A condition where there are insufficient resources to satisfy all the needs and wants of people
Relatively scarce and so will need to be allocated to a particular use in some way through a allocative mechanism
One in which situation of scarcity does not apply so therefore does not need a mechanism to allocate it. The demand for the free good is equal to the supply of it at zero price
A method whereby scarce resources are distributed in an economy
The situation of the relative scarcity of resources in relation to the unlimited wants and needs of people
The need to make decisions about the possible alternative uses of scarce resources, given the existence of limited resources and unlimited wants and needs
The demand for something that is essential, such as food or shelter
The demand for something that is less important than the demand for a need, such as a new car, and which is not necessarily achieved by a consumer
The cost of something in relation to a foregone opportunity, i.e. It indicates the benefits that could have been obtained by choosing the next best alternative
Production possibility curve (PPC), production possibility frontier, production boundary, production transformation curve
A curve that joins together the different combinations of products that can be produced in an economy over a particular period of time given the existing resources and level of technology available.
Opportunity cost can be obtained from the PPC
The expenditure on capital goods or assets, not for current consumption but for future consumption. It broadly refers to spending now on an asset that should generate an income at some point in the future
Fixed capital formation
Investment in the form of buildings, plant, equipment, machinery and infrastructure
Investment in the form of stocks of finished goods or semi-finished goods that will either soon be consumed or turned into finished consumer goods
Increasing opportunity costs
This occurs when the extra production of one good involves ever-increasing sacrifices of another
Use it now, good for current consumption today
Used not now but in the future. Good in the long run. Investment
Marginal rate of substitution
The rate at which a consumer is ready to give up one good in exchange for another good while maintaining the same level of utility.
= change in good Y / change in good X
A measure of preferences over some set of goods
Law of increasing opportunity cost
As production of one good rises, the opportunity cost of producing that good increases.
An increase in the productive potential or real level of output of an economy. It is possible to distinguish between actual and potential growth in national output
Law of demand
All other factors being equal, as the price of a good or service increases, consumer demand for the good or service will decrease, and vice versa.
Literally “all other things being equal”, the other factors which could influence a relationship between two variables are assumed to remain constant.
Margin efficiency of capital
The point at which the last unit of a product is consumed or produced.
The additional cost of producing one more unit of a product.
The additional satisfaction gained from the consumption of one more unit of a product.
The additional output produced by the last unit of capital investment that has been employed in the process of production.
At least one factor of production is fixed in supply (others change/is variable), output can only be increased by using more of the variable factors, technical progress is held constant.
All factors are variable/changed, output can be increased by using more of all factors, technical progress is held constant
Very long run
Technical progress is taking place, affecting the ability of firms to supply, all factors variable/changed
A statement that is based on factual evidence
A statement that is based upon beliefs rather than on factual evidence.
A judgement that is a reflection of particular values or beliefs
The inputs used to produce goods and services
The factor of production that is concerned with the natural resources of an economy, such as farmland or mineral deposits.
The factor of production that is concerned with the workforce of an economy in terms of both physical and mental effort involved in production
The factor of production that relates to the human-made aids to production
The factor of production that takes a risk in organising the other three factors of production. The individual who takes this risk is known as an entrepreneur.
The process by which individuals, firms, regions and whole economies concentrate on producing those products in which they have an advantage
Division of labour
The process whereby workers specialise in, or concentrate on, particular tasks
The way in which a particular country attempts to answer the basic economic problem
A means of bringing together buyers and sellers to exchange products. A market can exist in a physical sense, but it can also be used to refer to an exchange of goods and services through the Internet or by telephone
Also known as market system, the type of economic system where decisions about the allocation of resources are taken in the private sector by producers and consumers.
The process by which changes in price (resulting from changes in demand and/or supply) bring about changes in the allocation of resources in a free market economy
Planned or command economy
The type of economic system where decisions about the allocation of resources are taken by the state or by government agencies