development Index (HDI)

A composite statistic of life expectancy (health), education, and per capita income (living standards) indicators used to rank countries.

Lorenz curve

A graphical representation of the distribution of income or wealth within an economy.

Gini coefficient

A numerical measure of inequality based on the Lorenz curve, ranging from 0 (perfect equality) to 1 (perfect inequality).

Lender of last resort

A function of a central bank where it offers loans to banks or other eligible institutions that are experiencing financial difficulty or are considered high-risk.

Laffer curve

A representation of the relationship between tax rates and the amount of tax revenue collected by governments.