Key Terms Flashcards
Scarcity
Economic resources are limited relative to society’s desire for goods and services
Economic good
A good or service whose production requires the use of scarce resources
Free good
A good or service which can be enjoyed without the need to use scarce resources
Opportunity cost
The opportunity cost of choosing a good or service is the benefit that would have been enjoyed from the best alternative
Production possibility cure
The maximum output of combinations of goods and services that can be produced through the full and efficient employment of society’s economic resources. It represents society’s fill productive potential at any point in time.
Investment
The production of additional units of capital, thereby increasing society’s total economic resources. Economic talk of investment in both capital equipment and human capital.
Specialisation
Productive activity by individuals, firms and countries focusing upon a narrow range of output. Specialisation by labour is known as the division of labour
Comparative advantage
An economic agent enjoys a comparative advantage in a productive activity where the opportunity cost is relatively low
Market
An arrangement whereby buyers and sellers come into contact and engage in trade. There are product markets for goods and services, and also factor markets for factors on production
Demand
The quantity of a product that a consumer is willing and able to buy in a period of time.
Supply
The quantity of a product that a firm is willing and able to produce in a period of time
Income effect of a price change
The effect on quantity demanded of a price change causing consumer real income to change
Substitution effect of a price change
The effect on quantity demanded of a price change causing relative prices to change
Marginal utility
The additional utility enjoyed when a consumer increases quantity demanded by a single unit
Consumer surplus
The utility received by. Consumer over and above the price that has been paid for a product
