MICRO DEFINITIONS: economic methodology and the economic problem

allocative efficiency

when economic resources are utilised to produce the combination of goods and service that maximise economic welfare

allocative price function

prices allocate resources away from markets with excess supply to markets with excess demand

capital

producer goods

capital/producer goods

goods used in the production of other goods

ceteris paribus

all other things being held constant

choice

selecting one of multiple alternatives when deciding how to allocate scarce resources

consumer good

goods consumed by households and individuals, used to satisfy needs and wants

economic welfare

the economic satisfaction/wellbeing of individuals/households/groups in an economy

enterprise

the ability to utilise factors of production effectively

finites resources

non-renewable resources that become increasingly scarce

fundamental economic problem

deciding how to best allocate scarce resources to maximise overall economic welfare

imperfect information

when individuals lack the information to make the best decision

incentive price function

prices create incentives for people to adjust their economic transaction

infrastructure

facilities required for an economy to function

labour

workers with human capital

land

natural physical materials, as well as space for fixed capital

need

something necessary for human survival e.g. food, shelter

normative statement

statements including value judgements, that cannot be easily proved/disproved

opportunity cost

loss of other alternatives due to selection of of a set of option

pareto efficiency

state of resource allocation, where in order to make an economic agent better off, another agent is made worse off

positive statement

statements including facts, that can easily be proved/disproved

production possibility frontier

a curve displaying the various possible combinations of 2 products that can be produced with finite resources

rationing price function

prices rise to ration demand for goods

renewable resource

restorable resource that can be replenished

scarcity

resulting from the concept of infinite wants and needs, yet limited resources

signalling price function

prices provide information to sellers and buyers, influencing economic decisions

trade

buying and selling of goods and services

value judgements

statements that are subjective and based on opinion rather than factual evidence

want

something desirable, yet not necessary for human survival