economics

The Economic Problem

How to allocate scarce resources among alternative uses

Scarcity

A situation that arises when there are not enough resources available in order to satisfy the infinite human wants

Opportunity Cost

In decision making, the value of the next best alternative foregone

Renewable resources

A resource that can be used repeatedly and does not run out because it is naturally replaced

Non renewable resources

A resource which one exploited can not be replaced

Cetaris parabus

Other things being equal (only one thing can change at a time)

Positive Statement

Def : A statement about what is

Can be fact checked to see it its true

Normative Statement

Def : A statement that involves a valued judgement about what ought to be

A considered opinion

Capital

Man-made aid to production (factories)

Enterprise

The willingness of an entrepreneur to take risks and organise production

Land

Natural resources in an economy

Labour

The quantity and quality of human resources

Production Possibility Frontier

A curve showing the maximum combination of goods or service that can be produced in a given period with available resources

Capital Goods

Goods that are used in producing other goods, rather than being bought by consumers

Consumer Goods

Goods bought and used by consumers, rather than by manufacturers for producing other goods

Specialisation

The concentration by a worker, firm, region or whole economy on a narrow range of goods and services

Division of labour

The specialisation of labour where the production process is broken down into separate tasks

Medium of exchange

Most important function of money ; it is used to buy and sell goods and services. A worker accepts money as payment because he knows he will be able to exchange it for products

A unit of account

Money acts as a measure of value, allowing us to determine value when exchanging it for goods and services. It is important that it maintains this value and so governments always aim to keep inflation levels under control

A store of value

Not all wages are spent immediately. It is therefore important that the value of money does not diminish over time, allowing for people to save for future wants. So inflation has to be controlled.

A standard for deferred payment

People will only lend money if they know that when its repaid they can purchase the same amounts of goods and services that they currently could. This is important in ensuring that credit is available for spending and investment.

Demand

The quantity of a good or service that consumers are willing and able to buy in a given period

Consumer Surplus

The difference between what a consumer is prepared to pay for a good or service and what they actually pay

Price Elasticity of Demand (PED)

A measure of the sensitivity of quantity demanded to a change in price of a good or service

PED Formula

( % change in quantity demanded ) / ( % change in price)

Factors Effecting PED

Availability of substitutes

Addictiveness of the product

Time

Income spent on good

Income Elasticity of Demand (YED)

A measure of the sensitivity of quantity demanded to a change in consumer income

YED formula

( % change in quantity demanded) / ( % change in income )

Cross Elasticity of Demand (XED)

A measure of the sensitivity of quantity demanded of a good or service to a change in the price of some other good or service

( % change in quantity demanded of good A ) / ( % change in price of good B )

Price Elasticity of Supply ( PES )

A measure of the sensitivity of quantity supplied to a change in price of a good or service

PES formula

( % change in quantity supplied ) / ( % change in price)