Microeconomics Booklet One Flashcards
(28 cards)
What is economics?
economics is the allocation of scarce resources.
economics allows us to better understand how markets operate and inform public policy
what is a positive statement?
a statement that can be factually verified.
what is a normative statement?
A statement based on opinion, that usually speaks on whether something is equitable.
cannot be factually verified.
what is the basic economic problem?
There are infinite human wants and needs but limited resources with competing uses.
what is scarcity?
a resource is scarce not when there is little of it but when thee is not enough to meet everybody’s wants and needs
what is opportunity cost?
The benefit foregone from the next best alternative
what is a free market economy?
an economy which is free from government intervention, markets are described as being allocated through the interaction of market forces.
consumers signal their wants through spending habits and producers respond in order to maximize profits.
what is a planned economy?
an economy in which all of the market resources are allocated by the government.
what are the three types of economic agent?
firms, governments and consumers/households.
what is utility?
the benefit somebody gains from (usually consuming) something
what is a rational utility maximiser?
this is the belief that economic agents will make their decisions based off the utility and the costs, a rational utility maximiser will never make a decision for which the costs outweigh the benefits.
why do people not always maximize their utility?
religious or moral viewpoints
lack of information
influence from others
gut decisions and habit
prioritizing short term comforts over long term costs.
what are the four factors of production?
Land-any naturally occurring resource found in, on or under ground.
capital- any man made aid to production
enterprise- when an individual takes a risk in bring the other factors of production together and decides what to produces, in what quantity and how.
labor- any physical or mental efforts from workers.
what is the purpose of all economic activity?
to produce goods and services to satisfy needs and wants.
what are the three key economic decisions?
what to produce, how to produce and for whom.
what is a trade off?
a situation in which an improvement in one variable leads to a detioration in another.
what is ceteris paribus?
all other things being equal
what is the formula for productivity?
total output per time period/number of units of factor of production
what is the formula for average cost?
total cost/number of units of output
what is technical efficiency?
Maximising output from a given level of inputs
what is productive efficiency?
Maximising output from a given level of input whilst operating at the lowest possible average total cost.
what is allocative efficiency?
the allocation of resources that maximises consumer welfare?
what is Pareto efficiency?
Pareto efficiency/ Pareto optimal is a situation in which nobody can be made better off without somebody else being made worse off
