OCR GCSE Economics Micro Definitions

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Questions and Answers

What is the basic economic problem?

The gap between scarce resources and the unlimited wants for them.

Define a market economy.

The forces of supply and demand allocate resources via the price mechanism. All resources are privately owned and there is no government intervention.

What characterizes a planned economy?

The government allocates all resources via the price mechanism. All resources are owned by the government and they control prices.

What is a mixed economy?

Some resources are owned and allocated by private individuals and the government owns and allocates others. Signup and view all the answers

What is the public sector?

The government sector of the economy, where organizations are owned and run by the government. Signup and view all the answers

Define the private sector.

The sector of the economy where firms are owned and run by private individuals and groups - their main aim is profit maximization. Signup and view all the answers

What are factors of production?

Resources used in the production process. Signup and view all the answers

What does 'capital' refer to in economics?

Goods used to produce other goods and services. Signup and view all the answers

Define 'enterprise' in an economic context.

Having ideas and taking risks, with a reward of profit. Signup and view all the answers

What does 'labour' mean in economics?

Human input into the production process. Signup and view all the answers

What is 'land' in economic terms?

Physical land itself as well as all the natural resources and raw materials above/below the land which are available for production. Signup and view all the answers

What is opportunity cost?

The next best alternative forgone when an economic choice is made. Signup and view all the answers

Define economic sustainability.

Considers how an economic choice ensures the best and most responsible use of scarce resources so that a firm or economy can keep growing over time. Signup and view all the answers

What is social sustainability?

Considers the impact of development or growth that promotes an improvement in quality of life, now and into the future. Signup and view all the answers

What does environmental sustainability entail?

Considers how an economic choice impacts renewable and non-renewable resources, pollution, climate change and the availability of resources, now and into the future. Signup and view all the answers

What is the primary sector in economics?

The direct use of natural resources, such as the extraction of basic materials and goods from the land and sea. Signup and view all the answers

Define the secondary sector.

The conversion of raw materials into goods; it includes all manufacturing and construction activities. Signup and view all the answers

What is the tertiary sector?

The provision of a service. Signup and view all the answers

What is a market?

Where buyers and sellers meet to exchange goods and services. Signup and view all the answers

Define factor market.

Where the services of the factors of production are bought and sold. Signup and view all the answers

What is a product market?

Where final goods and services are bought and sold. Signup and view all the answers

What is derived demand?

The demand for a factor of production not for itself, but is dependent on the demand for the product it is used to produce. Signup and view all the answers

Define specialisation in economics.

The process by which individuals, firms, regions, and whole economies concentrate on producing those products that they are best at producing. Signup and view all the answers

What is division of labour?

Where each worker concentrates on only one small aspect of the production process. Signup and view all the answers

What is a surplus?

Where more is produced than is required. Signup and view all the answers

Define absolute advantage.

Where a country is able to provide a good or service using fewer resources and at a lower cost than another country. Signup and view all the answers

What is demand in economics?

The number of goods and services buyers are willing and able to buy at a given price at a given time. Signup and view all the answers

Define supply.

The number of goods and services firms are willing and able to provide at a given price at a given time. Signup and view all the answers

What is equilibrium (market clearing price)?

Where demand and supply meet at a given price at a given time. Signup and view all the answers

What is consumer sovereignty?

When consumers influence the allocation of resources by producers. Signup and view all the answers

Define price.

The sum of money you have to pay for a good or service. Signup and view all the answers

What is cost in economics?

How much money it takes a producer to provide a product. Signup and view all the answers

What does worth mean?

How much you value something. Signup and view all the answers

What is price elasticity of demand (PED)?

A measure of the responsiveness of the quantity demanded to a change in price of a product. Signup and view all the answers

Define price elasticity of supply (PES).

A measure of the responsiveness of quantity supplied to a change in price of a product. Signup and view all the answers

What is a competitive market?

A market situation in which there are a large number of buyers (demand) and sellers (supply). Signup and view all the answers

Define barriers to entry.

Obstacles that might discourage a firm from entering a market. Signup and view all the answers

What is market share?

The proportion of sale that one business has compared to the total sales in the market. Signup and view all the answers

What is a monopoly (pure monopoly)?

Where there is only one producer or seller of goods in a market. Signup and view all the answers

What does monopoly power (legal monopoly) mean?

Where one firm has a share of 25% of the market or more. Signup and view all the answers

Define statutory monopoly.

Occurs when key industries are given monopoly status by the government. Signup and view all the answers

What is an oligopoly?

A market dominated by a few large firms who control the majority of the market share. Signup and view all the answers

Define duopoly.

A situation in which two suppliers dominate the market for a good or service. Signup and view all the answers

What is production?

The process of combining scarce resources to produce a good or service. Signup and view all the answers

What is productivity?

Output per worker per period of time. Signup and view all the answers

Define capital intensive.

Where the production of a good or service relies heavily on machinery and equipment rather than labour. Signup and view all the answers

What are fixed costs?

Costs that do not change with output. Signup and view all the answers

What are variable costs?

Cost that do change with output. Signup and view all the answers

What are economies of scale?

The benefits a firm gets from producing on a large scale, reducing their average unit costs. Signup and view all the answers

What does diseconomies of scale refer to?

When a firm grows too large, increasing their average unit costs. Signup and view all the answers

What are internal economies of scale?

Where one firm grows in size. Signup and view all the answers

Define external economies of scale.

Where all firms within an industry benefit from falling average unit costs due to factors outside the direct control of the firm. Signup and view all the answers

What is internal (organic) growth?

When a business grows by selling more products/services than before. Signup and view all the answers

What does external (inorganic) growth mean?

When a business grows by merging and/or taking over other businesses. Signup and view all the answers

Define merger.

When two businesses agree to join together on a voluntary basis, with the new firm retaining the identities of the old one. Signup and view all the answers

What is a takeover (acquisition)?

When one business buys sufficient shares of another, often in a hostile way. Signup and view all the answers

What does backward vertical integration mean?

Where a firm acquires businesses that provide the raw materials used in their main business. Signup and view all the answers

Define forward vertical integration.

Where a firm acquires businesses to gain more control of the distribution or supply of their products. Signup and view all the answers

What is horizontal integration?

Where a firm acquires businesses at the same part of the supply chain, perhaps leading to a monopoly. Signup and view all the answers

Define conglomerate integration.

Where a firm acquires a substantial number of unrelated businesses to form a large and highly diversified corporation. Signup and view all the answers

What is collective bargaining?

Where trade unions negotiate with employers on behalf of its members to set wage rates and working conditions. Signup and view all the answers

Define wage.

A payment per hour worker and is normally paid on a weekly basis. Signup and view all the answers

What is a salary?

Quoted as an annual amount but is usually paid in twelve equal monthly installments. Signup and view all the answers

What is gross pay?

The amount of money that an employee earns before any deductions are made. Signup and view all the answers

Define net pay.

The amount of money that an employee is left with after deductions are made from the gross pay. Signup and view all the answers

What is nominal income?

The income a person receives that is unadjusted for inflation. Signup and view all the answers

What does real income mean?

The income a person receives once inflation has been accounted for. Signup and view all the answers

What does the labour market refer to?

The interaction between workers and employers, made up of the supply and demand of labour. Signup and view all the answers

What is the demand for labour?

The total number of workers an employer is willing and able to hire at a given wage rate in a given time period. Signup and view all the answers

Define supply of labour.

The total number of people who are willing and able to supply their labour, including the unemployed, at a given wage rate in a given time period. Signup and view all the answers

What does elasticity of labour supply mean?

A measure of the extent to which labour supply responds to a change in the wage rate in a given time period. Signup and view all the answers

What are efficiency wages?

A higher wage rate given to an employee in order to deter them from seeking jobs elsewhere as well as improving their productivity. Signup and view all the answers

What is a minimum wage?

A price floor that prevents employers from paying workers below a specific amount. Signup and view all the answers

Define medium of exchange.

Anything that sets the value of goods and services acceptable to all parties involved in a transaction. Signup and view all the answers

What is money?

Anything that is generally accepted as a means of payment for goods and services. Signup and view all the answers

What does bartering refer to?

The exchange of goods/services for other goods/services without using money. Signup and view all the answers

What is an interest rate?

The cost of borrowing or the reward for saving. Signup and view all the answers

Study Notes

Basic Concepts of Economics

Basic Economic Problem: The disconnect between limited resources and unlimited wants.
Market Economy: Resources are allocated through supply and demand with no government intervention; privately owned resources.
Planned Economy: Governed allocation of resources; all resources owned by the state with controlled prices.
Mixed Economy: Combination of private and government ownership/management of resources.

Economic Sectors

Public Sector: Government-owned organizations and entities providing goods and services.
Private Sector: Firms owned by individuals/groups aimed at profit maximization.
Primary Sector: Involves direct extraction or use of natural resources.
Secondary Sector: Involves manufacturing and construction, converting raw materials into goods.
Tertiary Sector: Focuses on service provision.

Production and Resources

Factors of Production: Basic resources needed for production, including land, labor, capital, and enterprise.
Land: Encompasses physical land and all natural resources.
Labor: Human effort and input in production.
Capital: Tools and machinery used to produce goods/services.
Enterprise: The initiative to start businesses, involving risk and potential profit.

Economic Concepts

Opportunity Cost: The value of the next best alternative forgone when a choice is made.
Sustainability: Measures economic choices' long-term impact economically, socially, and environmentally.

Market Dynamics

Demand: Quantity of goods/services consumers are willing to purchase at different prices.
Supply: Quantity of goods/services producers are able to offer at varying prices.
Equilibrium: The point where the quantity demanded equals the quantity supplied.
Consumer Sovereignty: Consumers' preferences influence producers' resource allocation.

Pricing and Costs

Price Elasticity of Demand (PED): Responsiveness of quantity demanded to changes in price.
Price Elasticity of Supply (PES): Responsiveness of quantity supplied to price changes.
Fixed Costs: Costs that remain constant regardless of output levels.
Variable Costs: Costs that vary with production output.

Market Structure

Competitive Market: Characterized by many buyers and sellers.
Monopoly: A single producer or seller dominates the market.
Oligopoly: Few large firms control a majority of the market share.
Duopoly: Market dominated by two suppliers.

Business Growth and Integration

Internal Growth: Expansion through increased sales of existing products/services.
External Growth: Expansion via mergers or acquisitions.
Merger: Agreement between businesses to join, retaining original identities.
Takeover: Acquisition of one business by another, often through purchasing a majority of shares.

Labor Market Concepts

Labour Market: Interaction between employers and employees, influenced by supply and demand for labor.
Demand for Labour: Total number of workers employers are willing to hire at a specific wage.
Supply of Labour: Total number of individuals available to work at given wage rates.

Financial Terminology

Gross Pay: Employee earnings before deductions.
Net Pay: Earnings after deductions have been made.
Minimum Wage: Legal minimum price employers must pay their workers.
Interest Rate: Cost associated with borrowing or the return gained from saving.

Miscellaneous

Bartering: Direct exchange of goods/services without monetary transactions.
Medium of Exchange: A common standard to measure and facilitate transactions in goods/services.

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Test your understanding of key economic terms with this OCR GCSE Economics Micro Definitions flashcard quiz. From the basic economic problem to various types of economies, this quiz covers essential concepts you'll need to master for your exams.