Basic Economic Ideas and Resource Allocation Flashcards
Fundamental Economic Problem
Limited resources but unlimited wants.
Resources
The inputs available for the production of goos and services.
Factors of Production
Resources in an economy used up the production of other goods and services.
There are four factors of production
-Land
-Labour
-Capital
-Enterprise
Questions that arise from Economic Problem
What to produce?
How to produce?
Whom to produce?
Model
Simplified view of reality used to explain economic problem.
Positive and Normative statement
Positive statement is based on facts and evidence.
Normative statement is based on an economists opinion or value of judgement.
Ceteris Paribus
Latin term that means “other things equal” or “other things unchanged” used to by economists to model effects of change.
Margin
Another tool used to simplify a situation. Using this economists mean that one change in a small variable will lead to further changes in other variables.
Time periods
Short run- time period where firms can change at least on but not all factors inputs.
Long run- time period where all factors of production are variable but constant.
Very long run- time period where all key inputs are changing.
Specialisation
The process in which individuals firms or economies focus on producing goods or services that they have and advantage over others.
Division of Labour
When the production process is spilt up in to individual tasks usually according to the workers specialisation.
Economic system
The way in which production is organised and choices are made in an economy.
Types of Economies
Planned- where the resources are state owned and are allocated by a central body.
Market- Where most oif the decisions are taken by the market mechanism.
Mixed- Where both market and government forces are involved in allocation of resources.
Market Mechanism
(Price Mechanism)
Resource allocation decisions are taken by producers and consumers with no government intervention.
