Basic economic ideas and resource allocation (AS level)

Question 1

Basic economic problem

Answer 1

Scarce resources but unlimited wants

Question 2

Resources

Answer 2

inputs available for the production of goods and services

Question 3

Wants

Answer 3

the goods and services that people may like to have but are not always realised

Question 4

Needs

Answer 4

things that are necessary for survival, such as food

Question 5

Scarcity

Answer 5

a situation in which wants and needs are greater than the resources available

Question 6

Choice

Answer 6

resources are scarce so individuals, firms, and governments have to consider alternatives.

Question 7

Factors of production

Answer 7

resources or inputs available in an economy that are used in the production of goods and services.

Question 8

Firm

Answer 8

any business that hires factors of production to produce goods and services

Question 9

Opportunity cost

Answer 9

the cost expressed in terms of the next best alternative that is foregone when a choice is made.

Question 10

Macroeconomics

Answer 10

the study of an economy or a group of economies

Question 11

Microeconomics

Answer 11

the study of individuals markets (households and firms)

Question 12

Model

Answer 12

a simplified view of reality used to explain economic problems and issues.

Question 13

Positive statement

Answer 13

a statement that is based on facts or actual evidence

Question 14

Normative statement

Answer 14

a statement that is based on the economist’s opinion or value judgement and which cannot be proven

Question 15

Ceteris Paribus

Answer 15

phrase meaning other things unchanged; used by economists to model the effects of one change at a time.

Question 16

Short run

Answer 16

time period when a firm can change at least one but not all factor inputs

Question 17

Long run

Answer 17

time period when all factors of production are variable but with a constant, such as the state of technology.

Question 18

Very long run

Answer 18

time period when all key inputs into production are variable

Question 19

Entrepreneur

Answer 19

an individual who seeks out new business opportunities and is willing to take risks.

Question 20

Land

Answer 20

a factor of production; natural resources in an economy

Question 21

Labour

Answer 21

a factor of production; human resources available in an economy

Question 22

Capital

Answer 22

a factor of production; a physical resource made by humans that aids the production of goods and services.

Question 23

Enterprise

Answer 23

as a factor of production, enterprise involves organising production and taking risks.

Question 24

Physical capital

Answer 24

factors of production such as machinery, buildings and innfrastructure

Question 25

Economics growth

Answer 25

in the short run, an increase in the country's output and, in the long run, an increase in a country's productive potential.

Question 26

Human capital

Answer 26

the value of labour to the productive potential of an economy.

Question 27

Specialisation

Answer 27

the process by which individuals, firms and economies concentrate on producing those goods and services where they have and advantage over others.

Question 28

Division of labour

Answer 28

where a manufacturing process is split into a sequence of individual tasks

Question 29

Economic system

Answer 29

The way in which production is organised and choices are made in an economy

Question 30

Market economy

Answer 30

an economic system where most decision are taken through the market mechanism.

Question 31

Planned economy

Answer 31

an economic system where resources are state-owned and allocated by the central body

Question 32

Mixed economy

Answer 32

an economic system where both market forces and government are involved in resource allocation decisions

Question 33

Market mechanism

Answer 33

resource allocation decisions are taken by individual producers and consumers with no government intervention; also knows as price mechanism

Question 34

Productive resources

Answer 34

resources that are available to be used

Question 35

Private sector

Answer 35

that part of an economy under private ownership

Question 36

Public sector

Answer 36

that part of an economy under government ownership

Question 37

Privatisation

Answer 37

where there is a change in ownership from the public to the private sector

Question 38

Emerging economy

Answer 38

one that is making quick progress towards becoming a high-income economy

Question 39

Asian tiger economy

Answer 39

export-led, high growth economies in Asia

Question 40

Production possibility curve

Answer 40

a simple representation of the maximum level of output that an economy can achieve, given its current resources and state of technology

Question 41

Trade-off

Answer 41

what is involved in deciding whether to give up one good for another good

Question 42

Productive capacity

Answer 42

the maximum output that can be produced when all resources are used fully

Question 43

Excludability

Answer 43

where it is possible to stop someon from consuming a good or service

Question 44

Rilvalry

Answer 44

where consumption by one person of a good or service reduces the availability of the good or service for others

Question 45

Non-rival

Answer 45

Where consumption by one person does not reduce consumption by one person does not reduce consumption

Question 46

Private goods

Answer 46

goods that are consumed by one person and not available to anyone else

Question 47

Free goods

Answer 47

goods that are not scarce and have zero opportunity cost

Question 48

Public good

Answer 48

a good that is non-excludable and non-rival

Question 49

Non-excludable

Answer 49

a situation where it is not possible to stop anyone else from using a good

Question 50

Pure public good

Answer 50

good which is both non-excludable and non-rival

Question 51

Quasi-public good

Answer 51

good that has some but not the full characteristics of a public good

Question 52

Free rider

Answer 52

someone who does not pay to use a public good

Question 53

Merit good

Answer 53

a good that is thought to be desirable for consumers but which is underprovided by the market because of information failure

Question 54

Demerit good

Answer 54

a good that is thought to be undesirable for consumers and is over-provided by the market because of information failure

Question 55

Information failure

Answer 55

a situation where consumers do not have full or complete information when making decisions