The vocabulary that earns AO1
Key terms
In economics a definition is not decoration; it is a mark. Vague wording ("elasticity is how much demand changes") loses what precise wording earns. Learn these until you can write them exactly, then keep adding as each topic goes live.
Growing A starter set is below; the full glossary fills out alongside the topic pages.
Theme 1 · Markets and market failure
| Term | Precise definition |
|---|---|
| Opportunity cost | The value of the next best alternative given up when a choice is made. |
| Price elasticity of demand | The responsiveness of quantity demanded to a change in price, measured as % change in quantity demanded divided by % change in price. |
| Externality | A cost or benefit imposed on a third party not involved in the transaction, causing social and private cost or benefit to diverge. |
Theme 2 · The UK economy
| Term | Precise definition |
|---|---|
| Aggregate demand | Total planned spending on domestic goods and services at each price level: C + I + G + (X − M). |
| The multiplier | The process by which an initial injection into the circular flow leads to a larger final change in national income. |
Theme 3 · Business behaviour and the labour market
| Term | Precise definition |
|---|---|
| Economies of scale | The fall in long-run average cost as output rises, from sources such as bulk buying, specialisation and finance. |
| Allocative efficiency | Where resources are allocated so that price equals marginal cost and no reallocation could make someone better off without making another worse off. |
Theme 4 · A global perspective
| Term | Precise definition |
|---|---|
| Comparative advantage | The ability to produce a good at a lower opportunity cost than another producer, the basis for gains from trade. |
| Gini coefficient | A measure of income inequality from 0 (perfect equality) to 1 (perfect inequality), derived from the Lorenz curve. |
Define, then use
A definition on its own is AO1. The mark grows when the term does work in your answer: define price elasticity, then use its value to judge how much of a tax falls on the consumer. Learning the words and learning to deploy them are two different jobs; do both.