Economics A-Level

Economics A-Level glossary

768 key terms for Economics A-Level, A to Z, each linked to the topic pages that use it.

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A

Abnormal (supernormal) profit: Any profit achieved in excess of normal profit, occurring when total revenue exceeds total economic costs.AQA
Absolute advantage: Occurs when a country produces more of a good than another using the exact same resources.AQA
Absolute poverty: Occurs when individuals lack the basic necessities for survival, such as food, shelter, and clothing.AQA
Accelerator process: A change in the rate of growth of national income leads to a proportionately larger change in capital investment.AQA
Administrative costs: A source of government failure when the financial burden of enforcing a regulation exceeds the welfare gained from correcting the initial market failure.AQA
Advertising: Builds brand loyalty, creating an artificial barrier to entry and reducing cross-elasticity of demand.AQA
Age discrimination: A real-world example where younger workers might be paid lower rates for the same tasks, sometimes legally institutionalised via minimum wage bands.AQA
Agglomeration: Geographical concentration of an industry, whose expansion shifts the firm's long-run average cost curve downwards.AQA
Aggregate demand: A fall in the price level increases the real purchasing power of wealth, lowers interest rates, and makes domestic exports more competitive, resulting in an…AQA
Aggregate demand and supply: Higher taxes reduce disposable income and consumption, while austerity during a recession can severely depress demand; higher tax rates may disincentivise…AQA
Aggregate demand components: Consumption, investment, government spending, or net exports, whose changes shift the AD curve independent of the price level.AQA
Aggregate supply: An increase in the price level incentivises firms to expand production to maximise profits, assuming short-run costs of production like wages remain constant,…AQA
Alienation: Workers in massive corporations often suffer from this and a lack of motivation, feeling like insignificant parts of a machine.AQA
Allocative efficiency: Arises in the short run where price equals marginal cost, maximising consumer surplus and ensuring resources follow immediate consumer preferences.AQA
Allocative inefficiency: A disadvantage of monopoly where output is restricted and prices are set above marginal cost, causing a deadweight loss of consumer surplus.AQA
Altruism: Actions taken to improve the welfare of others, often at a personal cost, showing genuine selfless concern.AQA
Anchoring: Occurs when individuals rely too heavily on the first piece of information offered, like a high initial price making a discounted price seem like a bargain.AQA
Animal spirits: The emotional, psychological, and often irrational factors that drive consumer and investor confidence.AQA
Application of theory: Using theory in relation to real-world examples in order to assess the impact of price discrimination.AQA
Appreciation: An automatic rise in a currency's value caused by factors shifting the supply and demand curves, such as changes in relative interest rates, inflation rates,…AQA
Arbitrage: Market seepage, where consumers buying at the lower price resell the product to those in the higher-priced market segment, which the firm must prevent.AQA
Asset Accumulation: Unspent income can be saved to build wealth, while existing wealth can generate future income.AQA
Asset Ownership: Property ownership and pension assets drive UK wealth inequality, with the wealthiest ten percent of households holding a disproportionately large share of…AQA
Asset price bubbles: A situation where asset prices rise significantly above their fundamental value, creating a wealth effect that collapses when the bubble bursts.AQA
Asset Price Inflation: Rising prices of assets such as property, which disproportionately benefit existing owners and expand their wealth compared to renters.AQA
Asymmetric economic shock: A shock affecting one country differently from others, which a member cannot absorb by adjusting interest rates or devaluing its currency.AQA
Asymmetric information: A situation where one party in an economic transaction possesses more or better information than the other, significantly distorting decision-making.AQA, Pearson Edexcel
Autarky: Self-sufficiency, where combined output of both goods is lower than under specialisation.AQA
Automatic stabilisers: Mechanisms such as unemployment benefits and income tax receipts that fluctuate with the economic cycle and drive the cyclical component of the budget.AQA
Availability bias: Leads people to overestimate the likelihood of events they can easily recall, such as buying insurance after seeing news of a flood.AQA
Average cost: The cost per unit produced, found by dividing total cost by the quantity of output.AQA
Average Cost of Labour (ACL): The upward-sloping labour supply curve faced by a monopsony employer, from which the wage rate is read at the profit-maximising quantity.AQA
Average family: A concept used to determine typical spending patterns through household surveys.AQA
Average returns: Total output divided by the number of units of the variable factor, typically labour, showing output per worker.AQA
Average revenue: The price a firm receives per unit sold at various output levels, calculated as total revenue divided by quantity.AQA
Average revenue (AR) curve: A curve that successful non-price competition shifts to the right and makes more price inelastic.AQA
Average Total Cost: Total Cost divided by quantity produced.AQA
Average variable cost: The cost below which firms will shut down, so that only the portion of the marginal cost curve above it acts as the short-run supply curve.AQA

B

Balance of payments: The current account is part of this and comprises trade in goods, trade in services, primary income and secondary income.AQA
Balance of payments on current account: The net flow of trade in goods and services, primary income, and secondary income between the UK and the rest of the world.AQA
Bank run: A sudden loss of confidence that leads depositors to withdraw funds simultaneously, exacerbating the mismatch between short-term liabilities and long-term…AQA
Banking system: A vital intermediary that channels savings into business investment funds, providing credit so firms can invest in new capital, research, and development.AQA
Barriers to entry: Obstacles to new entrants that technological change can modify by lowering capital requirements or creating high barriers through network effects and…AQA
Barriers to entry and exit: Their absence in the long run means new firms enter, shifting the incumbent firm's average revenue and marginal revenue curves to the left.AQA, Pearson Edexcel
Base year: The year chosen for comparison, always assigned an index value of 100 to provide a benchmark for future comparisons.AQA
Basket of goods and services: A representative sample of items typically bought by an 'average family', used to measure inflation.AQA
Behavioural economics: A field that questions the assumption of traditional economic theory that individuals are rational decision makers who endeavour to maximise their utility.AQA
Bounded rationality: Decision-making limited by available information, cognitive ability, and time constraints, so consumers' ability to make utility-maximising decisions is…AQA
Bounded self-control: The inability of individuals to act in their own best long-term interests due to a lack of willpower, even when they know the rational choice.AQA
Brand loyalty: Something non-price competition aims to increase, alongside differentiating the product.AQA
Broad money: Narrow money plus less liquid assets that act as a store of value, including time deposits, savings accounts and certificates of deposit.AQA
Budget balance: The difference between government revenue and expenditure in a given financial year.AQA
Budget deficit: Occurs when spending exceeds tax revenue, requiring the government to borrow, which increases the national debt.AQA
Budget surplus: Occurs when revenue exceeds expenditure, allowing the government to pay off existing debt.AQA
Business confidence: Strong confidence that leads firms to invest highly during a boom.AQA
Business costs: Higher wages can increase worker morale and productivity, potentially offsetting the higher wage costs.AQA
Business decision-making: Firms use price elasticity of demand estimates to set revenue-maximising prices.AQA
Business objectives: Employers may pursue reduced wage bills and increased profit margins by extracting worker surplus, though this risks lower morale and productivity.AQA

C

Capacity constraints: Beyond a certain point, the addition of variable factors leads to a fall in marginal returns because workers get in each other's way or must wait to use…AQA
Capital: Man-made aids to production, like machinery, factories and tools, rather than financial capital.AQA
Capital account: A relatively small account recording capital transfers such as debt forgiveness and transactions in non-produced, non-financial assets, including patents.AQA
Capital accumulation: Investment in new capital that increases the productive capacity of the economy, shifting the long-run aggregate supply curve to the right.AQA
Capital goods: The machinery or factories on which firms spend to increase future productive capacity.AQA
Capital investment: Investment in human capital, such as staff training, enhances worker productivity, while investment in non-human capital, like automated machinery, lowers…AQA
Capital mobility: The high mobility of financial capital across international borders.AQA
Capital ratio: A measure of a bank's core equity capital relative to its risk-weighted assets, acting as a financial buffer against unexpected losses such as widespread loan…AQA
Capital-output ratio: A factor determining the magnitude of the accelerator effect.AQA
Cartel: A group of colluding firms that sets industry output where marginal cost equals marginal revenue, maximising joint profits.AQA
Cartels: Formal price agreements through which firms collude overtly, restricting output and fixing prices to maximise joint industry profits.AQA
Causes of unemployment: Unemployment has a variety of causes, including cyclical, structural and frictional, and the appropriate policies to reduce it depend on the cause.AQA
Certainty: A core principle that taxpayers should clearly understand what, when, and how to pay.AQA
Ceteris paribus: An assumption relied on heavily by economists as a theoretical substitute for physical laboratory controls, since variables cannot be perfectly isolated.AQA
Choice: What has to be made about how scarce resources are allocated between different uses, because scarcity means not all wants can be satisfied.AQA
Choice architecture: Designs that guide citizens towards socially optimal behaviours by understanding cognitive biases, bounded rationality and bounded self-control.AQA
Circular flow: The flow into which an initial change in expenditure occurs, leading to a disproportionately larger final impact on local or national income.AQA
Circular flow of income: The continuous movement of spending and income between economic agents, with households providing factors of production to firms and receiving income in return.AQA
Claimant Count: The number of people claiming unemployment-related benefits, such as Jobseeker's Allowance or the relevant elements of Universal Credit.AQA
Classical long-run aggregate supply (LRAS) curve: A curve drawn perfectly vertical to illustrate that, in the long run, an economy's potential output is independent of the price level.AQA
Cognitive bias: A systematic error in thinking that affects the decisions and judgments that people make.AQA
Collective bargaining: Used by trade unions to establish a wage floor above the competitive equilibrium, potentially reducing employment.AQA
Collusion: An anti-competitive and usually illegal practice where firms conspire to restrict competition, typically by fixing prices, limiting output, or dividing markets.AQA
Collusive oligopoly: A market where rival firms cooperate to restrict competition, maximise joint profits, and reduce uncertainty.AQA
Commercial banks: Institutions that accept retail deposits and provide loans to individuals and small-to-medium enterprises, creating credit through the deposit-lending cycle.AQA
Communication: Becomes slower and distorted across multiple hierarchical layers or geographic locations as a firm grows too large.AQA
Comparative advantage: Exists when a country produces a good at a lower opportunity cost than its trading partner.AQA, Pearson Edexcel
Compensating wage differentials: Higher wages used to offset poor working conditions or high dissatisfaction, paying a premium to attract labour.AQA
Competition policy: Aims to promote market efficiency, protect consumers, and prevent the abuse of monopoly power.AQA
Competitive behaviour: A large number of producers means no single firm can influence market supply, forcing firms to act as price takers.AQA
Competitive demand: A relationship between substitute goods, so a change in the price of a substitute shifts the demand curve in a related market.AQA
Competitive markets: A market structure assumed by the basic model, featuring many buyers and sellers acting independently.AQA
Competitiveness: The price and non-price position of exports, which supply-side policies such as investing in infrastructure improve over the long term.AQA
Complementary goods: Goods for which cross elasticity of demand is negative, as a rise in the price of one reduces demand for both.AQA
Complete market failure: A situation resulting in a missing market, where the free market fails to supply a product entirely.AQA
Composite demand: Applies to goods with multiple uses, like land for housing or farming, where increased demand for one use restricts supply for the other.AQA
Composite indicators: Measures such as the HDI that combine several dimensions of development, enabling international comparisons.AQA
Concentration ratio: A measure of the extent to which a market is dominated by a few large firms, calculated by summing the individual market shares of the top 'n' firms.AQA
Concentration ratios: Measures of the degree of concentration, such as the five-firm concentration ratio, showing that a few large firms dominate total market output.AQA
Conditions of demand: Non-price determinants whose change causes a shift in the demand curve, altering the quantity demanded at every given price.AQA
Conduct: Refers to how firms behave, including pricing strategies like limit pricing, non-price competition such as advertising, and the potential for collusion.AQA
Conflicting objectives: A source of government failure arising when political goals clash with economic efficiency, so a policy compromise creates a net welfare loss.AQA
Constant returns to scale: A situation where output increases by the exact same proportion as the increase in all inputs.AQA
Consumer behaviour: Guided by nudges, which alter the presentation of choices without changing the financial cost, preserving freedom of choice.AQA
Consumer expenditure: Consumers' total expenditure on a good is exactly equal to the firms' total revenue from selling that good.AQA
Consumer preferences: Consumer tastes, a non-price determinant whose change can shift the demand curve.AQA
Consumer Price Index (CPI): A measure that examines the weighted average of prices of a basket of consumer goods and services, used to track inflation and the cost of living.Pearson Edexcel
Consumer Prices Index (CPI): An index number used to interpret changes in the cost of living, where a drop from 100 to 98 indicates deflation.AQA
Consumer protection: The role of the Financial Conduct Authority in protecting consumers from mis-selling or market abuse while promoting healthy competition.AQA
Consumer surplus: Captured by the firm when it charges different prices to different consumer groups, transferring it to producer surplus.AQA, Pearson Edexcel
Consumer welfare: The protection of consumers through lower prices and increased consumer surplus, which competition policies aim to secure.AQA
Consumption: A component of aggregate demand determined by disposable income, interest rates, and consumer confidence.AQA
Contestability: Increases when barriers to entry are lowered, forcing incumbent firms to minimise costs.AQA
Contractionary fiscal policy: Reducing spending or raising taxes to cool down an overheating economy and control inflation.AQA
Convenience: A core principle that the process of paying should be straightforward.AQA
Cooperation: Firms collaborating legally to achieve mutual benefits that often enhance economic welfare, such as sharing research and development costs.AQA
Coordination: Of complex, sprawling supply chains becomes difficult, leading to bottlenecks as a firm grows too large.AQA
Corporate bonds: Debt instruments sold to financial markets that pay a fixed coupon, with the principal repaid at maturity.AQA
Corporate governance: Mechanisms used to align the objectives of managers with those of shareholders, such as performance-related pay or employee share ownership schemes.AQA
Corporate social responsibility: Adopting social or environmental objectives, such as reducing carbon emissions, which modern enterprises increasingly do.AQA
Cost curve geometry: Marginal cost intersects average total cost and average variable cost at their lowest points, and average fixed cost continuously declines as output increases.AQA
Cost of production: Changes in money wage rates, raw material prices and business taxation raise or lower this, shifting the short-run aggregate supply curve.AQA
Cost theory: Traditional theory that posits a U-shaped long-run average cost curve, which the L-shaped curve is used to evaluate.AQA
Cost-benefit analysis: Intervention should only proceed if the expected benefits exceed the expected costs of both the policy and potential government failure.AQA
Cost-Push Dynamics: The transmission mechanism of input prices, including unit labor costs, raw materials, and imported inflation, into the SRAS curve, resulting in shifts that…Pearson Edexcel
Cost-push inflation: A rise in the general price level caused by higher UK production costs, often imported when global commodity prices increase due to surging demand in emerging…AQA
Costs of production: Economy-wide costs whose changes shift the short-run aggregate supply curve, including money wage rates, raw material prices, business taxes, and exchange…AQA
Coupon: A fixed annual interest payment based on a bond's nominal value at issue, which remains constant regardless of changes in broader market interest rates.AQA
CPI: The official inflation measure, which excludes housing costs such as mortgage interest payments.AQA
CPI and RPI: Indices used to track inflation, which differ in their housing cost inclusions and mathematical formulations.AQA
Creative destruction: A process in imperfectly competitive markets and monopolies whereby technological change can create or destroy barriers to entry.AQA
Credit creation: The process by which commercial banks expand the broad money supply in response to Bank of England policy.AQA
Credit crunch: A situation where businesses cannot access loans for investment and consumers cannot secure mortgages.AQA
Credit multiplier: Calculated as 1 divided by the reserve ratio, it determines the maximum total credit created from an initial deposit.AQA
Cross elasticity of demand: Measures the responsiveness of demand for Good A to a change in the price of Good B.AQA
Cross Elasticity of Demand (XED): Measures the responsiveness of demand for one good to a price change in another; a positive value indicates substitutes and a negative value reveals…AQA
Crowding out: A possible consequence of persistent deficits, alongside higher debt interest payments and inflationary pressures.AQA
Currency union: An arrangement in which member countries share a single currency and monetary policy, rather than just shared external tariffs.AQA
Current account: The record of trade in goods and services, plus primary income such as dividends and secondary income like foreign aid.AQA, Pearson Edexcel
Current account deficit: Arises when a country's total financial outflows from trade in goods, services, primary income, and secondary income exceed its total inflows.AQA
Current account surplus: Arises when total inflows from goods, services, primary income, and secondary income are greater than total outflows.AQA
Cyclical unemployment: Unemployment linked to the economic cycle, rising during recessions when aggregate demand falls and firms lay off workers to cut costs.AQA

D

Deadweight Loss: The loss of economic efficiency that occurs when the equilibrium for a good or service is not achieved.Pearson Edexcel
Deadweight welfare loss: Shown by two triangles representing production inefficiencies and lost consumer utility, shaded to highlight the welfare effects of a tariff.AQA
Debt: Borrowed funds that must be repaid over a set period with interest, regardless of the firm's profitability.AQA
Debt and wealth effects: Deflation increases the real value of debt, making mortgages harder to service, while cash savers benefit as their purchasing power rises.AQA
Decision making: Economic choices are incremental rather than all-or-nothing, focusing on the next unit and comparing marginal benefit with marginal cost.AQA
Decreasing returns to scale: A situation where a proportionate increase in all inputs leads to a less than proportionate increase in output.AQA
Default choice: The pre-set option an individual receives if they do nothing, exploiting inertia and the status quo bias.AQA
Default choices: Powerful nudges, such as automatic enrolment into workplace pensions, because they exploit consumer inertia and the status quo bias.AQA
Deflation: A sustained decrease in the general price level, indicated by a negative inflation rate, where the general price level in an economy is actively decreasing.AQA
Deflationary policies: Policies to reduce aggregate demand, such as raising interest rates or increasing taxation, designed to cool an overheating economy.AQA
Demand: The quantity of a good or service that consumers are willing and able to buy at a given price in a given time period.Pearson Edexcel
Demand and supply determinants: Non-price determinants that shift the demand or supply curve, creating temporary disequilibrium.AQA
Demand curve: Shows the quantity consumers will buy at each given price, and is identical to the firm's average revenue curve.AQA
Demand curve for labour: Shows the relationship between the wage rate and number of workers employed, illustrating the inverse relationship between the two.AQA
Demand management: Using demand-side policies, which are highly effective during a deep recession but purely inflationary at full capacity.AQA
Demand-deficient (cyclical) unemployment: Illustrated by a leftward shift in AD, as the new equilibrium occurs at a lower level of real GDP, meaning fewer workers are required to produce the reduced…AQA
Demand-pull inflation: A rise in the general price level caused by an injection into the circular flow, such as higher demand for UK exports, when the UK is near full capacity.AQA
Demand-side policies: Policies that usually involve a trade-off, such as lower unemployment but higher inflation, making conflicts harder to reconcile in the short run.AQA
Demerit goods: Goods whose long-term private costs consumers may undervalue, leading to a perceived marginal private benefit higher than the actual one.AQA
Demographics: Factors such as net migration or an ageing population which alter the total workforce size and so shift the market supply curve for labour.AQA
Depreciation: An automatic fall in a currency's value caused by factors shifting the supply and demand curves, such as changes in relative interest rates, inflation rates,…AQA
Deregulation: The removal of government rules and barriers to entry to increase market competition.AQA
Derived demand: Firms only hire workers if the revenue generated by an additional worker exceeds their wage, so labour is demanded for the revenue it generates.AQA
Destabilising speculation: Occurs when investors follow trends rather than fundamentals, amplifying price swings and cyclical instability.AQA
Determinants of Consumption and Investment: Analysis of household spending patterns influenced by real disposable income, consumer confidence, and wealth effects, contrasted with business capital…Pearson Edexcel
Determinants of Long-Run Growth: Analysis of supply-side drivers including capital deepening, human capital accumulation, and technological innovation as the primary engines of shifts in the…Pearson Edexcel
Diagrammatic analysis: The use of relevant diagrams as essential analytical tools for demonstrating the impact of trade unions in labour market economics.AQA
Diminishing marginal returns: As a firm adds variable factors to a fixed factor, marginal cost initially falls but eventually rises, creating a U-shaped marginal cost curve.AQA
Direct intervention: Using foreign currency reserves to buy or sell the domestic currency in foreign exchange markets.AQA
Direct taxes: Levied directly on the income, wealth, or profits of individuals and firms, and the entity paying bears the entire burden.AQA
Diseconomies of scale: Internal inefficiencies such as communication breakdowns or coordination issues that cause average costs to rise as a firm expands beyond its optimal size.AQA
Disequilibrium: A state where quantity demanded does not equal quantity supplied at the prevailing market price, manifesting as either excess demand or excess supply.AQA
Disinflation: A fall in the rate of inflation where the inflation rate remains positive, so the general price level is still rising but at a slower pace than before.AQA
Disposable income: The primary determinant of saving; as it rises, the marginal propensity to save typically increases.AQA
Distribution of income: Wage discrimination exacerbates income inequality, as discriminated groups suffer lower living standards while wealth is transferred to shareholders.AQA
Division of labour: A form of specialisation where production is broken down into distinct tasks performed by different workers.AQA, Pearson Edexcel
Double coincidence of wants: Finding someone who has what you need and wants exactly what you offer, which relying on barter requires.AQA
Dynamic adjustment: In the long run, supernormal profits attract new entrants, shifting industry supply right and driving down price until firms make only normal profit.AQA
Dynamic efficiency: Arises through product innovation connected to the reinvestment of supernormal profits, and is driven by creative destruction as a vital driver of long-term…AQA

E

Economic agents: Individuals, firms and governments, who are forced by scarcity to make decisions about what to produce, how to produce it, and for whom to produce.AQA
Economic capacity: The productive capacity of the economy, which fiscal policy can increase by shifting the Long-Run Aggregate Supply curve to the right.AQA
Economic cycle: The cycle whose fluctuations drive a cyclical deficit or surplus through automatic stabilisers.AQA
Economic decision-making: Decisions made by all economic agents, such as consumers, firms and governments, about how to allocate scarce resources.AQA
Economic development: A broader, qualitative concept encompassing improvements in living standards, well-being and human capital, including structural changes, poverty reduction,…AQA, Pearson Edexcel
Economic efficiency: An advantage of the price mechanism, described as allocative efficiency, where production is matched to consumer demand and consumer choices dictate production.AQA
Economic fluctuations: The natural movement of the economy between periods of expansion and contraction over time, described as the economic cycle.AQA
Economic good: A good whose use involves an opportunity cost, such as the loss of clean air when industrial production increases.AQA
Economic governance: The government sets the objectives while the Bank of England independently implements monetary policy, and the Governor must write an open letter to the…AQA
Economic growth: A goal that can conflict with a balanced current account, as higher incomes increase import expenditure given a positive marginal propensity to import.AQA
Economic harmony: Long-run compatibility between growth, employment and price stability ensured by supply-side improvements, while demand management creates short-run trade-offs.AQA
Economic incentives: Financial or non-financial rewards and penalties that alter the costs and benefits of a choice and motivate agents to change their behaviour.AQA
Economic indicators: A wide range of data analysed by the Monetary Policy Committee when setting the bank rate to forecast future inflation and economic performance.AQA
Economic integration: The process multinational corporations accelerate by deepening economic interdependence and integrating global markets.AQA
Economic modelling: Economic models are often less precise than natural science models, requiring economists to interpret complex data rather than relying on exact, replicable…AQA
Economic models: Explanations of firm behaviour such as the kinked demand curve, game theory, price leadership and collusive oligopoly.AQA
Economic performance: Impacts on macroeconomic indicators like employment and growth, alongside microeconomic outcomes such as productive efficiency, consumer prices, and service…AQA
Economic profit: The true profit of a firm, determined by total costs that include both explicit accounting costs and implicit opportunity costs.AQA
Economic shocks: Events such as adverse weather in agricultural markets, which act as a negative supply shock, shifting the supply curve left and raising the equilibrium price…AQA
Economic systems: The arrangements that form the basis of how societies answer the three fundamental economic questions of what, how and who is to benefit.AQA
Economic vulnerability: Arises from over-specialisation, making an economy highly exposed to external shocks or global price fluctuations.AQA
Economic welfare: Societal well-being, which must be assessed alongside broader welfare measures because real national income ignores income inequality, the hidden economy,…AQA
Economies and Diseconomies of Scale: Long-run analysis of how increasing the scale of production leads to lower long-run average costs (LRAC) through technical, managerial, and financial…Pearson Edexcel
Economies of scale: Internal ones are fully exploited at the minimum efficient scale, the lowest output level at which a firm reaches the lowest point on its long-run average…AQA
Economy: A core principle that the administrative cost of collecting the tax should be minimal compared to the revenue generated.AQA
Effective demand: The willingness and ability to purchase a given quantity of a good or service at a specific price in a given time period.AQA
Efficiency: The long-run equilibrium shows neither productive efficiency, as production is not at the lowest point of average cost, nor allocative efficiency, as price is…AQA
Efficiency and Welfare: Evaluation of allocative, productive, and X-efficiency across different structures, focusing on the maximization of consumer and producer surplus and the…Pearson Edexcel
Elasticity of demand: Differing elasticities across sub-markets lead to different profit-maximising prices, with a higher price in the inelastic sub-market and a lower price in the…AQA
Empirical data: Data gathered to test theories, which economists use when forming hypotheses under the scientific method.AQA
Empirical evidence: Evidence that often suggests an L-shaped long-run average cost curve, in contrast to traditional theory which posits a U-shaped curve.AQA
Enterprise: A strong culture of willingness to take business risks, fostering innovation and business creation.AQA
Entrepreneurship: The role of entrepreneurs in a dynamic market who introduce superior products or more efficient production methods.AQA
Environmental market failures: Market failures linked to common access resources such as the atmosphere, oceans or unregulated grazing land, which lack clear private property rights.AQA
Environmental scarcity: A permanent condition arising from infinite human wants competing for finite natural capital.AQA
Equality: A positive, objective concept referring to the mathematically equal distribution of resources, where everyone receives the exact same amount.AQA
Equilibrium: A state where quantity demanded equals quantity supplied, resulting in a market-clearing price with no market forces prompting a change in price or output.AQA
Equilibrium exchange rate: The rate that settles where the quantity of currency demanded equals the quantity supplied.AQA
Equilibrium Price: The price at which quantity demanded equals quantity supplied, meaning there is no excess demand or supply.Pearson Edexcel
Equity: Means fairness, a normative concept reliant on value judgements, unlike equality, which is a positive, measurable fact.AQA
Equity and fairness: What individuals consider just or equitable, which heavily shapes economic interactions and can lead consumers to reject unequal distributions.AQA
Equity capital: The owners' residual claim, acting as a crucial loss-absorbing buffer against insolvency.AQA
Equity finance: Selling partial ownership of the company, meaning the firm does not have to repay the capital but must share future profits via dividends.AQA
Equity market: A market where companies can raise finance by issuing shares.AQA
Equity versus efficiency: The mechanism ignores equity, meaning goods are allocated based on purchasing power rather than need, while its impersonal nature is associated with…AQA
Equity vs efficiency: The trade-off where introducing market forces can improve efficiency, reduce waste and incentivise innovation, but often raises equity concerns and may…AQA
Ethics in economics: Considering the ethical implications alongside the practical economic consequences when evaluating the desirability of markets in sensitive fields of human…AQA
Excess demand: A shortage existing when the price is below equilibrium, with consumers bidding up the price to secure the limited goods available.AQA
Excess supply: A glut occurring when the current price is set above equilibrium, leading producers to lower their prices to clear unsold stock.AQA
Exchange rates: Changes in these directly influence aggregate demand through net exports, with a depreciation making UK exports more price competitive abroad and imports more…AQA
Excludability: The characteristic of a good whereby access can be restricted, as when broadcasters scramble signals so consumers must pay for a decoder or subscription.AQA
Expansionary fiscal policy: Increasing government spending or reducing taxes to stimulate the economy.AQA
Expenditure-reducing policies: Measures that lower a current account deficit by compressing overall domestic demand, for example contractionary fiscal or monetary policy such as raising…AQA
Expenditure-switching policies: Measures that change the relative prices of domestic and foreign goods, encouraging consumers to switch spending away from imports towards domestic…AQA
Export subsidies: Financial assistance given to domestic producers, lowering their production costs so they can sell goods at lower prices on the international market.AQA
External economies of scale: Falling long-run average costs resulting from the expansion of the industry as a whole, benefiting all firms within it regardless of their individual size.AQA
External Sector Dynamics: Evaluation of net trade (X-M) as a component of AD, focusing on the impact of exchange rate fluctuations, relative inflation rates, and the economic…Pearson Edexcel
Externalities: External costs or benefits that are ignored, causing misallocation of resources in both production and consumption, illustrated using marginal private and…AQA
Externalities and public goods: Causes of market failure illustrated by negative and positive externalities such as aviation emissions and vaccination, and by public goods such as national…AQA
Externalities and Social Welfare: Analysis of the divergence between marginal private costs/benefits and marginal social costs/benefits, leading to over-consumption of demerit goods and…Pearson Edexcel

F

Factor inputs: The physical quantities used in production, such as workers and ovens, which both concepts link to the physical quantity of output produced.AQA
Factor markets: Markets where firms hire inputs like labour, land, and capital solely to produce goods and services that consumers want to buy.AQA
Factor prices: The cost of employing land, labour, capital, and enterprise, including wages for labour, rent for land, and interest for capital.AQA
Factors of production: The inputs whose flexibility determines whether a period is short run or long run, with at least one fixed in the short run and all variable in the long run.AQA
Financial account: The record of transactions involving financial assets and liabilities, capturing foreign direct investment, portfolio investment and reserve assets.AQA
Financial intermediation: Acting as intermediaries between economic agents with surplus funds and those with a deficit, facilitating saving and lending.AQA, Pearson Edexcel
Financial markets: Markets categorised by the types of assets traded and their maturity, including the money market, the capital market and the foreign exchange market.AQA
Financial regulation: Oversight of the financial system in the UK by the Bank of England to ensure systemic stability and protect consumers.AQA
Financial stability: The overall soundness of the financial system that the three main regulatory bodies collaborate to maintain and that they try to prevent crises from…AQA
Firm behaviour: The actions firms take, such as pricing strategies, investment in research and development, and marketing tactics.AQA
Firm expansion: A firm scaling up its entire production process by adjusting all inputs proportionately.AQA
Firm performance: Assessed by comparing outcomes across market structures to judge which delivers the best performance for consumers and society.AQA
Firm performance and efficiency: The overall outcomes for a firm, which may feature higher average costs and lower profitability than if it were strictly profit-maximising.AQA
Fiscal and Monetary Policy Transmission: Examination of how government spending (G) and taxation (T) directly and indirectly shift AD, and how central bank interventions via interest rates and…Pearson Edexcel
Fiscal policy: The note refers to it as the area in which the government retains full control over decisions, while the OBR only advises and forecasts.AQA
Fiscal Policy and Debt Sustainability: Analysis of government spending and taxation as tools for demand management.Pearson Edexcel
Fiscal position: Worsened by unemployment, which reduces income tax receipts while increasing expenditure on welfare benefits.AQA
Fixed and variable costs: In the short run a firm incurs both, with fixed costs such as factory rent and variable costs like raw materials, while in the long run all costs are variable.AQA
Fixed costs: Business expenses that are independent of the level of output in the short run, and must be paid even if nothing is produced.AQA
Fixed exchange rate systems: Systems that provide certainty for international trade and investment, reducing currency risk for firms, but require large foreign currency reserves and force…AQA
Floating exchange rate systems: Systems that allow central banks to set interest rates solely for domestic objectives and provide an automatic adjustment mechanism for balance of payments…AQA
Flow vs Stock: Income is a flow of money received over a specific period, whereas wealth is a stock of assets owned at a particular point in time.AQA
Foreign aid: Bilateral grants and multilateral loans that provide crucial capital to fill the savings gap and fund merit goods like healthcare.AQA
Foreign direct investment: A transaction involving financial assets and liabilities recorded in the financial account, classified strictly within that account rather than the capital…AQA
Foreign direct investment (FDI): Investment involving significant control and a long-term interest in a foreign enterprise, often involving physical capital.AQA
Forward markets: Markets in currencies and commodities that allow firms to hedge against price volatility.AQA
Framing: A specific element of choice architecture where the context or phrasing of information influences the choice made, despite the objective facts remaining…AQA
Free Market Economy: An economic system where resources are allocated entirely by the price mechanism (supply and demand) without government intervention.Pearson Edexcel
Free market supply-side policies: Measures such as tax cuts, privatisation, deregulation and some labour market reforms that aim to increase the productive potential of the economy by reducing…AQA
Free-rider problem: Consumers benefit without paying, so rational individuals withhold payment, causing the price mechanism to fail entirely.AQA
Freely floating exchange rate system: A system in which the value of a currency is determined solely by the market forces of supply and demand, without government or central bank intervention.AQA
Frictional unemployment: Short-term transitional joblessness occurring when workers are between jobs, such as a graduate searching for their first role.AQA
Full employment income: The maximum potential output where all available factors of production are fully utilised, represented by the vertical LRAS curve.AQA
Full employment level of output: Another name for the normal capacity level of output, shown by the position of the vertical curve on the x-axis.AQA
Fundamental economic problem: The problem that prices act as signals and incentives to resolve in a market economy.AQA

G

Gains from trade: Trading surplus at a mutually beneficial exchange rate, allowing both nations to consume beyond their domestic production possibility frontiers.AQA
Game theory: An alternative model of oligopoly, alongside price leadership and collusive oligopoly, offering a different explanation for firm behaviour.AQA
GDP (Gross Domestic Product): The total market value of all final goods and services produced within a country's borders in a specific time period.Pearson Edexcel
Gender pay gap: A real-world example where female employees might earn less than male counterparts in identical roles despite equal productivity.AQA
Gini coefficient: A measure that quantifies inequality mathematically as the ratio of the area between the line of perfect equality and the Lorenz curve to the total area under…AQA
Global aggregate demand: Total demand that falls when a major deficit country implements expenditure-reducing policies, harming export-reliant nations.AQA
Globalisation: The deepening economic interdependence and accelerating integration of global markets, which multinational corporations drive by establishing complex global…AQA
GNI (Gross National Income): GDP plus net property income from abroad, representing the total income earned by a nation's factors of production regardless of location.Pearson Edexcel
Government failure: A risk of government action such as bureaucratic inefficiency or information gaps, which must be weighed against the equity and stability it provides.AQA
Government intervention: The use of indirect taxation, subsidies, price controls, state provision and regulation, the extension of property rights and pollution permits to correct…AQA
Government Intervention and Market Failure: Evaluation of the efficacy of the National Minimum Wage (NMW), maximum wage caps, and supply-side policies designed to reduce immobility and enhance human…Pearson Edexcel
Government spending: A component of aggregate demand driven by fiscal policy objectives and the economic cycle.AQA
Government tariff revenue: A rectangular area bounded by the old and new world prices and the new import quantities, shaded to show the revenue generated.AQA
Graphical analysis: Drawing and interpreting revenue curves, including the inverted U-shape of the total revenue curve for a firm with market power.AQA
Gross Domestic Product (GDP): The total market value of all final goods and services produced within a country's borders in a specific time period, serving as the primary measure of…Pearson Edexcel
Gross National Income (GNI): GDP plus net income from abroad, accounting for the income earned by a nation's residents regardless of where the production occurs.Pearson Edexcel
Growth: An objective that allows firms to exploit economies of scale and reduce average costs.AQA

H

Herding: A behaviour where individuals blindly follow market trends, amplifying both economic booms and subsequent crashes.AQA
Heuristics: Mental shortcuts that lead to systematic deviations from optimal choices.AQA
Hit-and-run entry: Entry by new firms attracted by high supernormal profits, which then leave the market.AQA
Hot money flows: Short-term speculative capital attracted into the UK when higher interest rates give savers and foreign investors a higher return on sterling deposits.AQA
Human behaviour: The focus of economics as a social science, covering how individuals, firms and governments make choices.AQA
Human capital: Improved through education and healthcare, this increases labour productivity and shifts long-run aggregate supply outwards.AQA
Human Development Index (HDI): A primary composite measure combining three dimensions: health, education and standard of living, yielding a value between 0 and 1.AQA, Pearson Edexcel
Human welfare: Improvements in this are captured by the indicators used to measure economic development.AQA
Hypothesis of diminishing marginal utility: As a person consumes more units of a good in a given timeframe, the marginal utility from each successive unit eventually declines.AQA
Hysteresis: Long-term unemployment permanently reducing the economy's productive potential.AQA

I

Imperfect information: Distorts the market as workers may lack knowledge about higher-paying vacancies elsewhere, or employers might not accurately assess a candidate's true…AQA
Inadequate information: A source of government failure that prevents policymakers from accurately valuing externalities, leading to over- or under-correction.AQA
Incentive function: The role of a price change in acting as an incentive to producers to change their behaviour, such as reducing output.AQA
Incentives: Rewards that encourage enterprise and hard work, which excessive equality may reduce, while a more unequal distribution provides strong incentives for…AQA
Income: A flow of money over time, such as wages or dividends.AQA
Income distribution: Altering the distribution of taxation changes income inequality and incentives to work, affecting both aggregate demand and supply dynamics.AQA
Income Elasticity of Demand (YED): A positive sign denotes a normal good, a negative sign indicates an inferior good, and values above 1 signify luxury goods.AQA
Income inequality: Exacerbated by trade, which disproportionately harms low-skilled workers in developed nations.AQA
Increasing returns to scale: A situation where a proportionate increase in all inputs leads to a greater than proportionate increase in output.AQA
Independent monetary policy: The ability of a country to set its own domestic interest rates to manage inflation, which is lost on joining a currency union.AQA
Index number: A statistical measure designed to show changes in a variable or group of variables with respect to time.AQA
Indirect intervention: Relying on monetary policy, specifically altering interest rates, to influence the exchange rate.AQA
Indirect Tax: A tax levied on goods and services, collected by producers and paid to the government.Pearson Edexcel
Indirect taxes: Levied on expenditure, specifically on goods and services, and the economic burden can be shifted to the consumer through higher prices.AQA
Inequality: A positive concept that can be objectively measured using statistical tools, such as comparing the percentage of total income earned by the top decile of…AQA
Inequality and poverty: A statutory wage floor offers benefits by alleviating relative poverty and reducing income inequality.AQA
Inferior good: A good with a negative income elasticity of demand, meaning demand falls as income rises.AQA
Inflation: A rise in the general price level, which the monetarist model asserts is always and everywhere a monetary phenomenon driven by excessive money creation.AQA
Inflation expectations: When demand is stimulated to push unemployment below NAIRU, these rise, shifting the SRPC outwards along the vertical LRPC.AQA
Inflation forecasting: The forward-looking process by which the Monetary Policy Committee predicts future inflation from indicators such as CPI inflation, wage growth and labour…AQA
Inflationary pressure: Demand-pull inflation generated when demand is stimulated to boost GDP, illustrating the conflict between economic growth and price stability.AQA
Inflationary pressures: Lower when a negative output gap reduces wage demands, but significant demand-pull and cost-push pressures arise when aggregate demand outstrips aggregate…AQA
Informal economy: A hidden part of the economy whose size varies significantly between countries and affects statistical accuracy.AQA
Information Asymmetry: Investigation of imbalances in information between buyers and sellers, specifically focusing on adverse selection and moral hazard in insurance and labor…Pearson Edexcel
Information failure: A situation where consumers lack accurate information, causing the perceived marginal private benefit to diverge from the actual benefit and misallocating…AQA
Information gaps: A general lack of data which prevents the price mechanism from achieving allocative efficiency and leads to the misallocation of resources.AQA
Information symmetry: Perfect knowledge ensures buyers know all prices and sellers know all techniques, preventing price disparities.AQA
Infrastructure: State funding of it reduces costs of production and facilitates trade, boosting both growth and development.AQA
Injections: Additions of spending into the circular flow of income that do not originate from domestic households, consisting of investment, government spending and…AQA
Innovation: The means by which firms strive to improve products, making their offerings more attractive, and to reduce costs via process innovation.AQA
Innovation and technology: Research and development generates new products and more efficient production processes, while broader technological change renders older methods obsolete.AQA
Insolvency: A risk reduced by enforcing minimum capital and liquidity ratios, alongside the risk of bank runs, enhancing the overall stability of the financial system.AQA
Institutional and Structural Frameworks: The significance of property rights, political stability, financial market efficiency, and trade liberalization in creating an environment conducive to…Pearson Edexcel
Institutional credibility: Enhanced by the OBR evaluating the government's performance against its fiscal targets and by its independent analysis helping to maintain financial market…AQA
Institutional factors: Factors that deter foreign direct investment and misallocate public resources, reducing overall welfare, and also include the legal system, banking sector and…AQA
Institutional structure: The legal, financial, and regulatory frameworks that facilitate economic activity and support how firms operate and expand.AQA
Interconnected trade networks: Networks meaning one nation's corrective policy becomes another's economic shock, altering global growth, employment and exchange rates.AQA
Interconnectedness of markets: Changes in a particular market are likely to affect other markets, so markets are not viewed in isolation.AQA
Interdependence: The defining behavioural trait of oligopoly, where one firm's decisions directly impact rivals, shown through strategic reaction of rival firms.AQA
Interdependence and Strategic Behavior: Examination of oligopolistic markets where firm decisions are contingent on the actions of rivals, often modeled through game theory and the kinked demand…Pearson Edexcel
Interest: A regular payment on borrowed funds that is a legal obligation, unlike dividends.AQA
Interest rate spread: The difference between deposits and loans through which commercial banks generate profit primarily.AQA
Interest rates: Commercial rates that banks determine using the base rate, affecting borrowing costs for consumers and firms and thereby consumption and investment.AQA
Intergenerational Wealth: Wealth passed between generations through inheritance and intergenerational transfers, which significantly impacts the distribution of wealth.AQA
Internal devaluation: A painful adjustment such as wage cuts, relied upon when a country facing a localised recession cannot lower interest rates independently.AQA
Internal economies of scale: Falling long-run average costs due to the expansion of the individual firm, arising from the growth of the firm itself.AQA
International comparisons: Comparisons between countries of real material welfare and living standards, made more accurate and meaningful by using PPP.AQA
International competitiveness: Enhancing productivity and reducing unit labour costs makes UK exports more internationally competitive, which can increase export volumes and decrease import…AQA
International poverty line: The World Bank's measure of absolute poverty, currently updated to $2.15 per day using 2017 purchasing power parity.AQA
International trade: A mechanism that promotes growth by allowing countries to exploit comparative advantage, increasing export revenues and integrating into global markets.AQA
Interventionist policies: Government actions to correct market failures, such as subsidising research and development to combat corporate short-termism.AQA
Interventionist strategies: Approaches involving active government participation to correct market failures, such as state funding for human capital, infrastructure development and…AQA
Invention: The creation of a completely new product, process, or idea that has not existed before, often resulting from pure research and development.AQA
Investment: Expenditure by firms on capital goods, such as machinery or factories, to increase future productive capacity, acting as an injection into the circular flow…AQA
Investment banks: Institutions that assist large corporations and governments in raising capital by underwriting debt and equity securities and advising on mergers and…AQA
Invisible hand: The continuous interaction of demand and supply that automatically adjusts prices until market equilibrium is restored.AQA
Involuntary unemployment: Occurs when workers are willing and able to work at the current market wage rate but cannot find employment.AQA

J

J-Curve Effect: The phenomenon whereby a currency depreciation initially worsens the current account balance in the short run (due to price inelastic demand for imports and…AQA
Job dissatisfaction: Arising from stress, boredom, or lack of autonomy, it restricts the supply of labour to an occupation.AQA
Job satisfaction: The intrinsic enjoyment or fulfilment derived from a role, which increases occupational labour supply.AQA
Joint demand: A relationship between goods consumed together, so a price change in a complementary good affects the related market's demand curve.AQA
Joint profits: The combined profits of the cartel, maximised by restricting total market supply to drive up the market price, which are then shared.AQA

L

Labour: The human physical and mental effort used in production.AQA
Labour Force Survey: A household survey based on International Labour Organisation criteria, defining the unemployed as those without a job who have actively sought work in the…AQA
Labour immobility: Occupational and geographical immobility that creates market imperfections and prevents labour markets from clearing efficiently.AQA
Labour market dynamics: Workers demanding higher nominal wages when aggregate demand is stimulated, which shifts the short-run Phillips curve upwards and returns unemployment to the…AQA
Labour market equilibrium: The point shown by intersecting labour supply and demand curves, above which a horizontal union wage line is drawn in a perfectly competitive market.AQA
Labour Market Flexibility and the Gig Economy: Examination of the shift from traditional long-term employment to flexible, short-term contracts, assessing the implications for worker security, firm…Pearson Edexcel
Labour market rigidities: Factors that typically cause the disequilibrium in which real wages are forced above the market-clearing equilibrium level.AQA
Labour markets: Where market forces, comprising labour demand and labour supply, establish different equilibrium prices for different occupations.AQA
Labour mobility: Occupational and geographical movement of labour, whose degree is a factor determining the natural rate of unemployment.AQA
Labour productivity: More efficient workers generate higher marginal revenue product, shifting the labour demand curve to the right.AQA
Land: All naturally occurring resources, such as minerals, fields and oceans.AQA
Law of diminishing marginal utility: As consumption increases, the additional satisfaction from each extra unit declines.AQA
Law of diminishing returns: Each additional worker eventually adds less to total output, so the marginal revenue product curve slopes downwards, forming the firm's labour demand curve.AQA
Leakages and injections: Withdrawals through saving, taxes or imports drain income from the circular flow at each stage, while an initial injection enters the circular flow to begin…AQA
Lender of last resort: A function of the central bank that provides liquidity to solvent banks facing temporary cash flow issues, preventing systemic banking crises.AQA
Liabilities: Sources of funds owed to third parties, primarily consisting of customer deposits and wholesale borrowing.AQA
Libertarian paternalism: Guiding behaviour through choice architecture while preserving freedom of choice.AQA
Limit pricing: Pricing closer to average cost, used by incumbents to deter entrants by abandoning short-run profit maximisation.AQA
Line of perfect equality: A 45-degree diagonal on the Lorenz curve diagram representing perfect equality.AQA
Liquidity: The ability of a bank to meet short-term withdrawal requests from depositors using cash or near-cash assets.AQA
Liquidity crisis: A situation where a bank lacks sufficient liquid assets to meet sudden, large-scale deposit withdrawals.AQA
Liquidity ratio: A measure of the proportion of a bank's assets held in highly liquid forms, such as cash or central bank reserves, compared to its short-term liabilities.AQA
Liquidity vs Profitability: The trade-off in which cash is highly liquid but yields no return, whereas long-term loans are highly profitable but illiquid.AQA
Living standards: Average standards that rising real national income typically correlates with improving, though income inequality is ignored by the measure.AQA
Long run: The period where all factors of production become variable, allowing a firm to build new factories or adopt new technologies.AQA
Long-run aggregate supply: A curve that shifts rightwards through supply-side policies, allowing non-inflationary economic growth.AQA
Long-Run Aggregate Supply (LRAS) curve: Independent, market-driven actions shift this outwards, showing the private sector is a primary engine for long-term economic growth.AQA
Long-run aggregate supply curve: A curve whose position is affected by supply-side causes of unemployment, shifting to the left when structural unemployment worsens and reducing the economy's…AQA
Long-run average cost (LRAC) curve: Shows the lowest possible cost per unit of producing different levels of output when all factors of production are variable.AQA
Long-run average cost curve: A curve whose shape is analysed through the three returns to scale, which correspond to economies and diseconomies of scale.AQA
Long-run average costs: Costs that economies of scale reduce as the scale of production increases.AQA
Long-run costs: Long-run average cost curves are drawn as an envelope of short-run average cost curves, illustrating economies and diseconomies of scale.AQA
Long-run economic growth: An expansion of the economy's productive potential, shown by an outward shift of the entire PPC or a rightward shift of the LRAS curve.AQA
Long-run Phillips curve: L-shaped, or vertical at the natural rate of unemployment, indicating no long-run trade-off between inflation and unemployment.AQA
Long-run Phillips curve (LRPC): Vertical at the non-accelerating inflation rate of unemployment (NAIRU), showing no trade-off.AQA
Long-run production: A period in which firms have the flexibility to alter all factors of production, meaning no inputs are fixed.AQA
Lorenz curve: A curve that graphically represents the distribution of income or wealth within an economy, plotting cumulative percentage of population against cumulative…AQA

M

Macro-prudential policy: The role of the Financial Policy Committee in identifying and mitigating risks across the entire financial system, such as excessive credit growth.AQA
Macroeconomic effects: Changes to the productive potential of the economy, shown by an outward shift of the LRAS curve.AQA
Macroeconomic equilibrium: The point shown in AD/AS diagrams by the original equilibrium price level and real national output, and by the new equilibrium after a shift.AQA
Macroeconomic forecasting: Objective forecasts and analysis of UK public finances provided by an independent body, published as independent five-year forecasts alongside major fiscal…AQA
Macroeconomic growth: Growth in the wider economy to which a firm's use of the equity market to fund expansion directly contributes, along with employment.AQA
Macroeconomic indicators: A range of measures such as real GDP, the rate of inflation, unemployment and investment, used to identify the various phases of the economic cycle.AQA
Macroeconomic objectives: The goals the MPC tries to influence through changes in the base rate, primarily the government's symmetric inflation target of 2.0% (CPI), along with growth…AQA
Macroeconomic performance: Affected by shocks through changes in real GDP and the price level, with a negative supply shock reducing real output while raising the price level, creating…AQA
Macroeconomic policies: Expansionary demand-side policies, such as cutting interest rates, boost aggregate demand to resolve demand-deficient unemployment.AQA
Macroeconomic policy: Expansionary monetary or fiscal policy acts as a demand-side determinant by stimulating aggregate demand.AQA
Macroeconomic regulation: A function of the central bank whereby it regulates the financial system to ensure macroeconomic stability.AQA
Macroeconomic shocks: Factors affecting costs of production across the whole economy, rather than just a single market, shifting the SRAS curve.AQA
Macroeconomic stability: The goal the Bank of England pursues by influencing the growth of the money supply and meeting inflation targets.AQA
Macroeconomic trade-offs: Weighing the benefits of higher living standards against costs, including the risks of growth fuelled by unsustainable private or public debt.AQA
Macroprudential regulation: Regulation focused on the whole economy, identifying and monitoring macroeconomic risks and taking action to remove systemic threats to the whole UK financial…AQA, Pearson Edexcel
Magnitude: The absolute value of the coefficient, used to determine whether demand is elastic or inelastic.AQA
Magnitude of the XED value: Shows the relationship's strength, with values further from zero indicating stronger relationships between the goods.AQA
Mandated choice: Forcing individuals to make an explicit decision before proceeding, such as stating an organ donation preference when renewing a driving licence.AQA
Marginal cost: The cost of producing an additional unit; if it exceeds marginal revenue, the last unit cost more to produce than it generated in revenue.AQA
Marginal cost curve: The curve that dictates the quantity supplied at any given price, and above average variable cost is the firm's supply curve.AQA
Marginal Cost of Labour (MCL): A curve lying above the ACL curve because raising wages for all workers to attract an additional worker raises the cost of hiring.AQA
Marginal costs: The costs associated with increasing output, which higher prices help to cover.AQA
Marginal propensity to consume: The fraction of any additional income that households spend on domestically produced goods and services.AQA
Marginal propensity to consume (MPC): A determinant of the size of the multiplier effect, where a higher value means less money leaks out at each stage, resulting in a larger final impact.AQA
Marginal propensity to withdraw (MPW): The rate of leakages such as taxes, saving and imports, which helps determine the size of the multiplier effect.AQA
Marginal returns: The addition to total output from employing one extra unit of the variable factor.AQA
Marginal revenue: The revenue generated by an additional unit; if it exceeds marginal cost, producing an additional unit adds more to total revenue than to total cost.AQA
Marginal revenue product: The addition to total revenue from employing one extra unit of labour, calculated as marginal physical product multiplied by marginal revenue.AQA
Marginal utility: The extra satisfaction gained from consuming one additional unit of a good.AQA
Market assumptions: Large numbers of producers, identical products, freedom of entry and exit, and perfect knowledge dictate specific behaviours for individual firms and the…AQA
Market clearing: A state where the quantity demanded by consumers exactly matches the quantity supplied by producers at a specific price, with no inherent tendency for price…AQA
Market competition: Increased international competition that exposes domestic monopolies and oligopolies to foreign competitors, forcing firms to become more dynamically and…AQA
Market concentration: One factor on which the degree of monopoly power varies, alongside the availability of close substitutes and the height of entry barriers.AQA
Market Concentration and Regulation: Evaluation of how business growth alters market structures, moving from competitive models toward oligopoly or monopoly, and the subsequent role of…Pearson Edexcel
Market conduct: A way of defining oligopoly that focuses on firm behaviour, whose defining trait is mutual interdependence, where one firm's decisions directly impact rivals.AQA
Market contestability: The extent to which new firms can enter and leave a market without facing significant sunk costs.AQA
Market distortion: Any interference in the price mechanism that prevents the efficient allocation of resources.AQA
Market dynamics: The shifts in demand or supply caused by real-world determinants and their impact on equilibrium prices and quantities.AQA
Market efficiency: Enhanced productive and allocative efficiency arising as firms are forced to compete under competition policy.AQA
Market equilibrium: The point where the quantity demanded by consumers equals the quantity supplied by producers, so there is no excess demand or excess supply.AQA
Market exchange rates: Rates that can be highly misleading for comparing living standards because the cost of living varies significantly.AQA
Market failure: Arises from several distinct sources, including public goods, externalities, merit and demerit goods, monopoly and other market imperfections, and…AQA
Market failure and equity: Objectives governments pursue through intervention, with equity improved by shifting resources towards lower-income households.AQA
Market Failure in Finance: The presence of externalities, asymmetric information (adverse selection and moral hazard), and the tendency toward monopoly power in 'too big to fail'…Pearson Edexcel
Market interest rates: Broader rates that fluctuate, and when they rise, newly issued bonds offer higher yields, making existing bonds with lower fixed coupons less attractive.AQA
Market participants: A diverse range of participants beyond traditional banks, including pension funds, insurance companies, and hedge funds or private equity firms.AQA
Market performance: The outcomes of firms' actions, relating to efficiency, profitability, and consumer welfare.AQA
Market power: The ability of individual businesses to set prices, which is impacted by the number of firms in the market.AQA
Market structure: A way of defining oligopoly that focuses on a high concentration ratio where a few large firms dominate market supply, protected by high barriers to entry.AQA
Market structures: Distinguished by whether the firm is a price-taker, whose average and marginal revenue curves are identical and horizontal, or a price-maker, whose average…AQA
Market versus government: Policymakers must weigh the cost of the market failure against the potential cost of government failure, as a laissez-faire approach might sometimes result in…AQA
Market-based policies: Measures to improve economic incentives and the operation of markets, such as reducing marginal tax rates to encourage labour market participation.AQA
Market-based strategies: Approaches such as trade liberalisation, privatisation and deregulation that rely on the price mechanism to allocate resources efficiently and attract foreign…AQA
Market-based vs interventionist policies: Two types of supply-side policy whose success depends on the specific causes of unemployment.AQA
Marshall-Lerner Condition: The condition that states a currency depreciation will improve the current account balance only if the sum of the absolute values of the price elasticity of…AQA, Pearson Edexcel
Maturity: The exact date when the bond expires and the government repays the principal amount to the bondholder.AQA
Maturity transformation: The process of borrowing short term through deposits and lending long term through mortgages and business loans.AQA
Measure of value: A role of currency that prices goods consistently.AQA
Measurement and Indicators of Disparity: Utilization of the Gini coefficient (0 to 1 scale) and the Lorenz curve to visualize income distribution.Pearson Edexcel
Measurement of inequality: The use of statistical indicators to quantify the extent of income disparities within a population.AQA
Medium of exchange: A universally accepted function of money that allows workers to sell their specialised output for generalised purchasing power.AQA
Merit and demerit goods: Goods typically associated with information failure regarding long-term personal costs or benefits, and/or externalities.AQA
Merit goods: Goods whose long-term private benefits consumers may undervalue, leading to a perceived marginal private benefit lower than the actual one.AQA
Microeconomic effects: Changes to individual markets, such as the labour supply curve in a specific market or the allocation of resources.AQA
Microfinance: The provision of small loans and financial services to low-income individuals who lack access to traditional banking.Pearson Edexcel
Microprudential regulation: Regulation focused on individual banks and insurers, ensuring they hold sufficient capital and manage risk safely to avoid collapse.AQA
Minimising unemployment: Achieving full employment where those willing and able to work can find jobs, ensuring the labour force is fully utilised and reducing welfare spending and…AQA
Minimum efficient scale: The lowest level of output at which a firm can fully exploit all internal economies of scale, reaching the lowest point on its long-run average cost curve.AQA
Minimum efficient scale (MES): The lowest point of the LRAC curve, where all economies of scale have been fully exploited.AQA
Missing market: The outcome of complete market failure, where the free market fails to supply a product entirely.AQA
Missing markets: The absence of a market to price external costs, so economic agents ignore them.AQA
Monetarism: A view asserting that the major macroeconomic objectives are fully compatible in the long run.AQA
Monetarist economic theory: The argument that the inflation-unemployment trade-off only exists in the short run, with the economy returning to the NAIRU in the long run.AQA
Monetary considerations: Influences such as wages, salaries, performance-related pay, and pension contributions that affect the supply of labour to an occupation.AQA
Monetary policy: The use by the MPC of the Bank of England of changes in bank rate to try to achieve the objectives for monetary policy, including the government's target rate…AQA
Monetary Policy and Central Bank Independence: The shift from direct government control of interest rates to independent inflation-targeting regimes.Pearson Edexcel
Monetary policy transmission mechanism: The channels through which changes in the central bank's base rate affect the wider economy and ultimately the rate of inflation.AQA
Money supply: Broad money, which includes bank deposits created via credit, as distinct from base money such as notes and coins.AQA
Monopoly power: Privatisation risks creating private monopolies that exploit consumers through higher prices, especially in natural monopolies like water infrastructure.AQA
Monopsony: A situation where employers possess power as dominant buyers of labour, allowing them to act as wage makers rather than wage takers.AQA
Monopsony power: Employer wage-setting power that, with the ability to segment the market and different wage elasticities of supply, allows firms to pay different groups…AQA
Moral hazard: The 'too big to fail' problem where governments are forced to bail out combined banks to protect retail depositors.AQA
Moral judgements: Subjective, normative judgements based on ethics, equity and fairness, such as believing healthcare should be free.AQA
Multinational corporations: Companies that can establish global supply chains, supported by the high mobility of financial capital and labour.AQA
Multiplier effect: The process whereby an initial injection into the circular flow generates successive rounds of induced expenditure, so that one person's spending becomes…AQA
Multiplier process: An initial change in expenditure into the circular flow leads to a disproportionately larger final impact on local or national income.AQA

N

NAIRU: The non-accelerating inflation rate of unemployment, at which the long-run Phillips curve is vertical.AQA
Narrow money: Highly liquid assets that function immediately as a medium of exchange, primarily physical currency and sight deposits.AQA
National debt: The cumulative total of outstanding government borrowing, which a budget surplus allows a government to pay down.AQA
National debt and deficit: The deficit is the annual shortfall, whereas the debt is the total accumulated borrowing.AQA
National income: The total monetary value of all final goods and services produced within an economy over a specific period, usually a year.AQA
National output: One of the three theoretically identical ways of calculating the total value of economic activity, alongside national expenditure and national income.AQA
Natural capital: Finite natural resources that the environment provides and that are subject to depletion.AQA
Natural monopolies: Industries such as water supply where a single provider avoids wasteful duplication of infrastructure, giving an argument for public ownership.AQA
Natural rate of unemployment: The rate at which the long-run Phillips curve is vertical, and below which demand management cannot permanently reduce unemployment.AQA
Negative externalities: Costs such as carbon emissions that rapid growth can impose, illustrating the environmental costs of unsustainable growth.AQA
Negative output gap: Occurs when actual real GDP falls below the economy's productive potential, typically during a recession, indicating spare capacity with under-utilised…AQA
Net advantage: The sum of monetary and non-monetary benefits that determines the total supply of labour to an occupation.AQA
Net exports: Exports minus imports, forming a crucial component of aggregate demand; exports are an injection that increases it, while imports are a leakage that decreases…AQA
Non-collusive oligopoly: A market where firms act independently while remaining mutually interdependent in their decision-making.AQA
Non-excludability: Once the good is provided, it is impossible or prohibitively expensive to prevent individuals from consuming it.AQA
Non-monetary benefits: Non-monetary working conditions, such as flexible hours or increased holiday entitlement, which can shift the curve to the right by making the occupation more…AQA
Non-monetary considerations: Influences such as working hours, holiday entitlement, and job security that affect the supply of labour to an occupation.AQA
Non-price competition: Competition in which firms do not just compete on the basis of price but also strive to improve products, reduce costs and improve the quality of the service…AQA
Non-rivalry: One person's consumption does not reduce the quantity or quality available to others.AQA
Normal and inferior goods: Goods for which a rise in consumer income shifts demand to the right for normal goods but left for inferior goods.AQA
Normal capacity level of output: The maximum sustainable output when all resources are fully employed, allowing for frictional and structural unemployment.AQA
Normal good: A good with a positive income elasticity of demand, meaning demand rises as income increases.AQA
Normal luxuries: Normal goods with a YED greater than 1, where demand is income elastic.AQA
Normal necessities: Normal goods with a YED between 0 and 1, where demand is income inelastic.AQA
Normal profit: The minimum reward required to keep factors of production in their current use, occurring when total revenue equals total economic costs.AQA
Normative economics: The area of economics in which value judgements are central and act as the starting point for government macroeconomic and microeconomic interventions.AQA
Normative statement: A subjective assertion based on value judgements, opinions, or ethical beliefs, which cannot be scientifically proven.AQA, Pearson Edexcel
Nudge: A behavioural economics concept where the environment is subtly altered to predictably influence people's behaviour without forbidding any options or…AQA
Nudge theory: Alternative policy tools provided by behavioural economics that influence economic decision-making without relying solely on traditional financial incentives…AQA

O

Occupational immobility: Poor training leads to this, causing structural unemployment on the supply side of the labour market.AQA
Occupational labour supply: The number of workers willing and able to work in a specific profession at a given wage rate.AQA
Occupational mobility: Higher financial rewards successfully attract a larger quantity of labour to that specific market, rather than individual choices between work and leisure.AQA
Oligopoly: A concentrated market structure indicated by a high concentration ratio, with high barriers to entry and potential for interdependent behaviour.AQA
Opportunity cost: The amount of one good given up to produce another, found by dividing the maximum output of the given-up good by the maximum output of the good produced.AQA
Organic vs. Inorganic Growth: Examination of internal expansion through reinvested profits and product development versus external expansion via mergers, acquisitions, and takeovers.Pearson Edexcel
Output gap: The difference between an economy's actual real GDP and its estimated productive potential.AQA

P

Partial market failure: A situation where a market exists but contributes to resource misallocation by producing the wrong quantity or at the wrong price.AQA
Payment system: Essential infrastructure, such as debit card processing and electronic transfers, allowing economic agents to settle daily transactions securely and…AQA
Percentage change: Calculated as (new value - original value) / original value × 100.AQA
Perfect competition: A market with many buyers and sellers, homogeneous labour and perfect information, in which wage rates and employment levels are determined solely by the…AQA
Perfect equality: A value of 0, where everyone has the exact same income.AQA
Perfect inequality: A value of 1, where one person holds all the income.AQA
Perfect information: The assumption that all participants know the prices and quality of goods, having full knowledge of market conditions.AQA
Perfectly elastic demand curve: A horizontal demand curve at the market price, which is the demand curve the firm faces in perfect competition.AQA
Performance indicators: Measure the outcomes of conduct, encompassing profitability, product quality, and various forms of efficiency.AQA
Pigouvian Tax: A tax imposed on an activity that generates negative externalities, intended to correct an inefficient market outcome.Pearson Edexcel
Policy conflicts: Possible conflicts between macroeconomic policy objectives, shown by attempts to reduce unemployment below the natural rate using demand-side policies only…AQA
Policy conflicts and trade-offs: Evaluating supply-side policies involves considering the time lags and opportunity costs associated with implementing interventionist measures.AQA
Policy evaluation: Weighing the potential welfare gains of intervention against the risks of government failure, administrative costs and information gaps, and comparing…AQA
Policy Intervention and Redistribution: Evaluation of the effectiveness of means-tested versus universal benefits, the implementation of the National Minimum Wage, and the use of direct and indirect…Pearson Edexcel
Policy mix: Combining different policies, such as tight monetary policy alongside targeted fiscal expansion, to manage short-run conflicts.AQA
Policy prescriptions: Directly dictated by divergent value judgements, for instance egalitarians advocate highly progressive taxation and generous welfare benefits.AQA
Policy trade-offs: Conflicts that may arise, at least in the short run, when attempting to achieve macroeconomic objectives, so that success in one area can cause deterioration…AQA
Policy Trade-offs and Conflicts: The inherent tension between competing macroeconomic goals, most notably the short-run Phillips Curve trade-off between inflation and unemployment, and the…Pearson Edexcel
Political judgements: Normative views based on political ideology, government roles and power distribution, such as preferring free markets.AQA
Portfolio investment: The purchase of financial assets, such as equities or government bonds, in a foreign country without gaining managerial control.AQA
Positive consequences: The objective, testable and factual outcomes of an economic decision, such as raising the minimum wage increasing the incomes of the lowest earners.AQA
Positive output gap: Occurs when actual real GDP exceeds the sustainable productive potential, often during an economic boom, with resources over-utilised and demand-pull…AQA
Positive statement: An objective assertion that can be tested, verified, or falsified using empirical evidence, and does not have to be factually true.AQA, Pearson Edexcel
Potential output: The maximum productive capacity of the economy, which increases when behavioural changes shift the long-run aggregate supply curve rightwards.AQA
PPP (Purchasing Power Parity): An exchange rate adjustment that equalizes the purchasing power of different currencies by eliminating price level differences between countries.Pearson Edexcel
Precautionary saving: Saving that rises during economic uncertainty as households prepare for potential job losses.AQA
Price and wage stickiness: The assumption that wages and prices can be sticky downwards, which the Keynesian aggregate supply curve is based on.AQA
Price determination: The industry diagram shows market supply and demand determining the ruling price, which the firm takes as a perfectly elastic demand curve.AQA
Price discrimination: Occurs when a firm charges different prices to different consumers for the same good or service, for reasons not associated with differences in costs.AQA
Price elastic supply: A PES value greater than 1, meaning producers can easily increase output without a significant rise in costs.AQA
Price elasticity: Dictates how price changes affect a firm's total revenue, which equals consumers' total expenditure.AQA
Price elasticity of demand: Interpreted from these curves, with demand elastic when marginal revenue is positive and inelastic when marginal revenue is negative.AQA
Price Elasticity of Demand (PED): Values are typically negative; a magnitude greater than 1 indicates elastic demand, while less than 1 is inelastic.AQA, Pearson Edexcel
Price elasticity of supply: Measures how responsive the quantity supplied of a good is to a change in its price.AQA
Price inelastic supply: A PES value between 0 and 1, where firms struggle to adjust production quickly.AQA
Price leadership: A form of tacit collusion where a dominant firm sets the market price and smaller rivals follow to avoid retaliation.AQA
Price level: A change in the general price level causes a movement along, rather than a shift of, the aggregate demand and aggregate supply curves.AQA
Price making ability: A firm's ability to act as a price maker, setting prices above marginal cost without losing all customers.AQA
Price mechanism: The interaction of supply and demand determining prices without central direction, allocating resources without central planning.AQA
Price rigidity: A situation in non-collusive markets, explained by the kinked demand curve model, where undercutting rivals triggers price wars while raising prices leads to…AQA
Price stability: Maintaining a low and stable rate of inflation, usually defined in the UK as a 2% CPI inflation target, to maintain purchasing power and business confidence.AQA
Price taker: A firm that must accept the prevailing market price and cannot influence it by altering its own output.AQA
Price wars: Short-term tactics where undercutting leads to mutual revenue loss, usually used to drive out rivals or establish market share.AQA
Primary income: Records the flow of investment income, including dividends earned by UK residents from overseas shares and interest payments on foreign debt.AQA
Primary product dependency: A heavy reliance on the primary sector, such as agriculture or resource extraction, leaving economies vulnerable to volatile commodity prices.AQA, Pearson Edexcel
Principal-agent problem: A situation where the objectives of managers, such as salary and prestige, conflict with those of shareholders, who desire profit maximisation.AQA
Private good: A good that is both excludable and rivalrous, so owners can exercise property rights and consumption depletes the good.AQA
Privatisation and Nationalisation: Policies applied in the United Kingdom, such as the privatisation of Royal Mail or the nationalisation of banks during the 2008 crisis.AQA
Process innovation: Implementing new methods of production as a category of innovation.AQA
Producer surplus: The area above the domestic supply curve, shaded to show the gain in domestic producer surplus when a tariff is imposed.AQA
Product differentiation: A source of monopoly power for firms in monopolistically competitive markets, allowing them to raise prices slightly without losing all customers.AQA
Product innovation: Creating new goods or services as a category of innovation.AQA
Production: The process of combining scarce resources to produce outputs, namely goods and services.AQA
Production costs: Costs that determine the position of the SRAS curve and are assumed constant in the short run.AQA
Production possibility frontier: A curve showing the maximum potential output combinations of two goods, such as capital and consumer goods, given fixed resources and technology.AQA
Productive capacity: What free market supply-side policies aim to increase, shown by a rightward shift in the Long Run Aggregate Supply (LRAS) curve.AQA
Productive Capacity and Potential Output: The determinants of the LRAS boundary, focusing on the quantity and quality of the factors of production (land, labor, capital, enterprise) and the role of…Pearson Edexcel
Productive efficiency: Producing at the lowest possible cost, represented by any point on the PPF boundary, where all resources are used to their maximum potential.AQA
Productive potential: An estimate based on trend growth, representing the sustainable level of output the economy can produce.AQA
Productivity: Improved productivity means more output is produced per unit of input, effectively lowering unit production costs and shifting the SRAS curve to the right.AQA
Productivity and capacity: Supply-side policies aim to increase the productive potential of the economy, shifting the long-run aggregate supply curve to the right.AQA
Productivity and costs: Total cost rises at a decreasing rate initially, then at an increasing rate once diminishing returns set in.AQA
Productivity improvements: Private firms continuously seek these, such as adopting lean manufacturing techniques to reduce average costs.AQA
Profit: The difference between total revenue and total costs, and the fundamental financial reward for risk-taking in business.AQA
Profit maximisation: Achieved where marginal cost equals marginal revenue in the combined market, determining total output, with this constant marginal cost projected back to the…AQA
Profit Maximisation vs Alternative Objectives: Examination of the neoclassical assumption that firms seek to maximise profit (MC=MR) compared to behavioral theories such as revenue maximisation (MR=0),…Pearson Edexcel
Profit Maximization vs. Alternative Objectives: The tension between the neoclassical objective of MC=MR and alternative goals such as revenue maximization (MR=0) or sales maximization (AC=AR) to achieve…Pearson Edexcel
Profit motive: The motivation that incentivises firms to minimise production costs by choosing efficient combinations of capital and labour.AQA
Profit-maximising rule: A firm will maximise its total profit, or minimise its losses, at the output level where marginal cost equals marginal revenue.AQA
Profitability: The generation of returns for shareholders, typically through the interest rate spread between loans and deposits.AQA
Progressive tax: A tax where the proportion of income paid in tax increases as income increases, with the marginal rate of tax rising with income.AQA
Property rights: Legal ownership whose lack prevents individuals from using land as collateral for loans, stifling entrepreneurship and capital accumulation by restricting…AQA
Property rights and incentives: Private firms must compete for capital and customers, incentivising innovation and cost reduction.AQA
Proportional tax: A flat tax that takes the exact same percentage of income from everyone, regardless of how much they earn.AQA
Protectionism: Protectionist measures such as tariffs achieve expenditure switching by making foreign goods more expensive and switching domestic expenditure towards local…AQA
Public expenditure: Spending categorised into current expenditure on day-to-day running costs, capital expenditure on long-term infrastructure, and transfer payments that…AQA
Public goods: Goods that are non-rival and non-excludable, and whose characteristics create the free-rider problem.AQA
Public Goods and Market Absence: Examination of non-excludability and non-rivalry, which creates the free-rider problem and results in the complete failure of the market to provide essential…Pearson Edexcel
Public ownership: Occurs when the state owns and operates firms or industries, and can prioritise social welfare and allocative efficiency over profit maximisation.AQA
Purchasing economies: A category of internal economies involving bulk-buying discounts for supermarkets.AQA
Purchasing power: What determines for whom goods are produced, since those with higher incomes have a greater incentive and ability to consume.AQA
Purchasing Power Parity: A conversion of real GDP per capita into a common currency to account for differences in the cost of living when comparing countries.AQA
Purchasing Power Parity (PPP): An exchange rate adjustment that equalizes the purchasing power of different currencies by eliminating price level differences between countries.Pearson Edexcel
Purchasing power parity (PPP) exchange rates: Exchange rates that adjust for differences in the cost of living by equalising the purchasing power of different currencies.AQA
Pure monopoly: The opposite theoretical extreme where a single firm dominates the entire market, producing a unique product protected by insurmountable barriers to entry.AQA

Q

Quality: A focus that can differentiate a product, reducing the price elasticity of demand.AQA
Quantitative easing: The central bank increases the supply of money and credit in the financial system, encouraging commercial banks to lend.AQA
Quantity demanded: A specific point on the demand curve, showing the quantity consumers are willing and able to buy at a given price.AQA
Quantity Theory of Money: What MV = PQ becomes when assumptions about the stability of V and Q are applied, underpinning the monetarist model.AQA
Quasi-public good: A good that possesses some, but not all, characteristics of a pure public good, being partially excludable and/or partially rivalrous.AQA
Quasi-public goods: Goods such as television broadcasting that technological change has made excludable, transforming them from public goods and allowing markets to function.AQA
Quota: A physical limit on the volume or value of goods that can be imported over a specific period, directly restricting supply and raising prices without…AQA

R

Rational decision making: Making decisions using the complete information needed, which economic agents lack when imperfect information occurs.AQA
Rational economic behaviour: A core assumption of the model in which consumers aim to maximise utility while producers seek to maximise profit.AQA
Rationality: The idea that economic agents make decisions by weighing the additional benefits against the additional costs of consuming or producing one extra unit.AQA
Rationing function: When resources are scarce, price increases restrict demand to those who have the willingness and ability to pay.AQA
Real GDP: The total volume of goods and services produced, adjusted for inflation.AQA
Real GDP per capita: A standard measure used to assess changes in average living standards over time, accounting for population growth.AQA
Real national output: The axis labelled as 'Real GDP' or 'Real National Output' on macroeconomic diagrams, showing the quantity of real GDP demanded.AQA
Real wage unemployment: Occurs when real wages are forced above the market-clearing equilibrium level, causing labour supply to exceed labour demand.AQA
Real-world application: Using the basic model of demand and supply to analyse a variety of real-world markets, such as commodities or housing.AQA
Regional Disparities: Broad differences exist between the South East and the North in income and wealth across different parts of the UK.AQA
Regressive tax: A tax that takes a larger percentage of income from low-income earners than from high-income earners.AQA
Regulation: Setting legal rules, such as emissions limits for factories, to force economic agents to change their behaviour and alter how resources are utilised.AQA
Regulatory Capture: A government failure where a regulatory agency, created to act in the public interest, instead advances the commercial concerns of special interest groups.Pearson Edexcel
Relative poverty: Measures income inequality within a specific society, occurring when people fall below a certain threshold compared to the average standard of living in their…AQA
Replacement ratio: The ratio of unemployment benefits to average earnings, which influences the duration of job searches and the natural rate.AQA
Reserve ratio: The fraction of deposits banks must hold as liquid assets to meet withdrawals, which constrains credit creation.AQA
Resource allocation: A misallocation means the combination of goods produced does not maximise society's overall utility, and resources could be rearranged to make society better…AQA
Resource depletion: The using up of non-renewable resources, which rapid growth can lead to and which acts as an environmental constraint on growth.AQA
Resource misallocation: What a market contributes to when it produces the wrong quantity or at the wrong price.AQA
Restricted choice: Limiting the number of available options to prevent cognitive overload and decision paralysis, guiding consumers towards better outcomes.AQA
Returns to scale: The physical relationship between inputs and outputs in the long run.AQA
Revenue curves: Curves showing average revenue and marginal revenue, identical and horizontal at the market price for a perfectly competitive firm, and total revenue as an…AQA
Revenue maximisation: Producing where marginal revenue is zero, an objective managers might pursue when their bonuses are tied to company size.AQA
Ring-fencing: A form of financial regulation that attempts to separate commercial and investment banking to reduce systemic risk.AQA
Role of the private sector: Private enterprise and innovation driving supply-side improvements independently of specific government policy.AQA
Rules of thumb: Simple mental shortcuts used to speed up complex choices, such as buying the same brand repeatedly.AQA

S

Sales maximisation: Producing where average revenue equals average cost, an objective a growing tech firm might target to rapidly expand its user base and market share.AQA
Sales revenue maximisation: The output level where marginal revenue equals zero, which managers might pursue to justify higher salaries or increase market presence.AQA
Satisficing: Aiming for a satisfactory or adequate level of profit rather than strictly maximising it.AQA
Satisficing behaviour: Choosing a satisfactory rather than optimal option, which is the outcome of bounded rationality rather than strict utility maximisation.AQA
Saving: The portion of disposable income not spent on current consumption, acting as a withdrawal from the circular flow of income and typically undertaken by…AQA
Savings gap: Low levels of savings and investment that restrict capital accumulation.AQA, Pearson Edexcel
Scale of production: What a firm can alter in the long run, when all factors of production are variable and it can expand its premises.AQA
Scarcity: The fundamental economic problem that results from limited resources and unlimited wants, meaning society cannot satisfy every want.AQA, Pearson Edexcel
Scarcity and choice: The problem of allocating scarce resources, which economics studies through the choices of individuals, firms and governments.AQA
Scarcity and opportunity cost: A scarce resource is one where the quantity demanded exceeds the quantity supplied at a zero price, leading to an opportunity cost.AQA
Seasonal unemployment: Joblessness that happens when demand for labour fluctuates with the time of year, like ski instructors in summer.AQA
Secondary income: Accounts for unilateral current transfers where no corresponding output is provided in return, such as overseas development aid or membership fees to…AQA
Security: The management of risk to ensure that loans are repaid and the bank maintains long-term solvency.AQA
Short run: The period during which at least one factor of production, typically capital like factory size or heavy machinery, remains fixed.AQA
Short run versus long run: A distinction in which the short run has at least one fixed factor of production, while the long run has all factor inputs variable.AQA
Short-run aggregate supply: A curve that shifts due to changes in economy-wide costs of production, such as money wage rates and raw material prices.AQA
Short-run costs: Costs shown by curves including Marginal Cost, Average Variable Cost, Average Total Cost and Average Fixed Cost, with the Marginal Cost curve U-shaped due to…AQA
Short-run economic growth: An increase in real GDP resulting from utilising spare capacity, shown on a PPC as a movement from a point inside the curve towards the boundary.AQA
Short-run Phillips curve: Illustrates a trade-off between inflation and unemployment, implying policymakers can use demand-side policies to reduce unemployment at the cost of higher…AQA
Short-run Phillips curve (SRPC): Shows an inverse trade-off: as unemployment falls, inflation rises.AQA
Short-run production: A concept applying only where at least one factor of production is fixed, so that variable factors are added to a fixed factor.AQA
Signalling function: Prices adjust to demonstrate where resources are required, acting as a communication tool between consumers and producers.AQA
Simple index: Calculated by dividing the raw value in the current year by the raw value in the base year, then multiplying by 100.AQA
Social Optimum: The level of output where the marginal social benefit (MSB) equals the marginal social cost (MSC), maximizing social welfare.Pearson Edexcel
Social sciences vs natural sciences: Economics is a social science studying human behaviour, which is unpredictable and influenced by countless variables, so it differs from natural sciences like…AQA
Social welfare: A net loss of this occurs when the free market mechanism fails to allocate resources efficiently.AQA
Societal welfare: What is maximised when resources are distributed to match consumer preferences.AQA
Spare capacity: A situation where actual real GDP is below potential output, common during a recession, where cyclical unemployment is high and capital sits idle.AQA
Specialisation: Producing the good for which a country has a lower opportunity cost than its trading partner, which with trade increases total global output.AQA
Stable balance of payments on current account: The value of imports and exports is relatively balanced, avoiding unsustainable deficits that require heavy foreign borrowing.AQA
Stagflation: A condition in which the price level is pushed up while real output is simultaneously reduced, potentially caused by cost-push inflation.AQA
Stakeholder conflict: Conflicting objectives among different stakeholder groups, such as workers, managers, and shareholders, which satisficing resolves.AQA
Stakeholder Theory and CSR: The shift from shareholder primacy to a broader focus on stakeholders, including employees, customers, and the environment, often as a strategy for long-term…Pearson Edexcel
Standard of deferred payment: A role of currency that enables borrowing and lending agreements.AQA
Static efficiency: Occurs at a specific point in time and encompasses allocative efficiency and productive efficiency, focusing on the optimal allocation of existing resources.AQA
Sticky wages: A situation where employers cannot easily cut nominal pay during economic downturns, so nominal wages fail to adjust downwards.AQA
Store of value: A role of currency allowing purchasing power to be saved for future use.AQA
Strategic behaviour: Firms must consider the likely reactions of rivals when making strategic decisions, and may exhibit collusive behaviour to maximise joint profits.AQA
Strategic interdependence: Dictates how firms determine prices, output, investment, and expenditure on research and advertising.AQA
Structural and frictional unemployment: The components of the natural rate of unemployment, the first caused by occupational immobility and the second lowered by incentivising job-seeking.AQA
Structural Causes of Inequality: Investigation into wage differentials resulting from varying elasticities of labor supply, the impact of capital-biased technological change, and the role of…Pearson Edexcel
Structural change: Growth often involves a transition from manufacturing to services, which can cause structural unemployment, and it risks structural shifts within the economy.AQA
Structural Current Account Deficit: A persistent current account deficit that reflects deep-seated weaknesses in an economy's productive capacity — such as low productivity, deindustrialisation,…AQA
Structural unemployment: A deeper issue caused by the decline of major industries or a mismatch of skills, arising from occupational or geographical immobility.AQA
Structure-Conduct-Performance (SCP) paradigm: A means by which market structures can be compared, analysing both conduct and performance to provide a comprehensive comparison of different markets.AQA
Substitute goods: Goods for which cross elasticity of demand is positive, as a rise in the price of one increases demand for the other.AQA
Substitutes and complements: If machinery becomes cheaper, firms may substitute capital for labour, shifting labour demand to the left; if capital and labour are complementary, cheaper…AQA
Supernormal profit: Illustrated by the rectangular area between the average revenue and average total cost curves at the chosen output.AQA
Supply: The quantity of a good or service that producers are willing and able to sell at a given price in a given time period.Pearson Edexcel
Supply and demand: The market forces whose interaction determines relative wage rates by establishing equilibrium prices for different occupations.AQA
Supply chain disruptions: Interruptions abroad that reduce aggregate supply in the UK by disrupting supply chains.AQA
Supply curve: A graphical representation showing the quantity of a good producers are willing and able to sell at various prices.AQA
Supply-side improvements: Increases in productive capacity that arise from private sector actions or external technological advancements without direct government intervention.AQA
Supply-Side Interventionism: State-led initiatives to increase the Long-Run Aggregate Supply (LRAS).Pearson Edexcel
Supply-side policies: Deliberate government interventions, such as reducing corporation tax, deregulating markets, or subsidising education, designed to increase the productive…AQA
Supply-Side Policy Intervention: The use of market-based and interventionist policies to shift the LRAS rightward, aiming to increase non-inflationary growth and improve international…Pearson Edexcel
Supply-side shocks: Changes in raw material prices are modelled as a supply-side shock affecting the SRAS curve, not as a demand shock.AQA
Survival: A common short-run objective for new entrants or during economic downturns, to withstand economic shocks or intense competition.AQA
Sustainability: The idea that growth can be decoupled from environmental degradation through green technology investments, so that rising national output does not unavoidably…AQA
Sustainability and Externalities: Evaluation of the trade-offs between rapid industrial expansion and environmental degradation, focusing on the Environmental Kuznets Curve and the transition…Pearson Edexcel
Sustainable economic growth: Growth that meets the needs of the present without compromising the ability of future generations to meet their own needs.AQA
Synoptic links: Connections between this part of the specification and other parts, such as globalisation, trade, the determinants of economic growth and inequality.AQA
Systemic risk: The danger that the failure of one financial institution could trigger a domino effect, leading to the collapse of the entire financial system.AQA

T

Tacit collusion: An unspoken arrangement where firms follow a price leader without formal agreement.AQA
Tariff: A tax imposed on imported goods, which raises their price, reduces domestic demand for imports, and generates tax revenue for the government.AQA
Taxation: The use of taxes, particularly indirect taxes like excise duties on tobacco, to raise the cost of demerit goods and reduce their consumption.AQA
Technical economies: A category of internal economies using large, efficient machinery like automated car assembly lines.AQA
Technological change: Advancements such as digital encryption and subscription technologies that alter the characteristics of goods, for example making television broadcasting…AQA
Technological progress: Accelerated by state subsidies, for instance for electric vehicle battery manufacturing, shifting the LRAS curve rightwards.AQA
Terms of trade: The exchange rate at which countries trade, which must lie between the two domestic opportunity cost ratios to be mutually beneficial.AQA, Pearson Edexcel
The Divorce of Ownership from Control: The emergence of the Principal-Agent problem where managers (agents) pursue personal utility maximization, such as prestige or fringe benefits, over…Pearson Edexcel
The law of demand: The inverse relationship between price and quantity demanded, whereby as price falls, quantity demanded increases.AQA
The Law of Diminishing Marginal Returns: A short-run law stating that as more units of a variable factor are added to a fixed factor, the marginal product will eventually decline, causing marginal…Pearson Edexcel
The Multiplier: The ratio of the final change in national income to the initial change in an injection that caused it; calculated as 1/(1-MPC) or 1/MPW.Pearson Edexcel
The multiplier effect: The process by which an initial injection circulates through the economy, generating a multiplied increase in national income as workers spend their new wages.AQA
The Role of Expectations and Credibility: The significance of forward guidance and the reputation of policy-making institutions in shaping consumer and firm behavior, particularly regarding…Pearson Edexcel
The scientific method: Observing phenomena, formulating hypotheses, and gathering empirical data to test theories, used by economics, natural sciences and other social sciences.AQA
Total cost: The entire financial expense incurred to produce a specific level of output, calculated by adding total fixed and total variable costs.AQA
Total costs: All fixed and variable costs incurred during production, which must include both explicit accounting costs and implicit opportunity costs.AQA
Total Fixed Cost: The cost shown in a data table as the Total Cost when output is zero.AQA
Total returns: The total output produced by a given quantity of factors of production, also called total product.AQA
Total revenue: The total income a firm receives from selling a given quantity of output, calculated by multiplying price by quantity.AQA
Total utility: The aggregate satisfaction from consuming a specific quantity of a good.AQA
Trade and exchange: Required by specialisation, as workers no longer produce everything they need to survive.AQA
Trade Creation: The replacement of higher-cost domestic production with lower-cost imports from a member of a newly formed trading bloc.Pearson Edexcel
Trade in services: Captures invisible transactions, like a foreign student paying tuition fees to a British university.AQA
Trade Liberalisation: The removal or reduction of restrictions or barriers on the free exchange of goods between nations.Pearson Edexcel
Trade unions: Act as a monopoly supplier of labour, using collective bargaining to push wages above the competitive equilibrium, which can create unemployment.AQA
Trading blocs: Groups of countries that adopt arrangements such as a common external tariff against non-member countries.AQA
Traditional theory of the firm: Models built upon the assumption that businesses act rationally to maximise their profits.AQA
Tragedy of the commons: What occurs when rights are absent, such as with clean air or open oceans, so unowned resources are over-exploited.AQA
Transaction costs: The costs that barter systems suffer from in a high amount due to the necessity of a double coincidence of wants.AQA
Transfer payments: Payments excluded from national income calculations because they do not represent new production of goods or services.AQA, Pearson Edexcel
Transmission mechanism: The process by which altering the bank rate affects commercial interest rates, and through them consumption, investment, aggregate demand, the exchange rate…AQA
Transmission Mechanisms: The complex channels through which policy changes, such as adjustments in the base interest rate or changes in taxation, filter through the economy to affect…Pearson Edexcel
Trend rate of growth: The smoothed long-term average rate of increase in real national output over time, ignoring cyclical fluctuations.AQA

U

Uncertainty: Arises because firms cannot perfectly predict the reactions of their rivals to strategic moves.AQA
Underlying trend rate of economic growth: The sustained expansion of productive capacity, allowing faster economic expansion without triggering demand-pull inflation.AQA
Underwriting: A core function of investment banks involving new stock or bond issues to help large corporations and governments raise capital.AQA
Unemployment: Cyclical unemployment falls when an increase in aggregate demand leads firms to produce more and hire more workers.AQA
Unemployment of economic resources: Points inside the boundary, where resources are unemployed or inefficiently used, so more could be produced without any sacrifice.AQA
Unintended consequences: Effects created by intervention that distort the price mechanism and exacerbate the initial problem or create new inefficiencies.AQA
Unitary elasticity: A value of exactly 1, where the percentage change in quantity supplied exactly matches the percentage change in price.AQA
Universal bank: An institution conducting both commercial banking activities, such as taking retail deposits and lending to households, and investment banking activities.AQA
Utility: What economies aim to maximise by producing goods and services, alongside welfare.AQA
Utility maximisation: Consumers use marginal analysis, continuing an activity as long as the marginal benefit exceeds the marginal cost, to maximise utility.AQA

V

Value judgement: Something required to determine whether a specific distribution of income is equitable, as different individuals hold varying moral or political views on what…AQA
Value judgements: Determining the best option is rarely based on positive economics alone and inherently requires these judgements, which cannot be proven true or false using…AQA
Variable costs: Business expenses that vary directly with the level of output, increasing as a firm produces more goods.AQA
Velocity of circulation: The number of times a unit of currency changes hands to purchase final goods and services in a given period, assumed by monetarists to be relatively stable in…AQA
Vertical LRAS curve shift: A movement of the curve that occurs only when there is a change in the quantity or quality of the economy's productive resources.AQA
Voluntary unemployment: Occurs when workers choose not to accept employment at the current equilibrium wage rate.AQA

W

Wage determination: The wage is read off the labour supply curve at the profit-maximising quantity, which is lower than the marginal revenue product.AQA
Wage Determination in Competitive and Non-Competitive Markets: Analysis of equilibrium wages where labour supply meets demand in perfectly competitive markets, contrasted with wage-setting in monopsonistic markets where…Pearson Edexcel
Wage differentials: Variations in pay stemming from differences in education, skills and trade union power, which influence the distribution of income.AQA
Wage discrimination: Paying different wages to workers doing the exact same job, unjustified by differences in marginal revenue product.AQA
Wage rate: The price of labour; as it increases, the cost of production rises, leading firms to demand fewer workers.AQA
Wage takers: Individual firms that must pay the ruling market wage and face a perfectly elastic supply of labour curve.AQA
Wealth: A stock of assets at a point in time, such as property or shares.AQA
Weighted index: Calculated by multiplying each item's price index by its respective weight, summing these products, and dividing by the sum of the weights.AQA
Weighting: Items are weighted based on the proportion of income spent on them, so fuel receives a higher weight than stamps.AQA
Weights: Values reflecting the relative importance of different items, assigned based on the proportion of total expenditure spent on a specific category.AQA
Welfare: What economies aim to maximise by producing goods and services, alongside utility.AQA
Welfare loss: A net loss arising when state intervention to correct a market failure makes the misallocation of resources worse than if the free market had been left alone.AQA
Withdrawals: Funds leaving the circular flow of income, reducing money available for domestic consumption, comprising household savings, taxes and imports.AQA
Working conditions: Such as the physical environment, safety protocols, and working hours, these are key determinants of labour supply.AQA

X

X-inefficiency: Arises from a lack of competitive pressure, resulting in inflated average costs and organisational slack.AQA

Y

Yield: The return a bond offers, calculated as the coupon divided by the current market price, so a falling price raises the yield to match market rates.AQA

Where these terms come from

Each definition is one we publish on a Economics A-Level topic page or study guide. Open a term to see how each exam board words it and which topic it belongs to. For the full course, go to Economics revision or the glossary for every subject.

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