Microeconomics Booklet One - Y12 Flashcards
- economic methodology - production and the basic economic problem - PPfs - productivity - efficiency - specialisation and the division of labour
Allocative efficiency
The allocation of resources that maximises consumer welfare – associated with a price equal to marginal cost
Basic economic problem
The problem of unlimited human wants and limited resources with competing uses, making those resources scarce
(Physical) Capital
A man-made aid to production such as tools, machines, vehicles, buildings and infrastructure
Ceteris paribus
“All other things being equal” – factors other than those stated will not change
Consumer durable goods
Tangible goods purchased by households that can be used more than once
Consumer non-durable goods
Tangible goods purchased by households that can only be used once
Cost-benefit principle
A rational agent will weigh the costs and benefits of a decision and only follow a course of action where the benefits are at least equal to the costs
Division of labour
Breaking down a process into constituent parts and allowing workers to specialise on one or more of these parts to increase productivity
Dynamic efficiency
Becoming more (productively) efficient over time, usually as a result of investment
Economics
Usually defined as the allocation of scarce resources
Enterprise
Bringing together the other three factors of production to decide what to produce and how, in doing so taking a (financial) risk
Equitable
This means that something is deemed fair and requires a value judgement on the part of the observer. Equity should never be confused with equality
Free-market economy
An economic system in which resource allocation is left to market forces
Labour
The human input into the production process, done by workers, whether mental, physical or managerial
Land
Any natural resource found on, in or under the land
Mixed economy
An economic system in which resource allocation is done partly by the government and partly by the interaction of market forces
Normative statement
A statement based on a value judgement or opinion
Opportunity cost
The benefit foregone from the next best alternative.
Pareto optimum
A situation where nobody can be made any better off without somebody being made worse off
Planned economy
An economic system in which the government is responsible for resource allocation rather than market forces
Positive statement
An objective statement that is capable of being tested/verified
Production
The conversion of factor inputs into outputs
Production possibility frontier (PPF)
A graphical representation of all of the maximum combinations of two outputs that an economy can produce, given its initial factor endowment, current productivity and the current state of technology
Productivity
The amount of output produced per unit of an input (such as labour)
