Economics Flashcards
fundamental economic problem
scarce resources but unlimited wants; sometimes called the basic economic problem.
resources
inputs available for the production of goods and services.
wants
the goods and services that people may lkie to have but are not always realized.
scarcity
a situation in which wants and needs are greater than the resources available.
choice
resources are scarce so individuals, firms and governments have to consider alternatives.
factors of production
resources or inputs available in an economy that are used in the production of goods and services.
firm
any business that hires factors of production to produce goods and services.
opportunity cost
the cost expressed in terms of the next best alternative that is foregone when a choice is made.
the three important questions related to the fundamental economic problem
What to produce?
How to produce?
For whom to produce?
macroeconomics
the study of an economy or a group of economies
microeconomics
the study of individual markets (households and firms).
model
a simplified view of reality used to explain economic problems and issues.
positive statement
a statement that is based on facts or actual evidence.
normative statement
a statement that is based on the economist’s opinion or value judgement and which cannot be proven.
ceteris paribus
a Latin phrase meaning ‘other things equal’ or ‘other things are unchanged’; used by economists to model the effects of one change at a time.
short run
time period when a firm can change at least one but not all factor inputs.
long run
time period when all factors of production are variable but with a constant, such as the state of technology.
very long run
time period when all key inputs into production are variable.
entrepreneur
an individual who seeks out new business opportunities and is willing to take risks.
land
a factor of production; natural resources in an economy.
labour
a factor of production; human resources available in an economy.
low-income countries
economies where income per head was $1025 or less in 2018 (World Bank).
capital
a factor of production; a physical resource made by humans that aids the production of goods and services.
enterprise
as a factor of production, enterprise involves organizing production and taking risks.
physical capital
factors of production such as machinery, buildings and infrastructure.
economic growth
in the short run, an increase in a country’s output and, in the long run, an increase in a country’s productive potential.
lower middle-income countries
countries where income per head was between $1026 and $3995 in 2018 (World Bank).
human capital
the value of labor to the productive potential (future growth) of an economy.
specialization
the process by which individuals, firms and economies concentrate on producing those goods and services where they have an advantage over others.
division of labor
where a manufacturing process is split into a sequence of individual tasks.
high-income countries
economies where income per head was $12,376 or more in 2018 (World Bank).
middle-income economies
economies where income per head was between $1026 and $3995 (lower middle-income economies) and $3996 and $12,375 (upper middle-income economies) in 2018 (World Bank).
economic system
the way in which production is organized and choices are made in an economy.
market economy
an economic system where most decisions are taken through the market mechanism.
planned economy
an economic system where resources are state owned and allocated by a central body.
mixed economy
an economic system where both market forces and government are involved in resource allocation decisions.
market mechanism
resource allocation decisions are taken by individual producers and consumers with no government intervention; also known as price mechanism.
producitve resources
resources that are available to be used.
private sector
that part of an economy under private ownership
public sector
that part of an economy under government ownership
privatization
where there is a change in ownership from the public to the private sector.
emerging economy
one that is making quick progress towards becoming a high-income economy.
Asian Tiger economy
export-led, high growth economies in Asia.
production possibility curve (PPC)
a simple representation of the maximum level of output that an economy can achieve, given its current resources and state of technology; may be referred to as a production possibility frontier.
ways PPCs can be represented
Production possibility curves can be represented by a straight line as well as by a curve that is convex to the origin. When drawing a production possibility curve, remember to label both axes carefully. The axes are always labelled in terms of two goods.
trade-off
what is involved in deciding whether to give up one good for another good.
productive capacity
the maximum output that can be produced when all resources are used fully.
excludability
where it is possible to stop someone from consuming a good or service
rivalry
where consumption by one person of a good or service reduces the availability of the good or service for others.
non-rival
where consumption by one person does not reduce consumption by someone else.
private goods
goods that are consumed by one person and not available to anyone else.
free goods
goods that are not scarce and have zero opportunity cost.
pure public good
good which is both non-excludable and non-rival.
quasi-public good
good that has some but not the full characteristics of a public good.
free rider
someone who does not pay to use a public good.
merit good
a good that is thought to be desirable for consumers but which is underprovided by the market because of information failure.
demerit good
a good that is thought to be undesirable for consumers and is overprovided by the market because of information failure.
information failure
a situation where consumers do not have full complete information when making decisions.
price mechanism
the means of allocating resources in a market economy.
consumers
individuals or households who but goods and services for their own use or for others.
market
where buyers and sellers get together and trade.
demand
the quantity of a product that consumers are willing and able to buy at different prices per period of time other things equal, ceteris paribus.
supply
the quantity of a product that producers are willing and able to sell at different prices within a time period, other things equal, ceteris paribus.
supply chain
all the stages of a product’s progress from raw materials, production and distribution until it reaches the consumer.
notional demand
where buyers may want to buy a product but which is not always backed up by the ability to pay.
effective demand
demand that is supported by the ability to pay.
demand curve (D)
a line plotted on a graph that represents the relationship between the quantity demanded and the price of a product.
market demand
the total amount demanded by consumers.