Microeconomics 1.1 Flashcards
(24 cards)
Factor Incomes
The rewards to factors of production. Labour receives wages and salaries, land earns rent, capital earns interest and enterprise earns profit.
Consumer Goods
Goods bought by consumers and households. They are the end result of manufacturing.
Productive Potential
The amount of output an economy could produce if all of its resources were fully and efficiently employed.
Non Renewable Resources
Resources which are finite and cannot be replaced. Examples include minerals and fossil fuels.
Medium of Exchange
A function of money that facilitates transactions between buyer and seller and removes the need for bartering.
Money
In its various forms it fulfils various key functions including a medium of exchange, a unit of account, a store of value and a standard deferred payment.
Trade-off
Implies that choices have to be made between different objectives of policy for example between economic growth and inflation.
Adam Smith
His most famous work was the wealth of Nations (1776) - a study of the progress of nations where people act according to their own self interest - which improves the societal good.
Unit of Account
A function of money. A nominal unit of measure or currency used to value/cost products, assets, debts, incomes and spending.
Allocative Efficiency
Occurs when the value that consumers place on a good or service equals the cost of the resources used up in production.
Capital Goods
Goods such as plant (factories) and machinery and equipment are useful not in themselves but for the goods and services they can help produce in the future.
Economic Growth
An increase in the productive potential of a country - shown by an outward shift of the production possibility frontier.
Concave PPF
The shape of this PPF is “bowed outwards”. This means there is a rising marginal opportunity cost as you produce more of one good. This is because there is imperfect factor mobility.
Store of Value
A function of money in that it can be used to save and be exchanged at a later time.
Economic Efficiency
Involves making best or optimum use of our scarce resources among competing ends so that economic and social welfare is maximised over time.
Method of Deferred Payment
A function of money that allows a system of making payments at a later date.
Consumer Sovereignty
Exists when an economic system allows scarce resources to be allocated to producing goods and services that reflect the wishes of consumers.
Pareto Efficiency
Occurs when resources are allocated in such a way that it is impossible to make someone better off without making someone else worse off. On a PPF diagram, this is shown by any point on the curve, indicating maximum productive efficiency.
Karl Marx
An influential thinker who co-authored “The communist manifesto” published in 1948 asserted that all human history has been based on class struggles. Supporter of command economies.
Fredrick Hayek
Argued that free market economies are superior because they efficiently allocate resources
through the decentralised decision-making of individuals. He believed government intervention distorts this process, leading to inefficiencies and a loss of personal freedoms.
Basic Economic Problem
The fundamental issue in economics of having limite resources to meet unlimited wants and needs, leadiung to the necessity of making choices.
Opportunity Cost
The value of the next best alternative foregone when a decision is made to choose one option over another
Scarcity
The fundamental problem of having seemingly unlimited human wants but limited resources
