Nature of Economics

T1 CC1 (keywords)

Basic Economic Problem

The basic economic problem arises because resources are finite but human wants are infinite

Command Economy

An economic system where resources are allocated by the state. This is also known as a planned economy

Division of Labour

Specialisation by workers where the production of a good is broken up into many separate tasks each performed by one person.

Economic Good

those which are scarce and there is an alternative use for them (i.e. opportunity cost exists).

Factors of Production

Types of scarce resource used in the process of production of goods and services.

Free Good

A good that is not scarce and is in unlimited supply and has no opportunity cost to society.

Free Market Economy

An economic system where resources are allocated by the price mechanism i.e. demand and supply

Mixed Economy

An economic system where resources are allocated by both the price mechanism and by the state

Needs

A need is defined as something that you must have so that you can have a satisfactory life

Normative Statement

Is a statement which cannot be proved or tested using evidence. It is a value judgement.

Opportunity Cost

Opportunity cost measures the value (benefit) of the next best alternative use of resources foregone.

Positive Statement

Is a statement which can be tested by looking at evidence and either proved as fact or refuted.

Production Possibility Frontier/Curve (PPF)/(PPC)

The maximum possible output combinations of TWO goods/services using all available resources in the most efficient way with a given level of technology

Renewable Resources

Renewable resources are replenished (replaced) by natural processes

Specialisation

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

Wants

A want is defined as something desirable, but not essential for a satisfactory life