Basic Economic Ideas and Resources Allocation Flashcards
basic economic problem
unlimited wants but limited resources to satisfy demand of goods and services
scarcity
a situation that arises because people have unlimited wants but faced with limited resources
opportunity cost
the benefit forgone by giving up the next best alternative
market economy
an economic system in which resources are used, what goods and services they produce and how they are allocated, are taken by private sector firms and consumers, using the market forces of demand and supply
centrally planned economy
decisions on what to produce, how to produce and for whom are taken by the government in a centrally managed bureaucracy
production possibility curve
a curve that represents possible output if factors of production are used efficiently. it shows the opportunity cost of producing two goods at different quantities simultaneously.
positive statement
statements that can be supported through facts and data
normative statements
opinionated
free rider
when an individual cannot be excluded from consuming a good, and this has no incentive to pay for its provision
public goods
public goods are goods which are provided by the government and are funded through taxation. An item whose consumption is not decided by an individual consumer, but rather by society as a whole.
private goods
is a product that must be purchased to be consumed, and consumption by one individual prevents another individual from consuming it.
demerit goods
goods which when consumed cause negative externalities in the economy
merit goods
merit goods are goods and services that when consumed will cause positive externalities in an economy.
economic growth
a sustained increase in total output or real GDP of an economy
gross domestic product
average income per head
