Introduction to microeconomics Flashcards
What is Scarcity
A situation that arises because people have unlimited wants in face of limited resources
What are economic goods
Goods that are scarce
What are free goods
Goods that are not scarce
What is poverty
A situation where individuals lack the basic necessities of life
What are needs
Things that are essential or human survival
What are wants
goods that are not necessary for human survival
Why are choices bad
People can make bad decisions
What are firms
An organization that creates output
What is a household
A person or people that engage in economic activity
What is government
The group of MPs that are responsible to develop policy and laws
What is rationality
Economic agents acting in their own best interests
What is utility
The benefit derived from the consumption of a good or service
What is an incentive
Something that motivates someone to do something
What is opportunity cost
the cost of the next best alternative
When are incentives most effective
When agents are rational and there is lots of information
When are incentives ineffective
When agents are irrational
When there is little information
When there is little competition
What is a positive statement
A statement that uses facts
What is a normative statement
A statement involving a value judgement
What is a value judgement
A statement based on opinions or beliefs
What is a factor of production
Resources used in the production process e.g. land, labour, capital or enterprise
What is the reward for land
Rent
What is the reward for labour
Wages/slaries
What is the reward for capital
Interest
What is the reward for enterprise
Profit
What is resource allocation
The way in which a societies productive assets are deployed
What is a market economy
Where market forces are allowed to guide resource allocation
What is a centrally planned economy
Where the government guides resource allocation within a society
What is a mixed economy
Where the government and market work together to allocate resources
What is the invisible hand
A term used by Adam Smith to describe how resources are allocated within a market economy
What is the GDP of a country
The value of all the final goods and services produced in a country per year
How do incentives affect the decisions made by economic agents
By affecting the opportunity cost
What is a trade-off
A situation in which the choice of one alternative requires the sacrifice of another
What does a PPC (Production Possibility Curve) show
The maximum combination of goods or services that can be produced in a set period of time given available resources
What are capital goods
Goods used as part of the production process
What are consumer goods
Goods produced for consumption
What is the basic economic problem
How best to allocate scarce resources
What is a shift on a curve
When the curve changes position
What is movement along a curve
When a point changes position to a different point on the same curve
What is consumer surplus
The difference between the amount a consumer pays for an item and the amount they are willing to pay for the item
