Theme 1 Flashcards
(61 cards)
What is the basic economic problem?
The basic economic problem arises because resources are finite but human wants are infinite.
This concept highlights the challenge of scarcity in economics.
What is a command economy?
An economic system where resources are allocated by the state, also known as a planned economy.
In a command economy, the government makes all economic decisions.
Define division of labour.
Specialisation by workers where the production of a good is broken up into many separate tasks each performed by one person.
This increases efficiency and productivity.
What is an economic good?
Economic goods are those which are scarce and there is an alternative use for them (i.e. opportunity cost).
These are contrasted with free goods.
What are factors of production?
Types of scarce resource used in the process of production of goods and services.
These include land, labor, capital, and entrepreneurship.
What is a free good?
A good that is not scarce and is in unlimited supply and has no opportunity cost to society.
Examples include air and sunlight.
Define a free market economy.
An economic system where resources are allocated by the price mechanism i.e. demand.
Prices are determined by supply and demand in this system.
What is a mixed economy?
An economic system where resources are allocated by both the price mechanism and by the state.
This combines elements of both market and planned economies.
What is the definition of needs in economics?
A need is defined as something that you must have so that you can have a satisfactory life.
Needs are essential for survival.
What is a normative statement?
A statement which cannot be proved or tested using evidence; it is a value judgement.
Normative statements express opinions about what ought to be.
Define opportunity cost.
Opportunity cost measures the value (benefit) of the next best alternative use of resources foregone.
It reflects the trade-offs in decision-making.
What is a positive statement?
A statement which can be tested by looking at evidence and either proved as fact or refuted.
Positive statements are objective and fact-based.
What does the Production Possibility Frontier (PPF) represent?
The maximum possible output combinations of TWO goods/services using all available resources in the most efficient way with a given level of technology.
The PPF illustrates trade-offs and opportunity costs.
What are renewable resources?
Renewable resources are replenished (replaced) by natural processes.
Examples include timber, fish, and solar energy.
Define specialisation in economics.
A system of organisation where economic units such as households or nations are not self-sufficient but concentrate on producing certain goods and services and trading the surplus with others.
Specialisation increases efficiency and productivity.
What is the definition of wants in economics?
A want is defined as something desirable, but not essential for a satisfactory life.
Wants are influenced by culture, society, and individual preferences.
What is Demand?
The quantity of a good or service that consumers are willing and able to buy at a given price.
What is Equilibrium price?
The price at which everything that is being offered for sale is being bought so the market is said to be clear.
What is Excess demand?
Where there is unfulfilled demand at the market price - demand is greater than supply.
What is Excess supply?
Where there are unsold goods/services at the market price - supply is greater than demand.
What is the Price mechanism?
The mechanism through which price is determined in a free market system.
What does the Law of demand state?
As price decreases, demand will increase and vice versa.
What is an Extension of demand?
A movement down the demand curve.
What is a Contraction of demand?
A movement up the demand curve.
