The nature of economics Flashcards
Economics
The allocation of scarce resources to provide for unlimited human wants
Ceteris paribus
All other things being equal
Positive statement
Based on facts which can be tested as true or false and are value-free
Normative statement
Based on vaue judgements which cannot be tested as true or false
The basic economic problem
How scarce resources can be used to satisfied people’s infinite wants as effectively as possible
Opportunity cost
The value of the next best alternative forgone
Resources
Factors of production. Inputs used in the productio of goods and services. Finite and can be classified into four types: land, labour, capital, enterprise
Renewable resources
A resource whose stock can be replenished naturally over a period of time
Non-renewable resources
A resource whose stock DECREASES over time as it is consumed
Consumer goods
Good such as chocolate bar
DIRECTLY provides utility for consumers
It is wanted for the satisfaction that it gives
Captial goods
Goods that can be USED to MAKE consumer goods or services. It is not wanted for its own sake, but rather for the CONSUMER GOODS and SERVICES that it can produce
PPF
MAXIMUM POTENTIAL OUTPUT of a combination of goods in an economy when all its resources are FULLY AND EFFICIENTLY used, gven the current state of TECHNOLOGY
Law of diminishing returns
As successive units of a goods are consumed, the utility gained from each EXTRA unit will fall
Specialization
The CONCENTRATION on the production of a limited range of goods or services.
These goods or services can be traded for other goods and services provided by other countries
Division of labour
The specialization of workers on specific tasks in the production process
