Edexcel AS-Level Economics A: Definitions Of Terms Questions And Answers

Edexcel AS-Level Economics A: Definitions Of Terms Questions And Answers Free market - ANSWER A market where there is no government intervention. Free rider problem - ANSWER Once a public good is provided, there is no way to stop people who haven't paid for the good from benefiting from it. Frictional unemployment - ANSWER The unemployment experienced by people who are between jobs. Full employment - ANSWER Where everyone who is of working age and who wants a job can get one at current wage rates. Government failure - ANSWER When a government intervention to correct a market failure results in a misallocation of resources. Gross Domestic Product (GDP) - ANSWER The total value of all the goods and services produced in an economy in a year. Gross National Income (GNI) - ANSWER The GDP of an economy, plus any income earned on investments/assets abroad, minus any income paid to foreigners on domestic investments/assets. Gross National Product (GNP) - ANSWER The total output of the citizens of a country, regardless of whether or not they are resident in that country. Human capital - ANSWER The economic value of a person's skills, experience and training. Imperfect information - ANSWER A situation where buyers and/or sellers do not have complete information about the goods and services in a market. Income - ANSWER Money a person or firm receives for providing a good or service. Income elasticity of demand (YED) - ANSWER A measure of the responsiveness of demand to changes in real income. Inflation - ANSWER The sustained rise in the average price of goods and services in an economy over a period of time. Interest - ANSWER The money paid to a lender by a borrower. Investment - ANSWER The increase of the capital stock of a firm or economy. Labour immobility - ANSWER When labour cannot move to new jobs, or cannot switch between occupations. Law of diminishing returns - ANSWER If a firm increases one variable factor of production while others remain fixed, the marginal returns will eventually decrease. Long-Run Aggregate Supply (LRAS) - ANSWER The productive potential of economy operating at full capacity. Marginal cost - ANSWER The cost of producing the final unit of output. Marginal product - ANSWER The extra output produced when one extra unit of input is used. Marginal propensity to consume (MPC) - ANSWER The proportion of an increase in income that is spent and not saved. Marginal revenue - ANSWER The extra revenue received from selling one more unit of output. Marginal utility - ANSWER The utility gained from consuming one more unit of a good. Market failure - ANSWER Where the price mechanism fails to allocate resources efficiently. Monetary policy - ANSWER Government policy that controls the money supply and the cost of borrowing. Multiplier effect - ANSWER The process by which an injection into the circular flow of income creates a larger change in the size of national income. National output - ANSWER All of the goods and services produced in a country in a year. Natural Rate of Unemployment (NRU) - ANSWER The rate of unemployment when the labour market is in equilibrium. Opportunity cost - ANSWER The value of the next best alternative forgone. Output gap - ANSWER The gap between the trend and actual rates of economic growth. Phillips curve - ANSWER A curve showing the relationship between inflation and unemployment. In the short run, as one falls the other rises. In the long run, unemployment remains at the NRU regardless of inflation. Price cap - ANSWER A government-imposed limit on prices that make markets fairer to consumers, and also incentivise efficiency. Price elasticity of demand (PED) - ANSWER A measure of the responsiveness of demand to changes in price. Price elasticity of supply (PES) - ANSWER A measure of the responsiveness of supply to changes in price. Price mechanism - ANSWER The process by which supply and demand interact to change the equilibrium price and quantity in a market. Producer surplus - ANSWER The difference between the price a producer gets and the price they were willing to accept. Production Possibility Frontier (PPF) - ANSWER A curve that shows the maximum outputs of two goods or services, using the current level of resources in the economy. Productive efficiency - ANSWER When products are produced at a level of output where average cost is lowest. Productivity - ANSWER The average output produced per unit of a factor of production Profit - ANSWER Total revenue minus total costs. Progressive taxation - ANSWER A tax system where the tax rate rises as incomes rise. Proportional taxation - ANSWER A tax system where the tax rate is the same regardless of income. Protectionism - ANSWER When a government uses policies to control international trade to protect its own economy, firms and industries. Public good - ANSWER A good that is non-rivalrous, non-rejectable and non- excludable.