Introduction to Microeconomics - Definitions

Microeconomics

the study of the behaviour of individual markets

Ceteris paribus

an assumption that all other variables are being held equal, when a single variable is being altered in an economic model

Positive economics

examines matters of economics that can be proven to be right or wrong by looking at the facts, for example, economic growth in Chile in 2009 was 4.1%

Normative economics

examines matters of economics that are based on opinion and so are incapable of being proven to be right or wrong, for example, economic growth in Botswana should have been higher in 2009

Value judgement

an evaluative statement of how good or bad an individual deems an idea or action to be. It is often prescriptive

Scarcity

exists because of limited availability of economic resources relative to society’s unlimited demand for goods and services

Land

the physical factor of production. It consists of natural resources, some of which are renewable and some of which are non-renewable

Labour

the human factor of production. It is the physical and mental contribution of the existing workforce to production

Capital

the factor of production that is made by humans and is used to produce goods and services. It occurs as a result of investment

Entrepreneurship

the factor of production involving the organisation of the other factors of production and also involves risk-taking

Opportunity cost

the next best alternative foregone when an economic decision is made

Free goods

goods which are unlimited in supply and have no opportunity cost, such as air or sea water. A free good has an unlimited supply at market price zero

Economic good

a good or service that is relatively scarce and so has a price. An opportunity cost is involved when it is consumed

Utility

the satisfaction or pleasure that an individual derives from the consumption of a good or service

Production possibilities curve (PPC)

shows the maximum combinations of goods or services that can be produced by an economy in a given time period, if all the resources in the economy are being used fully and efficiently

Free market economy

an economy where the means of production are privately held by individuals and firms. Demands and supply determine what to produce, how to produce it and for whom to produce

Planned economy

an economy where the means of production are owned by the state. The state determines what to produce, how to produce it and for whom to produce