9708

fundamental economic problem

scarce resources but unlimited wants

resources

inputs available for production of goods and resources

wants

the good and services that people may like to have but are not always realised

needs

things that are necessary for survival, such as food

scarcity

a situation which wants and needs are greater than the resources available

choice

resources are scarce so individuals, firms and governments have to consider alternatives

factors of production

resources or inputs available in an economy that are used in the production of goods and services

firm

any business that hires factors of production to produce goods and services

opportunity cost

the cost expressed in terms of the next best alternative that is forgone when a choice is made

microeconomics

the study of individual markets (households and firms)

macroeconomics

the study of an economy or a group of economies

model

a simplified view of reality used to explain economic problems and issues

positive statement

a statement that is based on facts or actual evidence

normative statement

a statement that is based on the economist’s opinion or value judgement and which cannot be proven

ceteris paribus

Latin phrase meaning ‘other things equal’ or ‘other things are unchanged’

short run

time period where a firm can change at least one but not all factor inputs

long run

time period when all factors of production are variable but with a constant, such as the state of technology

very long run

time period where all key inputs into production are variable

land

a factor of production, natural resources in an economy

labour

a factor of production; human resources available in an economy

low-income countries

economies where income per head was $1025 or less in 2018 (World Bank)

capital

a factor of production, a physical resource made by humans that aids the production of goods and services

enterprise

as a factor of production, enterprise involves organising production and taking risks

physical capital

factors of production such as machinery, buildings and infrastructure

economic growth

in the short run, an increase in a country’s output; in the long run, an increase in a country’s productive potential

lower middle-income countries

countries where income per head was between $1026 and $3995 in 2018 (World Bank)

human capital

the value of labour to the productive potential (future growth) of an economy

specialisation

the process by which individuals, firms and economies concentrate on producing those goods and services where they have an advantage over others

division of labour

where a manufacturing process is split into a sequence of individual tasks

high-income countries

economies where income per head was $12,376 or more in 2019 (World Bank)

middle-income economies

economies where income per head was between $1026 and $3995 (lower middle income) and $3996 and $12 375 (upper middle-income economies) in 2018 (World Bank)

economic system

the way in which production is organised and choices are made in an economy

market economy

an economic systemm where most decisions are taken through the market mechanism

planned economy

an economic system where resources are state owned and allocated by a central body

mixed economy

an economic system where both market forces and government are involved in resource allocation decisions

market mechanism

resource allocation decisions are taken by individual producers and consumers ith no government intervention, also known as price mechanism

productive resources

resources that are available to be used

private sector

that part of an economy under private ownership

public sector

that part of an economy under government ownership

privatisation

when there is a change in ownership from the public to the private sector

emerging economy

one that is making quick progress towards becoming a high-income economy

Asian Tiger economy

export-led, high growth economies in Asia

Production possibility curve (PPC)

a simple representation of the maximum level of output that an economy can achieve, given its current resources and state of technology; maybe referred to as a production possibility frontier

trade-off

what is involved in deciding whether to give up one good for another good

productive capacity

the maximum output that can be produced when all resources are used fully

excludability

where it is possible to stop someone from consuming a good or service

rivalry

where consumption by one person of a good or service reduces the availability of the good or service for others

non-rival

where consumption by one person does not reduce consumption for someone else

private goods

goods that are consumed by one person and not available to anyone else

free goods

goods that are not scarce and have zero opportunity cost

public good

a good that is non-excludable and non-rival

non-excludable

a situation where it is not possible to stop anyone else from using a good

pure public good

good which is both non-excludable and non-rival

quasi-public good

good that has some but not the full characteristics of a public good

free-rider

someone does not pay to use a public good

merit good

a good that is thought to be desirable for consumers but which is underprovided by the market because of information failure

demerit good

a good that is thought to be undesirable for consumers and is overprovided by the market because of information failure

information failure

a situation where consumers do not have full or complete information when making decisions