A-Level Economics · Topic 1

Microeconomics: markets, failure and intervention: every key term you need (+ practice quiz)

16 flashcard terms for A-Level Economics Topic 1, written to match the course framework. Study them here, then drill them as interactive flashcards, or test yourself with the 8-question quiz — free, no account needed.

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Opportunity cost: The value of the next best alternative given up. The concept behind every production possibility frontier and every real trade-off.
Price elasticity of demand: Percentage change in quantity demanded over percentage change in price. Elastic demand means revenue falls when price rises.
Income elasticity of demand: Measures responsiveness to income changes. Negative values identify inferior goods; values above one identify luxuries.
Consumer surplus: The gap between what consumers would have paid and what they actually paid — the area under demand and above price.
Negative externality: A cost imposed on a third party not reflected in the market price, so the market over-produces relative to the social optimum.
Merit good: Under-consumed because individuals undervalue the private benefit and ignore the external benefit. Education and vaccination are standard examples.
Public good: Non-rival and non-excludable, so the free-rider problem means private markets under-provide or fail to provide it at all.
Information asymmetry: One party knows more than the other, leading to adverse selection or moral hazard and a misallocation of resources.
Government failure: Intervention that leaves welfare lower than before, through unintended consequences, administrative cost or regulatory capture.
Monopoly: A single dominant seller with high barriers to entry. Restricts output and raises price above marginal cost, creating deadweight loss.
Economies of scale: Falling long-run average cost as output rises, from technical, purchasing, managerial or financial advantages.
Price discrimination: Charging different prices to different groups for the same good. Requires market power, separable markets and no resale.
Contestable market: Low entry and exit costs discipline incumbents' pricing even when concentration is high — the threat of entry does the work.
Minimum price floor: Set above equilibrium, so it creates persistent excess supply. Used for agricultural support and alcohol pricing.
Deadweight loss: The welfare lost when output is not at the allocatively efficient level, shown as a triangle between the supply and demand curves.
Behavioural nudge: Changing choice architecture, such as default enrolment, to steer decisions without removing options or changing prices.

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