AQA A-Level Economics Key Terms

A set of vocabulary flashcards defining essential microeconomic and macroeconomic concepts for AQA A-Level Economics.

Profit maximisation objective

A firm aims to maximise total profit ($TR - TC$). Profit is maximised at the output where $MC = MR$.

Sales maximisation objective

A firm aims to sell the greatest possible quantity, usually while earning at least normal profit.

Revenue maximisation objective

A firm aims to maximise total revenue. Revenue is maximised where $MR = 0$.

Growth maximisation objective

A firm aims to increase its size through higher sales, market share, assets or expansion.

Utility maximisation objective

Managers pursue objectives that increase their own satisfaction, such as pay, status, job security or perks.

Profit satisficing

A firm earns a satisfactory level of profit rather than the maximum possible profit.

Divorce of ownership and control

Shareholders own the firm but managers control its day-to-day decisions, meaning their objectives may differ.

Principal-agent problem

Agents such as managers may pursue objectives different from principals such as shareholders, particularly when their actions are difficult to monitor.

Corporate Social Responsibility (CSR)

A firm considers the social and environmental effects of its decisions as well as its financial objectives.

Static efficiency

Efficiency at a particular point in time. It includes productive and allocative efficiency.

Productive efficiency

Production occurs at the lowest possible average cost, at minimum AC.

Allocative efficiency

Resources are allocated according to consumer preferences. It occurs where $P = MC$.

Dynamic efficiency

Improvements in efficiency over time through investment, innovation, R&D and technological progress.

Frictional unemployment

Short-term unemployment occurring while workers move between jobs or enter the labour market.

Structural unemployment

Long-term unemployment caused by a mismatch between workers' skills or location and available jobs.

Cyclical unemployment

Unemployment caused by insufficient aggregate demand during an economic downturn.

Accelerator effect

An increase in the rate of economic growth can cause a proportionately larger increase in investment.

Determinants of consumption

Disposable income, interest rates, consumer confidence, wealth, taxation and expectations can affect consumption.

Determinants of investment

Interest rates, business confidence, expected demand and profits, economic growth, technology and access to finance affect investment.

Determinants of government spending

Government objectives, fiscal policy, the economic cycle, demographic pressures and political priorities affect government spending.

Potential economic growth

An increase in an economy's productive capacity or potential output, represented by a rightward shift in LRAS.

Actual economic growth

An increase in real GDP, often resulting from increased aggregate demand and greater use of spare productive capacity.

Fiscal multiplier effect

An initial change in government spending or taxation can cause a larger final change in national income through subsequent rounds of spending.

Multiplier

The process by which an initial change in injections or withdrawals causes a larger final change in national income.

Demand-deficient unemployment

Unemployment caused by insufficient aggregate demand, usually associated with a negative output gap.