Chapter 1: The economic problem Flashcards
Economic welfare
Refers to the benefit or satisfaction an individual or society gets from the allocation of resources.
Goods and service
Goods are tangible products the we can touch such as CDs or a car. Services are not tangible, such as a trip to the cinema.
Opportunity cost
The next best alternative forgone when an economic decision is made.
Free goods
Goods that have no opportunity cost, for example, air.
Factor market
The market for the factors of production that make other goods and services such as labour or raw materials.
Renewable resources
Resources that can be replenished over time.
Profit
When total income or revenue of a firm is greater than total costs.
Free market economy
One in which there is very limited government involvement in providing goods and services.
Production Possibility Boundary
The PPB indicates the maximum possible output that can be achieved in an economy given a fixed set of resources and technology in a particular time period.
Productive efficiency
When a firm operates at minimum average total cost, producing the maximum possible output from inputs into the production process.
Allocative effieciency
This is achieved in an economy when it is not possible to make anyone better off without making someone else worse off, or you cannot produce more of one good without making less of another.
Productivity
A measure of efficiency, measuring the ratio of inputs and outputs.
Human capital
The skills, abilities, motivation and knowledge of labour.
Division of labour
Breaking the production process down into a sequence of tasks, with workers assigned to particular tasks.
Specialisation
The production of a limited range of goods by an individual factor of production or firm or country, in cooporation with others so that together a completed range of goods is produced.
