AQA A level Economics All Definitions

From the AQA Website adapted to flashcards

Positive statement

A statement that does not include a value judgement and can be tested against the facts or evidence.

Normative statement

A statement that includes a value judgement and cannot be refuted just by looking at data or evidence.

Value judgement

A view about what is right or wrong, good or bad in a moral sense. Statements that include value judgements often contain the words 'should' or 'ought'.

Economic activity

The production, consumption, exchange, and distribution of goods and services.

Economic resources (factors of production)

The inputs into the production process that are needed to produce the goods and services that satisfy people’s wants, classified as land, labour, capital, and enterprise.

Land

The factor of production that includes all the natural resources available on the earth, including land and sea.

Capital

The human-made factor of production, including machines, tools, lorries, and buildings.

Labour

The human resource that contributes to the production of goods and services.

Entrepreneur

The person or group who organises the other economic resources to produce goods and services.

Enterprise

Involves making decisions and taking risks.

Scarce resource

A factor of production that is limited in supply and cannot satisfy all needs and wants.

Scarcity

The fundamental economic problem that arises from limited resources and unlimited wants, leading to choices with opportunity costs.

Opportunity cost

The next best alternative foregone when a choice is made.

Production possibility diagram

A diagram that shows the quantities of two goods or services that can be produced with available resources, given current technology.

Production possibility boundary (PPB)

Also known as the production possibility curve (PPC) or frontier (PPF); shows the various quantities of two goods or services that can be produced when all resources are fully employed.

Resource allocation

How available factors of production are used to produce various goods and services.

Rational economic decision making

Using all available information to select the best option to maximise welfare.

Utility

The satisfaction derived from consuming a good or service.

Marginal utility

The change in total utility resulting from consuming one more or one fewer good or service.

Hypothesis of diminishing marginal utility

The proposition that additional consumption of a product yields less additional satisfaction.

Imperfect information

When an economic agent lacks all necessary information to make a rational decision.

Asymmetric information

When one party in an economic transaction has more information than another party.

Behavioural economics

A branch of economics that incorporates psychology to understand decision-making influenced by biases and emotions.

Bounded rationality

The idea that human limitations lead to decisions that are not completely rational.

Bounded self-control

The idea that people lack sufficient willpower to resist self-defeating choices.

Rules of thumb

Mental shortcuts based on experience that help individuals make quick decisions.

Anchoring

The tendency to rely too heavily on the first piece of information encountered when making decisions.

Availability bias

When recent events or easily recalled information unduly influence decision-making.

Social norms

Behaviours considered acceptable by society at the present time.

Choice architecture

The framework in which choices are presented to individuals.

Nudge

Encouragement of a particular choice or behaviour while maintaining freedom of choice.

Default choice

A pre-selected option that an individual can change if desired.

Restricted choice

Limited options presented to an individual, often to simplify decision-making.

Mandated choice

A required decision-making process enforced by law.

Demand curve

The relationship between price and quantity demanded of a good or service over time.

Price elasticity of demand

The extent to which quantity demanded changes in response to price changes.

Income elasticity of demand

The extent to which quantity demanded changes in response to income changes.

Cross elasticity of demand

The extent to which the quantity demanded of one product changes in response to the price change of another product.

Normal good

A product for which demand increases as income rises.

Inferior good

A product for which demand decreases as income rises.

Supply curve

The relationship between price and quantity supplied of a good or service over time.

Price elasticity of supply

The extent to which quantity supplied changes in response to price changes.

Equilibrium market price

The price at which quantity demanded equals quantity supplied, with no price change tendency.

Disequilibrium price

A price leading to excess demand or supply, resulting in price changes.

Excess demand

The quantity demanded exceeds quantity supplied at the current price.

Excess supply

The quantity supplied exceeds quantity demanded at the current price.

Joint demand

When two products are demanded together; demand for one product relates directly to the demand for the other.

Competitive demand

When an increase in demand for one product leads to a decrease in demand for another substitute product.

Composite demand

When a product has multiple uses; increased demand for one use impacts supply for other uses.

Derived demand

Demand for a product determined by the demand for another product.

Joint supply

When the production of one product also results in the production of another product.

Production

The process of using production factors to create goods and services.

Productivity

A measure of output in a given period, indicating efficiency.

Labour productivity

Output per worker in a specific time frame.

Specialisation

The concentration on producing a specific good or service.

Division of labour

Breaking down the production of a good into separate tasks performed by different workers.

Short run

The time period when at least one production factor is fixed.

Long run

The time period when all production factors are variable.

The law of diminishing returns

As more of a variable factor combines with a fixed factor, initial marginal and average returns increase but eventually decrease.

Returns

The output of a good or service.

Marginal returns

The change in total output from employing one more unit of a variable factor.

Average returns

Total output divided by the number of units of a variable factor employed.

Total returns

Total output.

Returns to scale

The effect on total output when all production factors change.

Increasing returns to scale

A larger percentage increase in output from a percentage increase in all factor inputs.

Constant returns to scale

A percentage increase in all factor inputs leads to the same percentage increase in output.

Decreasing returns to scale

A percentage increase in all factor inputs leads to a smaller percentage increase in output.

Fixed costs

Costs that do not change with variations in output.

Variable costs

Costs that fluctuate with output changes.

Marginal cost

The change in total cost when one more or one fewer unit of output is produced.

Average cost

Total cost divided by output.

Total cost

Total fixed cost plus total variable cost.

Internal economies of scale

Falling long-run average cost due to firm growth.

External economies of scale

Lower average costs for firms in an industry due to industry growth.

Diseconomies of scale

Increasing long-run average costs due to firm growth.

Long-run average cost curve (LRAC)

Shows minimum average costs at any given output level when all production factors are variable.

Minimum efficient scale of production

The lowest output level that minimises a firm’s long-run average costs.

Total revenue

The total money a firm receives from selling its output.

Marginal revenue

Change in total revenue from selling one more or one fewer unit of output.

Average revenue

Total revenue divided by quantity sold.

Profit

The difference between total revenue and total cost.

Normal profit

The minimum profit required to keep an entrepreneur in business in the long run.

Abnormal profit (supernormal profit)

When total profit exceeds normal profit.

Subnormal profit

When total profit is less than normal profit.

Technological change

The introduction and use of new methods for producing goods and services.

Invention

The discovery of a new product, process, or production method.

Innovation

The process of developing and introducing a new product, service, or method of production.

Market structure

Classification of an industry based on key characteristics.

Divorce of ownership from control

When business owners are different from business managers.

Satisficing

A strategy where decision-makers aim for a satisfactory outcome instead of the optimal solution.

Market share

The percentage of total market sales attributed to a specific firm or product.

Perfect competition

A market structure with many small firms selling identical products.

Homogeneous products

Identical products that are perfect substitutes.

Price taker

A firm that cannot influence product price, determined by market forces.

Monopolistic competition

A market structure with many firms selling differentiated products.

Differentiated products

Similar but not identical products; close substitutes.

Price maker

A firm that can set its product's price.

Oligopoly

A market structure dominated by a few large firms that compete with each other.

Concentration ratio

The market share percentage of the largest firms in an industry.

Collusion

When competing firms work together for mutual benefit, harming consumers.