aqa economics paper1 key terms

Consumer

A person or organisation that directly uses a good or service

Producer

A erson, company or country that makes, grows or supplies goods and/or services

Government

A political authority that decides how a country is run and manages its operation

Good

a tangible product that can be seen or touched (eg chocolate bar)

service

An intangible product ie a produc that can't be seen or touched (eg education)

Production

The total output of goods and services produced by a firm or industry in a time period

Factors of production

the resources in an economy - land, labour, enerprise, and capital- that are needed to produce goods and services

Interdependence

Mutual dependence between things

Eg dependence between economic groups - government, producers and consumers

Who are the three main economic groups (agents)

• Consumers

• Producers

• Government

Land

The factor of production that is concerned with the natural resources of an economy, such as farmland and mineral deposits

Labour

The factor of production that is concerned with the workforce of an economy in terms of both the physical and mental effort involved in production

Capital

The factor of production that is concerned with human-made aids used to help production (eg machines)

Enterprise

The factor of production that takes a risk in organising the other three factors of production. The individual who takes this risk is known as an entrepreneur.

scarce resources

When there is an insufficient amount of something to satisfy all wants

Unlimited wants

The infinite desire for goods or services consumers would like to have

Economic problem

How to best use scarce resources to satisfy the unlimited wants of people

Opportunity cost

The next best alternative given up when making a choice

Economic choice

An option for the use of selected scarce resources

Renewable resources

Natural resources that can be replaced as long as they are not overused

Non-renewable resources

a resource that cannot be reused or replaced once used (eg. gems, iron, copper, fossil fuels) - they are finite.

Market

Any way of bringing together buyers and sellers to buy and sell goods and servicdes

Market economy

An economy in which scarce resources are allocated by the market forces of supply and demand

Primary sector

The direct use of natural resources, such as the extraction of basic materials and goods from land and sea

Secondary sector

All activities in an economy that are concerned with either manufacturing or construction

Construction

Thye process of constructing a building or infrastructure. This could be buildings such as houses, schools, offices, or infrastucture such as an airport runway or road.

manufacturing

Includes both

• the direct use of raw materials from the primary sector (eg making wooden furniture)

-the indirect use of materials such as component products for a car (handicrafts to high technology)

Tertiary sector

All activities in an economy that involve the idea of a service

Product market

Market in which final goods or services are offered to consumers, businesses and the public sector

Factor market

market in which the serices of the factors of production are bought and sold

Interdependence of factor and product markets

-Households are involved in both markets (supply labour to firms who pay them wages - factor markets AND households consume goods/services that are produced - product market)

-Firms buy resources in return for making payments to the factors of production. The interaction between product and factor markets involves derived demand (eg demand for cars increases, firms will need more factors of production)

What is derived demand?

that a product or factor of production is not demanded for itself but dependent on the demand for the product it helps to product

For example, the demand for labour is dependent on the demand for goods/services at a given workplace

demand

Consumer willingness and ability to buy products at a given price at a given period of time

Law of Demand

consumers buy more of a good when its price decreases and less when its price increases

individual demand curve

illustrates the relationship between quantity demanded and price for an individual consumer

Market demand curve

a curve that shows how much of a product all consumers will buy at all possible prices

Movement along the demand curve

a change in the quantity demanded of a good that is the result of a change in that good's price

(extension or contraction)

When does a contraction in demand occur?

When there is an increase in price (movement along curve)

When does an extension in demand occur?

When there is a fall in price (movement along curve)

What are the factors that would cause a shift of the demand curve?

• income

• marketing

• tastes and fashion

• prices of substitute goods

-prices of complementary goods

-population (demographic changes)

-government policies

-the economic situation

-price expectations

What is meant by price elasiticity of demand (PED)?

measures the responsiveness of quantity demanded to a change in price

What is the formula for PED?

% change in quantity demanded / % change in price

What is meant by inelastic demand

the proportionate change in price leads to a less then proportionate change in QD.

For example, a 10% increase in price would only lead to a 2% fall in QD

What is meant by elastic demand

the proportionate change in price leads to a more then proportionate change in QD.

For example, a 10% increase in price leads to a 25% fall in QD

What are the values for PED?

0 = perectly inelastic

0 to -1 = inelastic

-1 = unitary

-1 to -infinity = elastic

What factors influence the PED of a product/service?

• The percentage of income spent on the product

• Time

• The availability of substitutes

• The degree of necessity

What will happen to total revenue if a firm with an elastic good increases its prices?

Fall

What will happen to total revenue if a firm with an inelastic good increases its prices?

Rise

What will happen to total revenue if a firm with an elastic good lowers its prices?

Rise

What will happen to total revenue if a firm with an inelastic good lowers its prices?

Fall

What does a perfectly inelastic demand curve look like?

Veritcal

What does a perfectly elastic demand curve look like?

horizontal

What does an elastic demand curve look like?

relatively flat

What does an inelastic demand curve look like?

steep slope

Define supply

The relationship between price and quantity that illustrates how much producers are willing to supply at a given price at a given period of time

What is the law of supply?

an increase in price results in an increase in quantity supplied

What is individual supply

The supply of a good or service by an individual producer

What is market supply

the sum of the supplies of all the sellers in the market

What would cause a movement along the supply curve

a change in the price of the good itself

What would cause an extension in suppy

Increase in the price of a good/service

What would cause a contraction in suppy

A fall in the price of a good/service

What factors would cause a shift of the supply curve

• costs of production

-taxes and subsidies

-technology

-climate

-number of producers

-size of existing firms

-government regulation

How would you describe the relationship between price and supply

positive

How would you describe the relationship between price and demand

negative (inverse)