Edexcel International AS & A Level Economics: every topic, by paper

What is the basic economic problem?

Resources are scarce but human wants are unlimited, so choices must be made.

Name the four factors of production and their rewards.

Land (rent), labour (wages), capital (interest) and enterprise (profit).

What is opportunity cost?

The value of the next best alternative forgone when a choice is made.

What is effective demand?

The desire to buy a good backed by the ability to pay.

What does the law of demand state?

As price falls, quantity demanded rises, ceteris paribus.

What causes a movement along a demand curve?

A change in the good's own price.

What does elasticity measure?

How responsive one variable is to a change in another.

What is the formula for price elasticity of demand (PED)?

% change in quantity demanded ÷ % change in price.

What does a PED of −0.4 mean?

Demand is price inelastic: a 1% price rise reduces quantity demanded by 0.4%.

What is market failure?

When the free market fails to allocate resources efficiently, reducing social welfare.

What is an externality?

A cost or benefit to a third party not involved in the transaction, not reflected in the price.

What is a negative externality of production?

A cost to third parties from production, e.g. pollution from a factory.

Name four main macroeconomic objectives.

Economic growth, low and stable inflation, low unemployment, and a satisfactory balance of payments.

What is gross domestic product (GDP)?

The total value of goods and services produced in a country in a year.

What is the difference between nominal and real GDP?

Nominal GDP is at current prices; real GDP is adjusted for inflation.

What is aggregate demand (AD)?

Total planned spending on a country's goods and services at each price level.

What are the components of AD?

Consumption + investment + government spending + (exports − imports): C + I + G + (X − M).

Why does the AD curve slope downwards?

A lower price level raises real wealth, makes exports more competitive and lowers interest rates, increasing spending.

What is deflation?

A sustained fall in the general price level.

What is demand-pull inflation?

Inflation caused by aggregate demand growing faster than aggregate supply.

What is cost-push inflation?

Inflation caused by rising costs of production, e.g. wages or oil prices, shifting SRAS left.

What is fiscal policy?

Government use of taxation and spending to influence the economy.

What is a budget deficit?

When government spending is greater than tax revenue in a year.

What is the national (government) debt?

The total accumulated amount the government owes.

What is total revenue?

Price × quantity sold.

What is average cost?

Total cost ÷ output.

What is marginal cost?

The change in total cost from producing one more unit.

List four market structures from most to least competitive.

Perfect competition, monopolistic competition, oligopoly and monopoly.

Name four features of perfect competition.

Many buyers and sellers, identical products, perfect information, and free entry and exit.

Why can perfectly competitive firms earn only normal profit in the long run?

Supernormal profit attracts new firms, which increases supply and lowers price until only normal profit remains.

What is the demand for labour?

The number of workers firms are willing and able to employ at each wage rate.

Why is demand for labour a derived demand?

Labour is demanded for the goods and services it produces.

What is marginal revenue product (MRP)?

The extra revenue from employing one more worker: marginal product × marginal revenue.

What is international trade?

The exchange of goods and services between countries.

What is absolute advantage?

A country can produce more of a good than another country with the same resources.

What is comparative advantage?

A country can produce a good at a lower opportunity cost than another country.

What is an exchange rate?

The price of one currency in terms of another.

What is a floating exchange rate?

An exchange rate determined by the demand and supply of the currency in the foreign exchange market.

What is a fixed exchange rate?

An exchange rate set by the government or central bank at a particular value against another currency.

What is economic growth?

An increase in real GDP over time.

What is economic development?

An improvement in living standards and wellbeing, including health, education and freedom, not just income.

What is the difference between growth and development?

Growth is an increase in output; development is a broader improvement in human welfare.