Basic Economic Problem

the problem of scarcity; wants are unlimited but resources are finite

goods which can be used in the production process

goods which have an opportunity cost and suffer from the problem of scarcity

goods with no opportunity cost, since there is no scarcity of the good; they are not traded

natural resources such as oil, coal, wheat and physical space

requirements necessary for an individual to live and function, such as food and shelter

subjective statement based on value judgement and opinion; can't be proven or disproven

objective statement which can be tested with factual evidence to be proven or disproven

decision-making that leads to economic agents maximising their utility

the shortage of resources in relation to the quantity of human wants

something that people desire to have but do not necessarily need to survive

Allocative Efficiency

when resources are allocated to the best interests of society, when there is maximum social welfare and maximum utility (P=MC)

when resources are allocated optimally, so every consumer benefits and waste is minimised

something which motivates an individual to make a decision and behave in a certain way

an economy where the market mechanism allocated resources so consumers make decisions about what is produced

consumers aim to generate the greatest utility possible, firms aim to generate the highest profits possible

both the free market mechanism and government allocate resources

all factors of production are allocated by the state, so they decide what, how and for whom to produce goods

Productive Efficiency

when resources are used to give the maximum possible output at the lowest possible cost (MC=AC)

how resources are distributed amongst producers and how goods and services are distributed amongst consumers

the value of the next best alternative forgone

Production Possibility Curve

depicts the maximum productive potential of an economy, using a combination of two goods or services, when resources are fully and efficiently employed

when one thing is lost to gain something else

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1. Intro to Micro

Micro

Term	Definition
Basic Economic Problem	the problem of scarcity; wants are unlimited but resources are finite
Capital	goods which can be used in the production process
Economic Good	goods which have an opportunity cost and suffer from the problem of scarcity
Free Good	goods with no opportunity cost, since there is no scarcity of the good; they are not traded
Labour	human capital
Land	natural resources such as oil, coal, wheat and physical space
Needs	requirements necessary for an individual to live and function, such as food and shelter
Normative Statement	subjective statement based on value judgement and opinion; can't be proven or disproven
Positive Statement	objective statement which can be tested with factual evidence to be proven or disproven
Rationalisation	decision-making that leads to economic agents maximising their utility
Scarcity	the shortage of resources in relation to the quantity of human wants
Wants	something that people desire to have but do not necessarily need to survive
Allocative Efficiency	when resources are allocated to the best interests of society, when there is maximum social welfare and maximum utility (P=MC)
Economic Efficiency	when resources are allocated optimally, so every consumer benefits and waste is minimised
Incentive	something which motivates an individual to make a decision and behave in a certain way
Market Economy	an economy where the market mechanism allocated resources so consumers make decisions about what is produced
Maximisation	consumers aim to generate the greatest utility possible, firms aim to generate the highest profits possible
Mixed Economy	both the free market mechanism and government allocate resources
Planned Economy	all factors of production are allocated by the state, so they decide what, how and for whom to produce goods
Productive Efficiency	when resources are used to give the maximum possible output at the lowest possible cost (MC=AC)
Resource Allocation	how resources are distributed amongst producers and how goods and services are distributed amongst consumers
Opportunity Cost	the value of the next best alternative forgone
Production Possibility Curve	depicts the maximum productive potential of an economy, using a combination of two goods or services, when resources are fully and efficiently employed
Trade Off	when one thing is lost to gain something else

Created by: 19thomps

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