List of Definitions for Unit 1: Competitive Markets-How They Work and Why They Fail? (GCE, Edexcel)

The list of useful glossaries for Unit 1: Competitive Markets: How They Work and Why They Fail:

1. Production possibility frontier/ curve: A curve that shows the maximum combination of two goods that can be produced in an economy if all resources are fully and efficiently utilised

2. Opportunity cost: the next best alternative foregone

3. Economic growth: when there is an outward shift of PPF

4. Specialisation/ division of labour: when a task is broken into many small repetitive parts each done by a small group of people or individuals

5. Labour productivity: output per worker

6. Capital productivity: output per capital/ machine employed

7. Positive statement: a statement that can be testified/ verified true or false by referring to available evidence/ a statement that its truth cannot be argued

8. Normative statement: a statement that contains subjective/ value judgement that cannot be testified/ a statement that is arguable

9. Command/ centrally planned economy: an economic system where government, through a planning process will allocate resources in society

10. Free market/ market/ free enterprise/ capitalist economy: an economic system which resolves the basic economic problem through the market mechanism/ demand and supply

11. Mixed economy: an economic system where both the free market mechanism and government planning process work together to allocate economic resources/ an economic system which has elements of both capitalism and socialism

12. Price mechanism: the interaction of demand and supply to resolve the issue of scarcity and infinite wants

13. Consumer surplus: the difference between what consumers are willing and able to pay and what they are actually paying at market price

14. Producer surplus: difference between the market price and the lowest price firms are willing and able to sell at

15.PED (Price elasticity of demand): measurement of the responsiveness of quantity demanded for a good to a change in price

16. Inelastic demand: when a change in price leads to less than proportionate change in quantity demanded

17. Elastic demand: when a change in price leads to greater than proportionate change in quantity demanded

18. XED (Cross elasticity of demand): measurement of the responsiveness of demand for a good to a change in the price of another good

19. Complement goods: a good that is used in conjunction with another good

20. Substitute goods: goods that can be used in place of another

21. YED (Income elasticity of demand): measurement of the responsiveness of demand for a good to a change in income

22. Normal goods: goods where people will demand more when there is an increase in income

23. Inferior goods: goods where people will demand less when there is an increase in income

24. PES (Price elasticity of supply): measurement of the responsiveness of quantity supplied for a good to a change in price

25. Subsidy: a grant that is given by government to reduce the production cost of a good

26. Indirect tax: a charge that is levied by the government upon the consumption of a good

27. VAT (Value Added Tax): a tax/ charge that is levied at each stage of production process and at final sale

28. Specific/ unit tax: tax that is levied on volume

29. Ad-valorem tax: tax that is levied as a percentage of the value of the good

30. Incidence of tax: upon who the burden of taxation falls onto

31. Market failure: when the interaction of demand and supply leads to inefficient allocation of resources

32. Government failure: when government intervention to resolve economic problems leads to net welfare loss

33. NMW (National Minimum Wage): a minimum wage that employers are obliged to pay, below which is illegal for them to hire workers

34. MGP (Minimum Guaranteed Price): A scheme set up by the EU government to increase the income of farmers

35. Buffer stock scheme: a scheme whereby the related organisation intervenes in the open market by buying up and selling the product so as to maintain price within a targeted range

36. Public goods: goods that have the characteristics of non-rivalry and non-excludability

37. Free rider: people who get to benefit from the consumption of a good or service when it is someone else that actually pays for it

38. Merit goods: goods and services that are beneficial for the entire society but will be under-provided and hence under-consumed if left to the market force

39. Demerit goods: goods and services that are perceived as harmful for the entire society but will be over-provided and hence over-consumed if left to the m

40. Private benefits: benefits that are directly gained by individuals or firms when they engage in an economic activity

41. External benefits/ positive externalities: benefits accrued by a third party which is not directly part of an economic activity/ positive spillover effect/ when social benefits are greater than private benefits

42. Private costs: costs that are directly incurred by individuals or firms when they engage in an economic activity

43. External costs/ negative externalities: costs accrued by a third party which is not directly part of an economic activity/ negative spillover effect/ when social costs are greater than private costs

44. Tradable pollution permits: permits to pollute that can be bought and sold in an open market which is introduced to limit emissions

45. Property rights: rights to ownership of an asset such as land

46. Occupational immobility of labour: a situation where workers find it difficult to move from one job to another due to mismatch of skills

47. Geographical immobility: a situation where workers find it difficult to move from one place to another in search for jobs

48. Asymmetric information: when one party is better informed than the other

49. Competitive demand: when two or more goods are substitutes for one another

50. Composite demand: when a good is demanded for two or more uses (e.g. milk for yoghurt, cheese making, butter or drinking)

51. Derived demand: when the demand for one good is the result of rise in demand for another good (e.g. lecturers and GCE Edexcel A-Levels)

52. Joint demand: when two or more goods are needed simultaneously to allow an economic activity to take place

53. Joint supply: an economic process that can yield two or more different outputs at the same time

54. Excess demand/ shortage: when quantity demanded is greater than quantity supplied

55. Excess supply/ surplus: when quantity supplied is greater than quantity demanded

56. Demand: the quantity of goods purchased at any given price holding other factors constant

57. Supply: the quantity of goods supplied at any given price, holding other factors constant

58. Ceteris paribus: is an assumption that other variables/ factors are constant whilst one change is being considered

59. Capital goods/ fixed capital: economic resources such as factories, hospitals, offices and machines which are used to produce goods and services

60. Human capital: the set of skills which an employee acquires on the job through training and experience which will increase the employee’s value in market place

61. Factors of production: inputs to the production process such as land, labour, capital and entrepreneurs

62. Scarcity: an economic problem that arises because people have unlimited wants but resources are limited

63. Needs: the minimum which is necessary for a person to survive as a human being

64. Wants: desires for the consumption of a good or service

65. Economic goods: Goods which are scarce because their use has an opportunity cost

66. Free goods: Goods which are unlimited in supply and which therefore has no opportunity cost

Additional guide:
1. Definitions in bold italic are the 'more important' ones and they are highly likely to be tested both in Section A MCQ and Section B Data Response. When I say that, I don't mean that the rests are unimportant. They can be equally very useful when it comes to writing or explanation. Bear in mind that examiners love to see how economic terminologies are spiced up with real life examples particularly for questions that contain *

2. Please read/ study the definitions with logic. Try to understand and reason them. Ask yourself some questions along the way. Avoid rot-memorising. Trust me. You will not retain what you had studied. Probably the best, several hours to a day. Then, the whole painful process will have to start all over again

3. I will provide the list of Unit 2 and Unit 3 glossaries very very soon. In total, there will be probably another 120-130 terms

Highly Possible Topics To Be Tested In Unit 4: Global Economy

Here is what you have been waiting for. Sorry, I really have limited time to blog tonight. Do send message to me through my chatbox. Hope to get back to you in no time.

A. National debt

1. Reasons for ballooning national debt/ increasing fiscal deficit/ deteriorating public finances:

a) Large scale government to bail out the failed financial institutions

b) Payment for jobseekers allowance rose

c) Falling tax revenue as many people were made redundant, companies reported large losses and fall in asset prices led to lower capital gain tax

d) Increasing number of elderly people. So there is a commitment to pay for Social Security and healthcare

e) More borrowing to pay for previous debts

2. Economic implications/ effects of rising level of national debt/ budget deficit:

a) Austerity programme to balance the book

b) Crowding out effect

c) Rising inflation

d) Lower credit rating by Fitch, Moody’s and S&P’s. More difficult to raise finances

e) Economic growth hence better ability to pay for the debt

f) More jobs created

3. Methods to reduce national debt:

a) Austerity drive to bring UK out of red ink

b) Expansionary fiscal and monetary policy to attain growth so that more tax revenue can be generated to pay off the debt

c) Expansionary fiscal and monetary policy to achieve higher inflation, so that UK’s debt worth lesser than what it looks

d) Negotiate for more favourable term but unlikely to happen

B. Eurozone crisis

1. Reasons to join:

a) No transaction costs. Only minimal fee paid to banks for facilitating the process

b) Eliminate exchange rate uncertainty. So predicting costs, profits and planning for future production are made easy

c) Macroeconomic discipline. Members are reminded to keep inflation low and not to overspend

d) May emerge as a large economic powerhouse succeeding the States and euro may overtake dollar as the most traded currency

e) Attract more FDI

f) Price transparency as firms and consumers can compare prices which are all quoted in euro

g) Financially secured as member countries are more backed by EU government that wants to secure the interests of entire euro zone e.g. EU government tries to prevent Greece from becoming insolvent

2. Reasons not to join:

a) No power to set own interest rate that is best to own nation

b) Cannot devalue currency to boost competitiveness and pursue export-led growth in times of crisis

c) Strict inflationary target which is close to but below 2% at the expense of lower economic growth

d) ight spending target as member countries are told not to succeed over Growth and Stability Pact

e) Confusion on day of transition

f) Loss of jobs especially bankers, currency analyst and workers in money exchanger

C. Falling pound

1. Reasons for collapse in pound:

a) Severe cut in interest rates and maintained at 0.5% for a very long time

b) Lack of demand for UK bonds

c) Speculation that sterling may fall. So currency speculators and foreign government choose to hold lesser pound

d) Current account deficit

e) De-globalisation which has caused reversal of FDI. So lesser demand for pound

2. Economic effects:

a) Value of foreign debts worth more

b) Narrow current account deficit

c) Revival of manufacturing sector. So more jobs created

d) Inflation due to rise in (X-M) and artificially more expensive foreign goods and raw materials

e) Economic growth

f) Further fall in pound due to speculation activities

g) Rise in FDI due to growing competitiveness

Also watch out for topics like protectionism/ foreign aid/ debt cancellation/ FDI together with its benefits and costs

Section B:

8 marks evaluation based question (2 explanations 6 marks and 1 evaluation 2 marks)

10 marks evaluation based question (2explanations 6 marks and 2 evaluations 4 marks)

12 marks evaluation based question (2 explanations 7 marks and 2 evaluations 5 marks)

15 marks evaluation based question (3 explanations 9 marks and 2/3 evaluations 6 marks

Also, bear in mind that a MAXIMUM mark per explanation is 4 marks. Will never be higher. So don’t try to change the formation

Answering techniques for Section B Unit 3: Business Economics and Economics Efficiency

This will be a short posting. I forgot to mention about the exam techniques in Section B. Under the new specification, these changes have been made:

(a) Only four questions will be tested unlike in the past where some questions may have further breakdown, for instance (a)(i) and (a)(ii).

(b) Each question therefore carries greater weightage and ought to be addressed carefully.

(c) Both question 9 and 10 will have equal distribution of marks for each question. For instance if 9(b) has 8 marks, then question 10 (b) will also has 8 marks

(d) Marks are in ascending order and they are even. For instance, 4 marks, 8 marks, 12 marks and 16 marks which in total made up 40 marks

(e) Explanations carry equal weight with evaluations

How to know which question require evaluations?

Simple. Question (b) onwards. Otherwise stick to my JEDATE rule (Justify, Evaluate, Discuss, Assess, To what extent and Examine). Analyse/ outline/ explain are not evaluation words

(1) How do I tell evaluation marks from explanation marks?

They carry equal weightage as mentioned earlier. For instance 8 marks question will have 4 marks for explanations and 4 marks for evaluations. For a 16 marks question, the breakdown will be 8 marks for explanations and 8 marks for evaluations. This means problem. As far as I can recall, only Unit 3 gives such heavy emphasis onto evaluations, something not seen in other units as they usually carry lesser marks than explanations per question

(2) Do I get marks if I provide evaluations even if the question does not ask for it?

No, you don’t. It is just a waste of time and you are taking the grave risk that you may not be able to complete the paper on time

(3) What is the further breakdown for marks?

Consider a 8 marks evaluation-based question. Explanations carry 4 marks. So it can be 2/2 or 3/1. The same goes for evaluations. If a question has 12 marks, then explanations have 6 marks where it could be 3/3 or 2/2/2. The same goes for evaluations. Finally, if the question has 16 marks, explanations will be 2/2/2/2 or 3/3/2 or 4/4. The same style applies for evaluations. My advice is provide more point in case if you’re weak in providing explanations

All these are easy and effective techniques that some of you may have thought about it, but rest assured, your whole mind might go blank on the exam spot, forgetting all these rules. By the way, the distribution of marks is meant for new specification only and not all those papers before January 2010

Best wishes!