Theme 1 - The Central Economic Problem Flashcards
Ceteris Paribus
Ceteris Paribus is the assumption that all other factors remain unchanged
Rationality
Rationality is when economic agents make decisions to maximise self-interest by weighing the marginal cost and marginal benefit of an activity
Positive statement
Positive statement is an objective statement whose accuracy can be tested
Normative statement
Normative statement is a statement that contains value judgement and cannot be proved or disproved by looking at evidence
Factors of production
Factors of production are resources used in the production of goods or services
Land
Land is a factor of production that encompasses all the natural resources available
Labour
Labour refers to human beings used as factors of production
Capital
Capital refers to man-made goods used to produce other goods or services over a period of time
Entrepreneurship
Entrepreneurship refers to the factor of production that takes overall responsibility for the decision-making process in the firm so that the other factors of production can be combined to produce a good or service
Scarcity
Scarcity is a situation where human wants are unlimited whereas the resources available to satisfy these wants are limited
Opportunity cost
Opportunity cost is defined as the value of the next best alternative that has to be forgone to satisfy a particular want
Production Possibility Curve (PPC)
The Production Possibility Curve (PPC) shows all the combinations of two goods that a country can produce within a given time period, with all its resources fully and efficiently utilised at a given state of technology
Productive efficiency
Productive efficiency is a situation where goods and services are produced at the lowest possible average cost of production
