1.1. Nature of Economics

Economic Model

A simplified representation of an economic theory used to explain and predict economic behavior.

Ceteris Paribus

A Latin phrase meaning 'all other things being equal' used in economic modeling to isolate variables.

Positive Statement

An objective statement that can be tested and validated or disproven.

Normative Statement

A subjective statement based on opinion that cannot be proven or disproven.

Scarcity

The fundamental economic problem of limited resources meeting unlimited wants.

Renewable Resource

A resource that can be replenished or replaced naturally, like solar power.

Non-renewable Resource

A resource that cannot be easily replaced, such as fossil fuels.

Opportunity Cost

The loss of potential gain from other alternatives when one alternative is chosen.

Production Possibility Frontier (PPF)

A curve depicting the maximum possible output combinations of two goods an economy can produce.

Economic Efficiency

A situation in which resources are allocated in a way that maximizes output.

Specialisation

The process of focusing on a limited range of goods or services to increase efficiency.

Division of Labour

The assignment of different parts of a manufacturing process or task to different people for increased efficiency.

Comparative Advantage

The ability of a country or firm to produce a good or service at a lower opportunity cost than others.

Barter

A method of exchange where goods or services are directly exchanged for other goods or services.

Medium of Exchange

Function of money that facilitates trade by eliminating the need for barter.

Measure of Value

Function of money that allows comparison of the worth of different goods and services.

Store of Value

Function of money that allows it to maintain value over time.

Method for Deferred Payment

Function of money that enables future payments or credit transactions.

Free Market Economy

An economic system where prices are determined by unrestricted competition between privately owned businesses.

Command Economy

An economy in which production and distribution are controlled by the government.

Mixed Economy

An economic system combining elements of both free market and command economy.

Invisible Hand

A concept by Adam Smith describing how individual self-interest can lead to positive social outcomes.

Economic Growth

An increase in the output of goods and services in an economy over time.

Externalities

Costs or benefits of a market activity borne by a third party, impacting their wellbeing.

Monopoly

A market structure where a single seller dominates, preventing competition.

Market Mechanism

The process by which supply and demand interact to determine prices.

Consumer Sovereignty

The theory that consumer preferences determine the production of goods and services.

Bureaucracy

A system of government in which most of the important decisions are made by state officials rather than by elected representatives.

Standardised Products

Goods produced in unvaried forms, often resulting from automated processes.

Structural Unemployment

The unemployment resulting from industrial reorganization, typically due to technological change.