1.1 Economic methodology and price determination Flashcards
Define economics?
the study of production, distribution and consumption of wealth in human society
What does each society have to decide?
- what goods and services to produce
- how best to produce goods and services
- who is to receive goods and services
What is opportunity cost?
refers to the next best alternative forgone
What are the four factors of production?
land, labour, capital and enterprise
What is human capital>
each individual has a different level of skills, qualities and qualifications
What are production possibility frontiers?
a PPF shows alternative combinations of two goods or services attainable when all resources are fully and effeciently employed
How to work out opportunity costs?
amount of the other good given up / the amount of the extra good you enjoy
What is a positive statement?
statement about what is and contains no indication of approval or disapproval
What is a normative statement?
express a value judgement about whether a situation is desireable or undesirble
Definition of demand?
the quantity that purchasers are willing or able to buy at a given price in a given period of time
What is the law of demand?
demand varies inversely with price
lower prices make products more affordable for sonsumers
how does income effect price?
- a fall in price increases the real purchasing power of consumers
- this allows people to buy more with a given budget
- for normal goods, demand rises with an increase in real income
WHat are the four types of demand?
joint demand, joint supply, composite demand, derived demand
What is joint demand?
goods that are usually demanded together
WHat is joint supply?
when the production of one good leads to the production of another good
