Economics Key words (ALFs term #1)

Question 1

Define ‘Basic Economic Problem’

Answer 1

Scarcity of resources (resources are limited, but human wants are infinite, so choices must be made about how to allocate resources between alternative uses.

Question 2

Define ‘opportunity cost’

Answer 2

The benefits are lost from having to give up the next best alternative (when making a choice about how to allocate scarce resources)

Question 3

Define ‘production possibility frontier’

Answer 3

A curve that shows the maximum potential output of one good, given the level of output of another good

Question 4

Define ‘Demand’

Answer 4

The quantity of a good or service that sellers are willing and able to buy at any given price over a period of time.

Question 5

Define ‘ Supply’

Answer 5

The quantity of a good or service that sellers are willing and able to sell at any given price over a period of time.

Question 6

Define ‘Externalities’

Answer 6

the difference between social cost and benefits and private costs and benefits, they are the costs and benefits of economic activity for a third party, that are ignored by the price mechanism.

Question 7

Define ‘public goods’

Answer 7

goods that have the characteristics of non-excludabitity and non-rivalry, and that free markets will not provide because of the free-rider problem, leading to missing markets.