Theme 1 Key Definitions Flashcards
Model
A simplified representation of reality used to provide insight into economic decisions and events
Ceteris paribus
A Latin phrase meaning ‘other things being equal’; it is used in economics when we focus on changes in one variable while holding other influences constant
Positive statement
A statement which is testable or refutable, about what is (i.e. about facts)
Normative statement
A statement that involves a value judgement about what ought to be done
Economic agent
Individuals, firms and organisations who are involved in economic activity
Economic welfare
A consumer’s utility or satisfaction. It is the benefit a consumer gets from the allocation of resources
Economic needs
The things consumer need to survive such as food and water
Economic wants
The things that consumers want but do not need such as branded clothes
Basic economic problem
Resources have to be allocated between competing users because wants are infinite whilst resource are scare
Scarcity
A situation that arises when people have unlimited wants in the face of limited resources
Economic goods
Goods which are scarce, and therefore command a price
Free goods
Goods without an opportunity cost, and therefore do not command a price
Opportunity cost
The next best alternative foregone when an economic decision is made
Factors of production
The resources in an economy that are combined to produce goods and services
Land
Goods like minerals, land itself and all the resources we take from the world e.g. raw materials
