Edexcel International A Level Economics Unit 1 Definitions

These flashcards cover key definitions and concepts in Economics relevant to the Edexcel International A Level curriculum.

Economics

The study of how society allocates scarce resources to satisfy unlimited wants.

Scarcity

The situation where there are unlimited wants but limited resources, forcing choices.

Opportunity Cost

The value of the next best alternative forgone when making a decision.

Ceteris Paribus

A Latin phrase meaning 'other things being equal'.

Factors of Production

Inputs to production: Land, Labour, Capital, Enterprise.

PPF (Production Possibilities Frontier)

A curve showing maximum combinations of two goods an economy can produce.

Demand

Quantity consumers are willing and able to buy at a given price.

Supply

Quantity producers are willing and able to sell at a given price.

Equilibrium Price

Where quantity demanded equals quantity supplied.

PED (Price Elasticity of Demand)

Responsiveness of quantity demanded to a change in price.

YED (Income Elasticity of Demand)

Responsiveness of demand to a change in income.

XED (Cross Elasticity of Demand)

Responsiveness of demand for Good A to a change in price of Good B.

PES (Price Elasticity of Supply)

Responsiveness of quantity supplied to a change in price.

Market Failure

When the free market leads to inefficient resource allocation.

Externality

Cost/benefit affecting a third party.

Public Good

Non-excludable and non-rivalrous good.

Merit Good

Under-consumed good due to underestimated benefits.

Demerit Good

Over-consumed good due to underestimated costs.

Indirect Tax

Tax on goods/services to reduce consumption.

Subsidy

Government payment to producers to encourage production.

Price Ceiling

Maximum legal price set below equilibrium.

Price Floor

Minimum legal price set above equilibrium.