Economic Methodology And The Economic Problem Flashcards
Allocative efficiency
When economic resources are utilised to produce the combination of goods and services that maximise economic welfare.
Allocative price function
Prices allocate resources away from markets with excess supply to markets with excess demand.
Capital goods
Goods used in the production of other goods.
Choice
Selecting once of multiple alternatives when deciding how to allocate scarce resources.
consumer good
goods consumed by households and individuals, used to satisfy needs and wants.
economic welfare
the economic satisfaction of individuals in an economy
factors of production
inputs of the production process. land, labour, capital and enterprise.
finite resources
non-renewable resource that becomes increasingly scarce.
fundamental economic problem
deciding how to best allocate scarce resources to maximise overall economic welfare.
imperfect information
when individuals lack the information to make the best decision.
incentive price function
prices create incentives for people to adjust their economic transactions.
need
something necessary for human survival
normative statement
statements including value judgements, that cannot be easily proved/disproved.
opportunity cost
the value of the next best alternative forgone.
positive statement
statements including facts, that can be easily proved/disproved.
production possibility frontier
a curve displaying the various possible combinations of two products that can be produced with finite resources.
rationing price function
prices rise to ration demand for goods.
renewable resource
restorable resource that can be replenished
scarcity
unlimited wants, limited resources.
signalling price function
prices provide information to sellers and buyers, influencing economic decisions.
trade
buying and selling of goods and services.
want
something desirable, yet not necessary for human survival.
