Basic economic ideas and resource allocation (AS level) Flashcards
Basic economic problem
Scarce resources but unlimited wants
Resources
inputs available for the production of goods and services
Wants
the goods and services that people may like to have but are not always realised
Needs
things that are necessary for survival, such as food
Scarcity
a situation in which wants and needs are greater than the resources available
Choice
resources are scarce so individuals, firms, and governments have to consider alternatives.
Factors of production
resources or inputs available in an economy that are used in the production of goods and services.
Firm
any business that hires factors of production to produce goods and services
Opportunity cost
the cost expressed in terms of the next best alternative that is foregone when a choice is made.
Macroeconomics
the study of an economy or a group of economies
Microeconomics
the study of individuals markets (households and firms)
Model
a simplified view of reality used to explain economic problems and issues.
Positive statement
a statement that is based on facts or actual evidence
Normative statement
a statement that is based on the economist’s opinion or value judgement and which cannot be proven
Ceteris Paribus
phrase meaning other things unchanged; used by economists to model the effects of one change at a time.
Short run
time period when a firm can change at least one but not all factor inputs
Long run
time period when all factors of production are variable but with a constant, such as the state of technology.
Very long run
time period when all key inputs into production are variable
Entrepreneur
an individual who seeks out new business opportunities and is willing to take risks.
Land
a factor of production; natural resources in an economy
Labour
a factor of production; human resources available in an economy
Capital
a factor of production; a physical resource made by humans that aids the production of goods and services.
Enterprise
as a factor of production, enterprise involves organising production and taking risks.
Physical capital
factors of production such as machinery, buildings and innfrastructure
Economics growth
in the short run, an increase in the country’s output and, in the long run, an increase in a country’s productive potential.
Human capital
the value of labour to the productive potential of an economy.
Specialisation
the process by which individuals, firms and economies concentrate on producing those goods and services where they have and advantage over others.
Division of labour
where a manufacturing process is split into a sequence of individual tasks
Economic system
The way in which production is organised and choices are made in an economy
Market economy
an economic system where most decision are taken through the market mechanism.
Planned economy
an economic system where resources are state-owned and allocated by the central body
Mixed economy
an economic system where both market forces and government are involved in resource allocation decisions
Market mechanism
resource allocation decisions are taken by individual producers and consumers with no government intervention; also knows as price mechanism
Productive resources
resources that are available to be used
Private sector
that part of an economy under private ownership
Public sector
that part of an economy under government ownership
Privatisation
where there is a change in ownership from the public to the private sector
Emerging economy
one that is making quick progress towards becoming a high-income economy
Asian tiger economy
export-led, high growth economies in Asia
Production possibility curve
a simple representation of the maximum level of output that an economy can achieve, given its current resources and state of technology
Trade-off
what is involved in deciding whether to give up one good for another good
Productive capacity
the maximum output that can be produced when all resources are used fully
Excludability
where it is possible to stop someon from consuming a good or service
Rilvalry
where consumption by one person of a good or service reduces the availability of the good or service for others
Non-rival
Where consumption by one person does not reduce consumption by one person does not reduce consumption
Private goods
goods that are consumed by one person and not available to anyone else
Free goods
goods that are not scarce and have zero opportunity cost
Public good
a good that is non-excludable and non-rival
Non-excludable
a situation where it is not possible to stop anyone else from using a good
Pure public good
good which is both non-excludable and non-rival
Quasi-public good
good that has some but not the full characteristics of a public good
Free rider
someone who does not pay to use a public good
Merit good
a good that is thought to be desirable for consumers but which is underprovided by the market because of information failure
Demerit good
a good that is thought to be undesirable for consumers and is over-provided by the market because of information failure
Information failure
a situation where consumers do not have full or complete information when making decisions
