Definitions Flashcards
Fundamental economic problem
humans have unlimited wants but there are finite resources to provide the goods and services.
unlimited demand but finite supply
scarcity
when the demand for a resource is greater than the supply
opportunity cost
the value of the next best alternative foregone
factors of production (FoP)
the resources used to produce goods and services. there are four factors, land, labour, capital, enterprise
land
the physical space and the natural resources within it. eg river with fish
labor
the people used to transform resources into goods and services available to purchase
capital goods
a company’s physical equipment and machinery it uses to generate consumer goods and services.
enterprise
individuals ideas, concept and emotional effort to produce a product or service to introduce into the economy. risk takers
investment
an asset acquired with the goal of generating income or appreciation
saving
the money that person has left over after they subtract out their spending from their income over a given time period
interest
income earnt off capital.
rent
fee charged for the use of a resource or asset.
profit
the difference between the return and capital, labour and land
production possibility frontier (PPF curve)
graph which shows the different combinations of outputs of two goods that can be produced using available factors of production efficiently.
market economy
economic system which prices and production is determined by unrestricted competition between privately owned businesses
mixed economy
economic system combining private and state enterprise
command economy
economic system where the government dictates the levels of production and prices for goods and services.
positive statement
statements that can be tested to be true or false using evidence.
normative statement
statements which express an opinion about what ought to be
effective demand
the willingness and the ability to purchase goods
law of demand
consumer demand for a good rises as the price falls. vice versa
income effect
change in consumption of goods based on income.
substitution effect
decrease demand of a product as consumers switch to cheaper alternatives as price rises
diminishing margin utility
Satisfaction and usefulness of each new unit of product acquired decreases.
derived demand
demand for a good or service due to results from the demand of a different good or service
composite demand
when a good has more than one use.
latent demand
demand for a product that can satisfy a want which is unable to be satisfied by any existing product
substitute good
product that consumers see as similar enough to another product.
complementary good
a product or service used in combination with another product or service.
normal good
good that increases in demand due to increase in consumer income
inferior good
good that decreases in demand as consumer income rises
ceteris paribus
all other things being equal
gross domestic product (GDP)
measures the monetary value of goods and services produce within a country in a given time period.
subsidy
indirect tax
subsidy
fiscal deficit
fiscal policy
monetary policy
national debt
equitable
cost push inflation
inflation caused by increases in the cost of important goods or services (decrease in AS) due to external factors
demand pull inflation
prices rise when AD exceeds supply of available goods for sustained periods of time
demand push inflation
increase in AD causing inflation.
cost pull inflation
when AD remains the same but AS decreases due to external factors, causing a rise in price levels
