TERM 1 Definitions Flashcards
Scarcity
A situation that arises because people have unlimited wants in the face of limited resources
Economic goods
Goods that are scarce
Free goods
Not regarded as being scarce, such as air
Basic economic problem
Must choose how best to use their limited resources because not all needs and wants can be satisfied
Rationality
Economic agents acting on their best interests
Utility
The benefit derived from the consumption of a good or service
Resource allocation
The way in which a societies productive assets are deployed across alternative uses
Market economy
Market forces are allowed to guide allocation within a society
Centrally planned economy
The government guides resources allocated within society
Mixed economy
Combinations of government and market forces
Invisible hand
The way resources are allocated in a market economy
Positive statement
A statement about what is
Normative statement
Involves a value judgement about what ought to be
Value statement
Based on your opinion of beliefs rather than on facts
Factors of production
Land
Labour
Capital
Enterprise
The reward for:
Land ~ rent
Labour ~ Wages
Capital ~ Interest
Enterprise ~ Profit
Joint Demand
Goods that are interdependent
Composite demand
Demand for a good with multiple uses
Competitive demand
Demand for goods in competition
Law of demand
Inverse relationship between quantity and price
Trade off
A situation in which the choice of one alternative requires the sacrifice of another
Opportunity cost
Value of the next best alternative forgone
Capital goods & Consumer goods
Capital ~ part of the production process
Consumer ~ Goods produced for present use
Specialisation
The process of concentrating on a task or activity in order to become expert in it
