Theme 1 Definitions Flashcards
Ceteris paribus
Assuming everything else remains the same
Capital
One of the four factors of production; goods which can be used in
the production process
Capital goods
Goods produced in order to aid production of consumer goods in
the future
Consumer goods
Goods bought and demanded by households and individuals
Consumer surplus
The difference between the price the consumer is willing to pay and
the price they actually pay
Demand
The quantity of a good/service that consumers are able and willing
to buy at a given price at a given moment of time
Diminishing marginal
utility
The extra benefit gained from consumption of a good generally
declines as extra units are consumed; explains why the demand
curve is downward sloping
Division of labour
When labour becomes specialised during the production process so
do a specific task in cooperation with other workers
Excess demand
When price is set too low so demand is greater than supply
Excess supply
When price is set too high so supply is greater than demand
Free market
An economy where the market mechanism allocates resources so
consumers and producers make decisions about what is produced,
how to produce and for whom
Normative statement
Subjective statements based on value judgements and opinions;
cannot be proven or disproven
Opportunity cost
The value of the next best alternative forgone
Positive statement
Objective statements which can be tested with factual evidence to
be proven or disproven
Producer surplus
The difference between the price the producer is willing to charge
and the price they actually charge
