Booklet 1 - Micro Flashcards
Definition - Economics
The allocation of scarce resources
Definition - Ceteris Paribus
all other things are equal
Definition - Utility
the benefit that someone gains
Definition - Rational utility maximiser
acts rationally to maximise there utility
Definition - positive statements
a statement that can be tested
Definition - normative statements
a statement which is an opinion
Definition - equitable
something that is deemed to be fair
Definition - cost benefit principle
you weigh up the cost and the benefit of a situation and follow the best course of action
Why don’t people always maximise there utility
lack of information, gut decisions, mental health, substance abuse, other peoples utility, prioritizing the short term benefits
Definition - scarcity
not enough of it to meet needs and wants
Definition - Basic economic problem
there are infinite wants but limited resources
Definition - free market economy
People willing to pay the most, get the resources
Definition - mixed economy
Both markets and the Government allocate resources
Definition - planned economy
Government decides what is produced
Definition - Land (as a factor of production)
any natural resource - iron and forests
Definition - labour (as a factor of production)
physical or mental effort of workers
Definition - capital (as a factor of production)
any man made aid to production - machinery
Definition - enterprise (as a factor of production)
someone thats takes a risk bringing other factors of production together
Definition - purpose of economic activity
to produce goods and services to satisfy all needs and wants
Definition - trade off
choosing between 2 variables
Definition - opportunity cost
the benefit given up from the next best alternative
What are the 4 types of output
services, capital goods, non-durable consumer goods, durable consumer goods
Definition - production
the actual amount of output produced
Definition - productivity
the amount of output you get for the given level of inputs
Definition - total factor productivity
average productivity of all factors of production
productivity equation
productivity = total output / number of units
average cost equation
Average cost = total cost / number of units
how can productivity be increased
encouraging training and innovation
What are the advantages of higher productivity
lower average costs, improved competitiveness in markets, higher profits, higher wages, economic growth
Definition - productive efficiency
the maximum amount of output is produced with the amount of input to the lowest average cost
Definition - technical efficiency
the maximum amount of output is produced with the amount of input
Definition - allocative efficiency
output are distributed that maximise consumer welfare
Definition - pareto efficiency
a situation where no one can be better off without some else being made worse off
Definition - statically efficient
is efficient at any one time
Definition - dynamically efficient
gets more efficient over time
Definition - X-inefficiency
uncompetitive markets don’t need low costs and can increase prices
Definition - division of labour
Production is divided into different stages
Definition - specialisation
when people focus on the thing they do best
what are the drawbacks with specialisation and the division of labour
- demotivated, lower productivity, more likely to quit
- forget how to do other things
- workers are less flexible
- may be a risk of unemployment if job disappears ( mechanised)
