ZNOTES.ORGUPDATED TO 2022 SYLLABUSCAIE A2 LEVELECONOMICS(9708)SUMMARIZED NOTES ON THE DEFINITIONS SYLLABUSCAIE A2 LEVEL ECONOMICS (9708)24.Indifference curve -this shows the different1.Definitionscombinations of two goods that give a consumerequal satisfaction25.Marginal rate of substitution -the rate at which a1.Economic efficiency -where scarce resources areconsumer is willing to substitute one good for anotherused in the most efficient way to produce maximum26.Isoquant-a curve showing a particular level of outputoutput27.Production function-this shows the maximum2.Productive efficiency -when a firm is producing at thepossible output from a given set of factor inputslowest possible cost28.Marginal product-the change in output arising from3.Allocative efficiency-where price is equal to marginalthe use of one more unit of factor of productioncost;firms are producing those goods and services29.Diminishing returns-where the output from anmost wanted by consumersadditional unit of input leads to a fall in the marginal4.Pareto optimality-where it is impossible to makeproductsomeone better off without making someone else30.Firm-any business that hires factors of production inworse offorder to produce goods and services5.Externality where the actions of producers or31.Profit maximization-the assumed objective of a fimmconsumers give rise to side effects on third partieswhere the difference between total revenue and totalwho are not involved in the action,sometimescost is at a maximumreferred to as spill over effects32.Fixed costs -those costs that are independent of6.Negative externality-where the side effects have aoutput in the short runnegative impact and impose costs to third parties33.Variable costs -those that vary directly with output,7.Positive externality-where the side effects have aall costs are variable in the long runpositive impact and provide benefits to third parties34.Increasing retums to scale-where output increases8.Social costs-the total costs of a particular actionat a proportionately faster rate than the increase in9.Private costs-those costs that are incurred by anfactor inputsindividual who produces a good or service35.Decreasing returns to scale-where factor inputs10.External costs-those costs incurred and paid for byincrease at a proportionately faster rate than thethird parties not involved in the actionincrease in output11.Social benefits-the total benefits arising from a36.Economies of scale-the benefits gained from fallingparticular actionlong run average costs as the scale of output12.Private benefits-benefits that accrue to individualsincreaseswho produce or consume a particular good37.Diseconomies of scale-where long-run average costs13.External benefits-benefits that are received by thirdincrease as the scale of output increasesparties not involved in the action38.External economies of scale -cost savings accruing to14.Cost benefit analysis(CBA)-a method for assessingall firms in an industry as the scale increasesthe desirability of a project taking into account the39.Minimum efficient scale-lowest level of output atcosts and benefits involvedwhich costs are minimised15.Shadow price -one that is applied where there is no40.Normal profit-a cost of production that isjustrecognised market price availablesufficient for a firm to keep operating in a particular16.Utility-the satisfaction received from consumptionindustry17.Total utility -the total satisfaction received from41.Abnormal profit-that which is earned above normalconsumptionprofit18.Marginal utility -the utility derived from the42.Industry-all firms making the same product or in theconsumption of one more unit of the good or servicesame line of business19.Diminishing marginal utility-the fall in marginal utility43.Multinational corporations(MNCs)-firms thatas consumption increasesoperate in different countries20.Equimarginal principle-consumers maximise their44.Small and medium enterprises (SMEs)-firms withutility where their marginal valuation for each productfewer than 250 employees,small firms have fewerconsumed is the samethan 50 employees21.Budget line-the combinations of two products45.Market structure-the way in which a market isobtainable with given income and pricesorganised in terms of the number of firms and the22.Substitution effect-where following a price change,abarriers to the entry of new firmsconsumer will substitute the cheaper product for the46.Barriers to entry -any restrictions that prevent newfirms from entering an industry23.Income effect-where following a price change,a47.Perfect competition-an ideal market structure thatconsumer has higher real income and will purchasehas many buyer and seller,identical or homogeneousmore of this productproducts,no barriers to entryWWW.ZNOTES.ORGCAIE A2 LEVEL ECONOMICS (9708)48.Monopoly -a pure monopoly is just one firm in an71.Pollution permits-a form of licence given byindustry with very high barriers to entrygovernments that allows a firm to pollute up to a49.Monopolistic competition-a market structure wherecertain levelthere are many firms,differentiated products and few72.Property rights-where owners have a right to decidebarriers to entryhow their assets may be used50.Oligopoly-a market structure with few firms and high73.Privatisation-where there is a change in ownershipbarriers to entryfrom the public to the private sector51.Imperfect competition -any market structure expectsfor perfect competitionwealth is fair52.Natural monopoly-where a single supplier has75.Wealth-an accumulated stock of assetssubstantial cost advantages such that competing76.Lorenz curve -a graphical representation ofproducers would raise costs and where duplicationinequalitywill produce an inefficient use of resources77.Gini coefficient-a numerical measure of inequality53.Barrier to exit-any restriction that prevents a firm78.Progressive tax-one where the rate rises more thanleaving a marketproportionately to the rise in income54.Limit pricing-where firms deliberately lower prices79.Regressive tax -one where the ratio of taxation toand abandon a policy of profit maximisation to stopincome falls as income increasesnew firms entering a market80.Means-tested benefits-benefits that are paid only to55.Horizontal integration-where a firm grows through athose whose incomes fall below a certain levelmerger or acquisition of another firm in the same81.Poverty trap -where an individual or a family aresector of an industrybetter off on means-tested benefits rather than56.Price leadership-a situation in a market where by aworkingparticular firm has the power to change prices,the82.Universal benefits-benefits that are available to allresult of which is that competitors follow this leadirrespective of income or wealth57.Cartel-a formal agreement between firms to limit83.Negative income tax-a unified tax and benefitscompetition by limiting output or fixing pricessystem where people are taxed or receive benefits58.Contestable market-any market structure whereaccording to a single set of rulesthere is a threat that potential entrants are free andable to enter this marketgovernment has to provide for a more equitable59.X-inefficiency -where the typical costs are abovefuture distribution of income and wealththose experienced in a more competitive market85.Derived demand-where the demand for a good or60.Economies of scope-reduction in ATC made possibleservice depends upon the use that can be made fromby a firm increasing the different goods it produces61.Diversification-where a firm grows through the86.Marginal revenue product-the addition to totalproduction or sale of a wide range of differentrevenue as a result of employing one more workerproducts87.Transfer earnings-the amount that is earned by a62.Vertical integration-where a firm grows by producingfactor of production in its best alternative usebackwards or forwards in its supply chain88.Economic rent-a payment made to a factor of63.Horizontal integration-where a firm merge orproduction above that which is necessary to keep it inacquires another in the same line of businessits current use64.Sales revenue maximisation-a firm's objective to89.Monopsony-where there is a single buyer in amaximise tumovermarket65.Sales maximisation -a firm's objective to maximise90.Government failure-where government interventionthe volume of salesto correct market failure causes further inefficiencies66.Satisficing-a firm's objective to make a reasonable91.Economic growth-in the short run an increase in alevel of profitcountry's output and in the long run an increase in a67.Game theory-where competing firms exhibitcountry's productive potentialinterdependent behaviour whereby the actions of one92.Economic development-an increase in welfare andwill impact on all other firmsthe quality of life68.Kinked demand curve-a means of analysing the93.Sustainable development -development that ensuresbehaviour of firms in oligopoly where there is nothat the needs of the present generation can be metcollusionwithout compromising the well-being of future69.Deadweight loss-the welfare loss when due togenerationsmarket failure desirable consumption and production94.Actual economic growth-an increase in real GDPdoes not take place95.Potential economic growth-an increase in the70.Regulations-a wide range of legal and otherproductive capacity of the economyrequirements that come from governments and other96.Output gap-a gap between actual and potentialorganisationsoutputWWW.ZNOTES.ORG