Micro 1 and 2 Flashcards
AQA A-level economics (35 cards)
What is the fundamental/basic economic problem
Individuals in an economy have infinite wants while there are scarce resources available to meet those wants
What is opportunity cost
The cost of the next best alternative that you give up when you have a choice
What are the two forms of economic systems
Free market/capitalist economy
The command/centrally planned economy
What is a free market/capitalist economy
Decisions are solely made by the interactions of consumers and firms with no government interaction
What is the command/centrally planned economy
Decisions are solely made by the government
What are positive statements
Either true or false statements that are objective
What are normative statements
Subjective statements that cannot be verified or falsified
What is a value judgement
A judgement about what is good/bad, important/valuable, based upon subjective opinion which informs economic and political decision making
What are the key questions economists try to answer
- What goods or services should be produced to meet customer needs?
- How should they be produced?
- Who should receive the goods and services?
What are the four factors of production
Labour, land, capital and enterprise
What is land as a factor of production
Land includes all natural resources e.g. fertile farm land, coal, oil, wood etc
What is labour as a factor of production
The human input in production e.g. supply of workers
What is capital as a factor of production
Physical, man-made resources (capital goods) used to produce consumer goods
What is enterprise as a factor of production
The individual who supplies products to a market to make a profit which often involves risk-taking to identify a gap in the market and execute their idea
What are economic goods
They are scarce so have an opportunity cost e.g. wood used to make a house cant be used for anything else
What are free goods
They have no opportunity cost as they are in abundance
What is a PPF?
A diagram used to illustrate the maximum quantities of two goods that a producer or economy can produce in any combination over a given period of time given the current resources.
How does a PPF relate to opportunity cost
A PPF shows the opportunity cost for using scarce resources
What causes the PPF to shift outwards which allows more of both goods to be produced?
- Improvement in the quality and/or quantity of the factors of production
- Technological advancements
What is a trade off
When an economic agent substitutes the production of one good/service for another
What is allocative efficiency
The state of the economy in which production matches consumer efficiency
What is Pareto efficiency
When no one can be made better without someone becoming worse off
What is utility theory
When making economic decisions, consumers aim to maximise their utility and firms aim to maximise profits
What is Utility
The total satisfaction gained from consuming a good or service
