Theme 1 Key Terms Flashcards
Scarcity
The basic economic problem that arises because resources are limited while wants are infinite.
Opportunity Cost
The value of the next best alternative foregone when a decision is made.
Production Possibility Frontier (PPF)
A curve showing the maximum combinations of goods or services that can be produced with given resources and technology.
Specialisation
When individuals, firms, or countries focus on producing specific goods or services to increase efficiency.
Division of Labour
Breaking down production into specific tasks to improve productivity.
Free Market Economy
An economic system where resources are allocated by the price mechanism without government intervention.
Command Economy
An economy where resource allocation is determined centrally by the government.
Mixed Economy
An economic system that incorporates elements of both market and planned economies.
Positive Statement
A statement that can be tested or proven right or wrong based on facts.
Normative Statement
A value judgment that cannot be tested or proven; based on opinion.
Capital
Man made resources used to produce goods/services
PPF curve
Maximum possible production of two g/s w/ given F.O.P
Pareto efficiency
A state where resources are allocated in such a way that no one can be made better off w/o making someone else worse off
Consumer goods
Good demanded and bought by households and individuals
Capital goods
Goods that produce in order to aid the production of consumer goods in the future
Labour
The exercise of human, mental and physical effort in the production of goods and services
Land
All natural resources used in production, for example, raw materials
Money
Anything that is acceptable in the payment of a good/service/debt
Price Mechanism
the interaction of supply and demand to determine prices
