Chapter 1 - The Economic Problem Flashcards
Define Free Goods
Goods that have no opportunity cost. E.g. Air
Define Opportunity Cost
The next best alternative forgone (given up) when an economic decision is made. It is only the next best alternative, not a range of alternatives.
Define Economic Goods
Goods that are scarce and therefore have an opportunity cost.
Define Factor Market
The market for the factors of production that make other goods and services such as labour or raw materials.
Define Profit
When total income or revenue for a firm is greater than total costs.
Define Free Market Economy
One in which there is very limited government involvment in providing goods and services. Its main role is to ensure that the rules of the market are fair so that, for example, people cannot steal each others property.
Define Production Possibility Boundary (PPB)
The PPB indicates the maximum possible output that can be achieved given a fixed set of resources and technology in a particular time period.
Define Productive Efficency
When a firm operates at minimum average total cost, producing the maximum possible output from inputs into the production process.
Define Allocative Efficency
This is achieved in a economy when it is not possible to make everyone better off without making someone worseoff, or you cannot produce more of one good without making less of another.
Define Productivity
A measure of efficency, measuring the ratio of inputs to outputs; the most common measure of productivity is labour, which is output per worker.
Define Human Capital
The skills, abilities, motivation and knowledge of labour. Improvements in human capital raise productivity and can shift the PPB to the right.
Define Division Of Labour
Breaking the production process down into a sequence of tasks, with workers assigned to particular tasks.
Define Specialisation
The production of a limited range of goods by a individual factor of production or firm or country, in co-operation with others so that together a complete range of goods are produced.
Define Value Judgements
Statements or opinions expressed that are not testable or cannot be verified and depend very much on the views of the individual and the values they hold.
Define Normative Statements
Opinions that require judgements to be made.
