Definition Masterlist — Wec11
W11-T3-26 | Version 1 — N-Standard | VERIDIAN™
9 min read
Pearson Edexcel IAL Economics WEC11/01
VERIDIAN™ | © VERIDIAN 2026. All rights reserved. This material is the intellectual property of VERIDIAN. Unauthorised reproduction, resale, or distribution is prohibited. For personal study use only.
Not affiliated with or endorsed by Pearson Edexcel. All definitions built to Pearson 2/2 standard from confirmed mark scheme language.
CRITICAL RULE — FROM EXAMINER REPORTS
"On the two mark define questions any examples given must be taken from the Extract which is referred to." — Jun 2024 Examiner Report
If the question says "Define the term 'negative externality' (Extract A, line 3)" — any example you give must come from the extract. Own-knowledge examples do not earn the qualifier mark on this type of question.
The definition structure is always: Mark 1 = core concept. Mark 2 = qualifying component.
MARKET FAILURE AND EXTERNALITIES
| Term | Mark 1 (core concept) | Mark 2 (qualifier) |
|---|---|---|
| Market failure | Where the price mechanism leads to an inefficient/misallocation of resources (1) | OR where too much or too little of a good is produced/consumed compared to the social optimum (1) |
| Negative externality | A cost imposed on third parties not involved in the transaction (1) | Such that social cost exceeds private cost (MSC > MPC) (1) |
| External costs | Costs borne by third parties not party to the transaction (1) | Which are not reflected in the market price / not internalised by producers or consumers (1) |
| Positive externality | A benefit received by third parties not involved in the transaction (1) | Such that social benefit exceeds private benefit (MSB > MPB) (1) |
| External benefits | Benefits enjoyed by third parties not party to the transaction (1) | Which are not reflected in market price / not internalised in the private decision (1) |
| Welfare loss | The loss of economic efficiency / deadweight loss from market failure (1) | Represented by the triangular area between the social optimum and market equilibrium quantities (1) |
| Social optimum | The quantity of production/consumption where social benefit equals social cost (MSB = MSC) (1) | Representing the allocatively efficient output level for society as a whole (1) |
| Public good | A good that is non-rival (consumption by one does not reduce availability for others) (1) | AND non-excludable (impossible to prevent non-payers from consuming) (1) |
| Moral hazard | When one party takes on greater risk (1) | Because the costs of that risk are borne by another party (e.g. insurer) rather than themselves (1) |
| Asymmetric information | When one party to a transaction has more or better information than the other (1) | Leading to market failure as the less-informed party cannot make optimal decisions (1) |
| Free rider | An individual who consumes a public good (1) | Without contributing to the cost of providing it, because non-excludability means they cannot be prevented (1) |
| Irrational behaviour | When individuals make decisions that deviate from rational utility maximisation (1) | Due to behavioural biases such as present bias, herding, status quo bias, or bounded rationality (1) |
GOVERNMENT INTERVENTION
| Term | Mark 1 | Mark 2 |
|---|---|---|
| Government failure | When government intervention leads to a net welfare loss (1) | OR leads to a misallocation of resources worse than the original market failure (1) |
| Indirect tax | A tax on expenditure/spending on goods and services (1) | Paid by the producer to the government but which may be passed on to the consumer through higher prices (1) |
| Specific tax | A fixed amount of tax per unit of the good (1) | Causing a parallel leftward shift of the supply curve regardless of the price level (1) |
| Ad valorem tax | A tax set as a percentage of the price of the good (1) | Causing the supply curve to pivot/rotate, becoming steeper with a larger absolute shift at higher prices (1) |
| Subsidy | A payment made by the government to producers (1) | To reduce their production costs and encourage greater supply of a good or service (1) |
| Maximum price | A government-imposed price ceiling above which a good cannot legally be sold (1) | Set below the free market equilibrium price to improve consumer access, creating a shortage/excess demand (1) |
| Minimum price | A government-imposed price floor below which a good cannot legally be sold (1) | Set above the free market equilibrium price to support producer incomes, creating a surplus/excess supply (1) |
| Tradeable pollution permit | A permit issued by the government allowing a firm to produce a set amount of pollution (1) | Which can be bought and sold between firms so that those with lower abatement costs can reduce pollution and sell permits to high-cost polluters (1) |
| Regulation | A government-imposed rule on the behaviour of economic agents (1) | Backed by legal enforcement including fines or imprisonment for non-compliance (1) |
DEMAND, SUPPLY, AND PRICE
| Term | Mark 1 | Mark 2 |
|---|---|---|
| Price elasticity of demand (PED) | A measure of the responsiveness of quantity demanded to a change in price (1) | Calculated as: % change in quantity demanded / % change in price (1) |
| Income elasticity of demand (YED) | A measure of the responsiveness of quantity demanded to a change in income (1) | Calculated as: % change in quantity demanded / % change in income; positive for normal goods, negative for inferior goods (1) |
| Cross elasticity of demand (XED) | A measure of the responsiveness of quantity demanded of one good to a change in the price of another good (1) | Positive XED indicates substitutes; negative XED indicates complements (1) |
| Price elasticity of supply (PES) | A measure of the responsiveness of quantity supplied to a change in price (1) | Calculated as: % change in quantity supplied / % change in price (1) |
| Consumer surplus | The difference between what consumers are willing to pay and what they actually pay (1) | Represented by the area above the equilibrium price and below the demand curve on a supply and demand diagram (1) |
| Producer surplus | The difference between the price producers receive and the minimum price they are willing to accept (1) | Represented by the area below the equilibrium price and above the supply curve on a supply and demand diagram (1) |
| Normal good | A good for which demand increases as income rises (1) | Giving a positive income elasticity of demand (YED > 0) (1) |
| Inferior good | A good for which demand falls as income rises (1) | Giving a negative income elasticity of demand (YED < 0) (1) |
| Substitute goods | Two goods where an increase in the price of one leads to an increase in demand for the other (1) | Giving a positive cross elasticity of demand (XED > 0) (1) |
| Complementary goods | Two goods that are consumed together, where an increase in the price of one leads to a fall in demand for the other (1) | Giving a negative cross elasticity of demand (XED < 0) (1) |
PRODUCTION AND EFFICIENCY
| Term | Mark 1 | Mark 2 |
|---|---|---|
| Opportunity cost | The value of the next best alternative foregone (1) | When making a choice between competing uses of scarce resources (1) |
| Allocative efficiency | Where resources are allocated so that price equals marginal cost (P = MC) (1) | Meaning no reallocation of resources can make anyone better off without making someone else worse off (Pareto optimality) (1) |
| Productive efficiency | Where goods/services are produced at the minimum average cost (1) | Meaning no resources are wasted and the firm is on the production possibility frontier (1) |
| Division of labour | The specialisation of workers in specific tasks within the production process (1) | Increasing productivity by allowing workers to develop expertise in their particular task (1) |
| Economies of scale | The reduction in average (unit) cost of production as output increases (1) | Arising from factors such as bulk buying, specialisation, and spreading fixed costs over more units (1) |
TERMS FROM CONFIRMED Q12a QUESTIONS (by series)
| Series | Defined term | How it was asked |
|---|---|---|
| Jan 2019 | External benefits | "Define the term 'external benefits'" |
| Jun 2019 | Negative externality | "Define the term 'negative externality'" |
| Oct 2019 | Government failure | "Define 'government failure'" |
| Jan 2020 | External costs | "Define 'external costs'" |
| Jun 2020 | Minimum (guaranteed) price | "Define 'minimum price'" |
| Oct 2021 | Indirect tax | "Define 'indirect tax'" |
| Jan 2022 | Indirect taxation | "Define 'indirect taxation'" |
| Jun 2022 | Market failure | "Define 'market failure'" |
| Oct 2022 | Specific tax | "Define 'specific tax'" |
| Jan 2023 | Market failure | "Define 'market failure'" |
| Jun 2024 | Subsidy | "Define 'subsidy'" |
| Oct 2024 | Irrational behaviour | "Define 'irrational behaviour'" |
| Jan 2025 | Subsidy | "Define 'subsidy'" |
| Jun 2025 | Indirect tax | "Define 'indirect tax'" |
| Oct 2025 | External costs of production | "Define 'external costs of production'" |
Terms never yet asked as Q12a (candidates for future series): Positive externality, PED, PES, YED, XED, consumer surplus, producer surplus, public good, free rider, moral hazard, asymmetric information, opportunity cost, allocative efficiency, complementary goods, substitute goods, ad valorem tax, maximum price, tradeable pollution permit
QUICK DRILL — COVER AND TEST
Cover the Mark 2 column. Say the qualifier for each term aloud. Check. Repeat for any missed.
Target: 100% on all 30 terms before the exam.
VERIDIAN™ | © VERIDIAN 2026. All rights reserved. This material is the intellectual property of VERIDIAN. Unauthorised reproduction, resale, or distribution is prohibited. For personal study use only. Not affiliated with or endorsed by Pearson Edexcel.
Veridian Legacy · progress saved in this browser · sign in to sync across devices
Up next
Diagram Drill
N13 | VERIDIAN V6 Economics | WEC12/01
5 min