AS Chapter 1 - Basic Economic Ideas And Resource Allocation Flashcards
Scarcity
A condition where there are insufficient resources to satisfy all the needs and wants of people
Economic/private good
Relatively scarce and so will need to be allocated to a particular use in some way through a allocative mechanism
Free good
One in which situation of scarcity does not apply so therefore does not need a mechanism to allocate it. The demand for the free good is equal to the supply of it at zero price
Allocative mechanism
A method whereby scarce resources are distributed in an economy
Economic problem
The situation of the relative scarcity of resources in relation to the unlimited wants and needs of people
Choice
The need to make decisions about the possible alternative uses of scarce resources, given the existence of limited resources and unlimited wants and needs
Needs
The demand for something that is essential, such as food or shelter
Wants
The demand for something that is less important than the demand for a need, such as a new car, and which is not necessarily achieved by a consumer
Opportunity cost
The cost of something in relation to a foregone opportunity, i.e. It indicates the benefits that could have been obtained by choosing the next best alternative
Production possibility curve (PPC), production possibility frontier, production boundary, production transformation curve
A curve that joins together the different combinations of products that can be produced in an economy over a particular period of time given the existing resources and level of technology available.
Opportunity cost can be obtained from the PPC
Investment
The expenditure on capital goods or assets, not for current consumption but for future consumption. It broadly refers to spending now on an asset that should generate an income at some point in the future
Fixed capital formation
Investment in the form of buildings, plant, equipment, machinery and infrastructure
Working capital
Investment in the form of stocks of finished goods or semi-finished goods that will either soon be consumed or turned into finished consumer goods
Increasing opportunity costs
This occurs when the extra production of one good involves ever-increasing sacrifices of another
Consumer good
Use it now, good for current consumption today
Capital good
Used not now but in the future. Good in the long run. Investment