Micro : The Economic Problem Flashcards
Ceteris paribus definition
All other things remain equal
Normative statement definition
Subjective statements which contain value judgement (Opinions)
Positive statement definition
Objective statements that can be tested by referring to the available evidence (Can be tested to see wether economic ideas are correct)
List four factors of production
Land
Labour
Capital
Enterprise
Free goods example
Air
Economic agents
Producers
Consumers
Government
Economic problem
How to distribute/allocate scare resources
Capital definition
Equipement used to produce goods and services
Enterprise definition
Willingness to take risk to create profit
What does PPF show
The maximum amount of two goods or services an economy can produce
Trade off definition
Choice between two conflicting objectives. Involves compromise
PPF Notes
All points on the PPF are productively efficient however they are not all allocatively efficient
Points outside the PPF are
Not achieveable
Points inside the PPF are
Productively efficient
Opportunity cost definition
The next best alternative that you give up in making that decision
What causes the PPF to shift outwards
Increased resources
Improvement in technology
Improvement in labour
What cause the PPF to shift inwards
Decrease in resources (Natural disasters)
A free market definition
A system of buying and selling goods and services that is not under the control of the government
Advantages of a free market
Efficient allocation of scarce resources
Competitive prices for consumers
Competition drives innovation & invention bringing higher profits for businesses and better products for consumers.
Increase choice
Government failure definition
Where government intervention in the economy creates inefficiency and leads to a misallocation of scarce resources.
Disadvantage of free market
Free market activity can lead to a rise in the scale of income and wealth inequality
Businesses can develop monopoly power which leads to higher prices and damage to consumer welfare
What is the public sector
The government
What is the private sector
Businesses that are privately owned
Consumers want to
Government wants to
Firms want to
Maximise their utility and income
Balance resource of country with goods and services
Maximise their profit
The economic problem is
Scarcity of resources and unlimited wants
