1.1 Economic Methodology and the economic problem Flashcards
Scarcity
Limited resources and unlimited wants
Value judgement
Subjective statement of opinion
Factors of production
Land, labour, capital, and enterprise
Types of capital
Fixed - Used by the firm
Working - Sold by the firm
Utility
The satisfaction or economic welfare an individual gains from consuming a good
Opportunity cost
The cost of giving up the next best alternative
Production Possibility Frontier (PPF)
A curve depicting various combinations of two products that can be produced when all the available resources are fully and efficiently employed
Capital goods
Manufactured goods used to produce other goods and services
Productively efficient
Where it would not be possible to produce any more of one good without sacrificing production of another good (given a fixed quantity of FoP and technology)
Substitutable
Capable of being used as a replacement
Law of increasing opportunity cost
As the output of one good increases, the resources needed to produce it become scarcer, causing the opportunity cost of additional units to increase
Planned/command economy
Government planning allocates resources to resolve the fundamental economic problem
Mixed economy
Both government planning and the market mechanism allocate resources to address the fundamental economic problem
Free market economy
The market mechanism allocates resources to resolve the fundamental economic problem (invisible hand)
Market mechanism
The process through which changes in prices allocate resources
