Economics terms and formulas

For AQA A-level, made by chat-GPT

Marginal private cost

The additional cost to an individual of producing one more unit of a good or service

Marginal social cost

The additional cost to society of producing one more unit of a good or service.

Tax incidence

The division of the burden of a tax between buyers and sellers.

Deadweight loss

The loss in economic efficiency that results from a market distortion such as a tax.

Elasticity of demand

The responsiveness of quantity demanded to changes in price.

Price elasticity of demand

The percentage change in quantity demanded divided by the percentage change in price.

Income elasticity of demand

The percentage change in quantity demanded divided by the percentage change in income.

Cross elasticity of demand

The percentage change in quantity demanded of one good divided by the percentage change in the price of another good.

Elasticity of supply

The responsiveness of quantity supplied to changes in price.

Price elasticity of supply

The percentage change in quantity supplied divided by the percentage change in price.

Production function

The relationship between inputs and outputs in the production of goods and services.

Marginal product

The additional output produced by using one more unit of an input.

Average product

The output per unit of input.

Isoquant

A curve that shows all the combinations of inputs that can produce a given level of output.

Isocost

A curve that shows all the combinations of inputs that can be purchased for a given cost.

Marginal rate of technical substitution (MRTS)

The rate at which one input can be substituted for another while keeping output constant.

Total revenue

The price of a good multiplied by the quantity sold.

Marginal revenue

The additional revenue generated by selling one more unit of a good.

Total profit

Total revenue minus total cost.

Marginal product of labor

The additional output produced by using one more unit of labor.

Marginal revenue product of labor

The additional revenue generated by using one more unit of labor.

Labor market equilibrium

The point where the supply of labor equals the demand for labor.

Monopoly

A market structure where there is only one seller of a good or service.

Monopolistic competition

A market structure where there are many sellers of differentiated goods.

Oligopoly

A market structure where there are a few large sellers of a good or service.

Game theory

A tool used to analyze strategic behavior in situations where the outcome depends on the choices of multiple individuals or firms.

Prisoner's dilemma

A game theory scenario where two individuals or firms acting in their own self-interest leads to a suboptimal outcome.

Dominant strategy

A strategy that is the best choice for a player regardless of the choices made by other players.

Nash equilibrium

A situation where each player's strategy is the best response to the other player's strategy.

Cartel

A group of firms that collude to restrict output and raise prices.

Anti-trust laws

Laws that regulate and promote competition in markets.

Consumer surplus

The difference between the maximum price a consumer is willing to pay and the actual price paid.

Multiplier effect

The concept that an initial change in spending can lead to a larger overall change in economic activity

Marginal propensity to consume (MPC)

The fraction of additional income that is spent on consumption

Marginal propensity to save (MPS)

The fraction of additional income that is saved

Aggregate demand

The total demand for goods and services in an economy

Aggregate supply

The total supply of goods and services in an economy

Long-run aggregate supply

The level of aggregate supply that is consistent with potential output in the long run

Short-run aggregate supply

The level of aggregate supply that can be influenced by changes in prices and wages in the short run

Phillips curve

The relationship between unemployment and inflation in an economy

Natural rate of unemployment

The rate of unemployment that is consistent with a stable rate of inflation in the long run

Nominal interest rate

The interest rate as stated without adjustment for inflation

Real interest rate

The nominal interest rate adjusted for inflation

Inflation rate

The percentage increase in the general level of prices over a period of time

Velocity of money

The rate at which money changes hands in an economy

Quantity theory of money

The concept that changes in the money supply lead to proportional changes in the price level

Liquidity preference theory

The concept that the demand for money is influenced by the interest rate

Money multiplier

The ratio of the change in the money supply to the change in the monetary base

Central bank

The institution responsible for managing the money supply and monetary policy in a country

Open market operations

The purchase or sale of government securities by the central bank in order to influence the money supply

Discount rate

The interest rate at which banks can borrow from the central bank

Reserve requirement

The fraction of deposits that banks must hold as reserves

Crowding out

The concept that government spending can reduce private investment by competing for resources

Tragedy of the commons

The concept that a shared resource may be overused and depleted due to individual self-interest

Public goods

Goods that are non-excludable and non-rivalrous in consumption

Externalities

Costs or benefits of an economic activity that are not reflected in the market price

Social cost

The total cost of an economic activity, including external costs

Social benefit

The total benefit of an economic activity, including external benefits

Marginal private benefit

The additional benefit to an individual from consuming one more unit of a good or service

Marginal social benefit

The additional benefit to society from consuming one more unit of a good or service

Income elasticity of demand

The percentage change in quantity demanded resulting from a one percent change in income

Cross-price elasticity of demand

The percentage change in quantity demanded of one good resulting from a one percent change in the price of another good

Price elasticity of supply

The percentage change in quantity supplied resulting from a one percent change in price

Consumer surplus

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

Producer surplus

The difference between the minimum price that producers are willing to accept for a good and the price that they actually receive

Deadweight loss

The loss in total surplus resulting from a market inefficiency, such as a tax or a price floor

Price ceiling

A legal maximum price that can be charged for a good or service

Price floor

A legal minimum price that must be paid for a good or service

Quota

A legal limit on the quantity of a good that can be imported or produced domestically

Tariff

A tax on imported goods

Exchange rate

The price of one currency in terms of another currency

Balance of trade

The difference between a country's exports and imports

Current account

The balance of trade plus other income and transfers

Capital account

The balance of investments and loans between countries

Fixed exchange rate

A system in which the exchange rate is set by the government and does not fluctuate in response to market forces

Floating exchange rate

A system in which the exchange rate is determined by market forces, such as supply and demand for currencies

Depreciation

A decrease in the value of a currency relative to other currencies

Appreciation

An increase in the value of a currency relative to other currencies

Fiscal policy

The use of government spending and taxation to influence the economy

Monetary policy

The use of central bank policies, such as interest rates and money supply, to influence the economy

Production function

Mathematical representation of the relationship between inputs and outputs in production

Production function

Mathematical representation of the relationship between inputs and outputs in production

Marginal product

Increase in output resulting from a one-unit increase in input

Law of diminishing marginal returns

Principle that as additional units of a variable input are added to a fixed input, the marginal product of the variable input will eventually decrease

MRTS

Marginal rate of technical substitution; the rate at which one input can be substituted for another while holding output constant

Least-cost combination of inputs

The combination of inputs that produces a given level of output at the lowest possible cost

Profit-maximizing level of output

The level of output at which marginal revenue equals marginal cost

Shutdown point

The point at which a firm's price falls below its average variable cost, and the firm stops producing in the short run

Break-even point

The point at which a firm's price equals its average total cost, and the firm earns zero economic profit

Long-run average cost curve

Curve representing the lowest possible average total cost of production for each level of output, assuming that all inputs are variable

Economies of scale

Situation in which a firm's long-run average total cost decreases as it increases its level of output

Diseconomies of scale

Situation in which a firm's long-run average total cost increases as it increases its level of output

Minimum efficient scale

The smallest level of output at which a firm can produce at its lowest long-run average total cost

Constant returns to scale

Situation in which a firm's long-run average total cost remains constant as it increases its level of output

Revenue

Price x Quantity

Total revenue

Price x Quantity sold

Average revenue

Total revenue / Quantity sold

Marginal revenue

Change in total revenue resulting from a one-unit increase in quantity sold

Elasticity of demand

The percentage change in quantity demanded resulting from a one percent change in price.

Absolute advantage

Ability of one country to produce more of a good or service than another country using the same amount of resources