Introduction Chapter 1 & 2 Flashcards
What is economics and what do economists do? The economic problem
Demand
The quantity of a good households are willing and able to buy in a market.
Supply
The quantity of a good firms are prepared to sell in a market.
Normative Statement
An opinion that cannot be scientifically tested.
Economics
The study of choice and decision making in a world with limited resources.
Positive Statement
A statement that can be scientifically tested and possibly falsified
Macroeconomics
Examines the economy as a whole.
Microeconomics
Examines individual consumer, firms and markets in the economy.
The economic problem
Limited amount of resources are available to produce the unlimited quantity of goods and services people desire.
A production possibility diagram
Shows different possible combinations of goods that can be produced using available resources.
A consumer good
Used by consumer to meet their needs or wants. E.G. food or an iPod.
A capital good
Used to produce other goods, including consumer goods E.G. a machine.
Technical progress
Improves methods of producing existing goods and enables completely new types of good to be produced.
Opportunity cost
The cost of the next best alternative sacrificed.
Finite resource
A resource which is scarce and runs out as it is used E.G. oil.
Free good
A good, for which there are no costs of production and no scarcity E.G. air.
Renewable resource
A resource that with careful management can be renewed as it is used E.G. timber.
Production
A process, or set of processes, that converts inputs into outputs.
Factors of production
Inputs into the production process. LAND, LABOUR, CAPITAL and ENTERPRISE.
Command economy
The planning mechanism allocates resources between competing uses.
Market economy
Markets and prices allocate resources between competing uses.
Capitalism
The means of production are privately owned.
Socialism
The means of production are socially (state) owned.
A mixed economy
Contains both market and non-market sectors and a substantial public sector as well as a private sector.
Privatisation
Selling off state-owned assets such as nationalised industries to private ownership
Marketisation or commercialisation
Charging a market price for goods and services that the state previously provided ‘free’.
Deregulation
Removing barriers to entry and government control from the operations of markets.
