UPDATED 2024 Edexcel A-Level Economics A: Definitions

Absolute advantage - When a country's output of a product per unit of input is greater than that of any other country. Absolute poverty - When a person does not have the income or wealth to fulfil their basic needs. Aggregate Demand (AD) - The total demand/spending in an economy at a given price level over a given period of time. Made up of consumption, investment, government spending and net external demand. Aggregate Supply (AS) - The total amount of goods and services that can be supplied in an economy at a given price level over a given period of time. Aid - The transfer of resources from one country to another. Allocative efficiency - Where the price of a good is equal to the price consumers are willing to pay. This occurs when all resources are allocated efficiently. Asymmetric information - Where buyers have more information than sellers in a market, or vice versa. Automatic stabilisers - Parts of fiscal policy that automatically react to changes in the economic cycle. Average Cost (AC) - The cost of production per unit of output. Average Revenue (AR) - The revenue per unit sold. Backward vertical integration - Where a firm merges with or takes over a firm further back in the production process. Balance of payments - A record of the international transactions of an economy. Bank rate - The official rate of interest set by the central bank (e.g. by the Monetary Policy Committee of the Bank of England) Barriers to entry - Potential difficulties that make it hard for firms to enter a market. Barriers to exit - Potential difficulties that make it hard for firms to leave a market. Black market - Economic activity that occurs without taxation and government intervention. Budget deficit - When government spending exceeds tax revenues. Budget surplus - When tax revenues exceed government spending. Capital account of the balance of payments - A part of the balance of payments that shows transfers of non-monetary and fixed assets into and out of the economy. Cartel - A group of products who collude to limit output in order to keep prices high. Central bank - The institution responsible for issuing banknotes in an economy, acting as a lender of last resort, and implementing monetary policy. Ceteris paribus - All other things remaining equal Circular flow of income - The flow of national output, income and expenditure between firms and households. Command economy - An economy where only the government determines the allocation of resources. Comparative advantage - When the opportunity cost of producing a good or service is lower than that of any other country. Competition policy - Government policy aimed at reducing monopoly power in order to increase efficiency and to ensure fairness for consumers. Concentration ratio - A measure of the dominance of firms in a market. Conglomerate integration - Where a firm merges with or takes over a firm in a completely different market. Consumer surplus - The difference between the price a consumer pays and the price they were willing to pay. Consumption - The purchase of goods and services. Contestability - The degree to which new entrants find it easy to enter the market. Cost-push inflation - Inflation caused by rising costs of production. Cross elasticity of demand (XED) - A measure of the responsiveness of demand of one good/service to a change in price of another good/service. Current account of the balance of payments - A part of the balance of payments that consists of: trade in goods, trade in services, primary income and secondary income. Cyclical unemployment - Unemployment caused by a lack of demand in the economy. Deflation - The sustained fall in the average price of goods and services in an economy over a period of time. Demand-pull inflation - Inflation caused by increased demand in the economy. Demand-side policy - Government policy that aims to alter aggregate demand in the economy. Demerger - Where a firm sells of a part/parts of its business to create separate firms. Deregulation - Removing government legislation that could restrict competition. Derived demand - The demand for a good or service due to its use in making another good or service. Developed countries - Relatively rich, industrialised countries with a high GDP per capita. Developing countries - Relatively poor countries that tend to rely on labour-intensive industries, with a low GDP per capita. Diseconomies of scale - Where average cost rises as output rises. Disinflation - A fall in the rate of inflation. Disposable income - Income available for households to spend after their tax obligations are fulfilled. Dividend - A share in a firm's profits paid to shareholders. Divorce of ownership from control - When the owner of a firm ceases to control its day- to-day operations, which can lead to the principal-agent problem. Dynamic efficiency - Where firms improve efficiency in the long run by investing in R&D of products, or investing in the production process. Economic cycle - The fluctuation in actual growth rates over a period of time. Economic development - An assessment of the standards of living and overall welfare of a country's population.