Theme 1 - Definitions

What does PPF stand for?

Production possibility frontiers

What is a PPF?

Shows the maximum productive potential of an economy using a combination of two goods or services, when resources are fully and effectively employed

What are consumer goods?

Goods which cannot be used to produce other goods (e.g. clothing)

What are capital goods?

Goods which can be used to produce other goods (e.g. machinery)

What is specialisation?

Refers to producing what a worker, firm, or country is most efficient at by focusing on a narrow range of goods/services (e.g. Thailand - coconuts)

What is division of labour?

Refers to the production process being broken down into separate specialised tasks (usually low paid, and demoralising work conditions)

What are the four functions of money?

Medium of exchange, measure of value, store of value, method of deferred payment

What is opportunity cost?

The loss of the next best alternative when a choice is madeWhat is demand?

What is demand?

The amount buyers are willing and able to purchase at any given price

What is joint demand?

Complimentary goods

What is derived demand?

Demand for a good comes from a demand for another good

What is composite demand?

Two goods require the same input

What is marginal utility?

The additional benefit gained from consuming an extra unit

What is supply?

The amount that sellers are willing to and able to sell at any given price

What is equilibrium?

When supply meets demand