Theme 1 - Scarcity And Choice Flashcards
Macroeconomics
The study of the inter relationships between economic variables at an aggregate (economic wide) level
Microeconomics
The study of the economic decisions taken by individual economic agents, including households, firms and the government
Positive statement
A statement about what is (I.e.) about facts
Normative statement
A statement involving a value judgement that is about what ought to be
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 influence constant
Scarcity
A situation that arises because people have unlimited wants in the face of limited resources
Needs
Things that are essential to human survival
Wants
The things that we desire over and above our basic needs
Opportunity costs
In decision making, the value of the next best alternative foregone
Marginal analysis
An approach to economic decisions making based on considering the additional ( marginal ) benefits and costs of a change in behaviour
Economic agents
Economic decision makers such as households, firms and the government
A free good
A good which is unlimited in supply, hence it is not scarce
An economic good
A good which is scarce in supply
Factors of production
Resources used in the production process; inputs into production including capital, enterprise, land and labour
Land
Land itself, plus all things produced by earth and those which exist below the earth, in the sea or in the air. Land is a natural resource
Labour
All human effort used in production. Labour is a human resource
Capital
All man made aids to production - plant, machinery, factory buildings, tools and transport equipment. Capital is a physical resource.
Enterprise
The initial idea and risk taken. It draws together all the other 3 factors of production
Entrepreneur
Someone who organises production and identifies projects to be undertaken, bearing the risk of the activity
Renewable resources
Natural resources that can be replenished such as forests that can be replanted or solar energy
Non renewable energy
Natural resources that once used cannot be replenished, such as coal or oil
Economic model
A simplified representation of reality used to provide insight into economic decisions and events
Production possibilities frontier
A curve showing the maximum combinations of goods or services that can be produced in a set period of time given available resources
A trade off
A giving up of one thing in exchange for gaining another. It relates to the concept of opportunity costs, and the sacrifices of one type of good or service to gain more of another
Economic efficiency
A situation in which both productive and allocative efficiency have been achieved
Allocative efficiency
Achieved when consumer satisfaction is maximised
Productive efficiency
Attained when a firm operates at maximum average total costs, choosing an appropriate combination of inputs and producing the maximum output possible from those inputs
Consumer goods
These are goods which are consumed or used up by us when we buy them. They are for present use
Capital goods (or producer goods)
These are goods manufactured for the purpose of producing other goods. They increase the future capacity of the economy and are known as investment
Potential economic growth
An expansion in the productive capacity of the economy
Gross domestic product (GDP)
A measure of the economic activity carried out in the economy during a period of time
Division of labour
A process whereby the production procedure is broken down into a sequence of stages, and workers are assigned particular stages
Specialisation
The concentration by a worker or workers, firm, region or whole economy on a narrow range of goods and services
Market
A set of arrangements that allow transactions to take place
Barter
Exchange goods and services for other goods and services without using money
