chapter.1-4

ceteris paribus

all things being equal; the assumption that, while the effects of a change in one variable are being investigated, all other variables are kept constant.

disposable income

the amount of money you have left to spend after you have paid your taxes, bills etc.

good

a thing that is produced in order to be sold.

inequality

an unfair situation, in which some groups in society have more money, opportunities, or power than others.

normative economics

the study and presentation of policy prescriptions involving value judgements about the way in which scarce resources are allocated.

normative statements

statements that cannot be supported or refuted because it is a value judgement.

positive economics

the scientific or objective study of the allocation of resources.

positive statements

statements that can be supported or refuted by evidence.

production possibility frontier

shows how much an economy can produce given existing resources.

basic economic problem

resources have to be allocated between competing uses because wants are infinite but resources are scarce.

capital (as a factor of production)

the stock of manufactured resources used in the production of goods and services.

choice (economic)

economic choices involve the alternative uses of scarce resources.

economic goods

goods that are scarce because their use has an opportunity cost.

enterprise or entrepreneurship (as a factor of production)

the seeking out of profitable opportunities for production and taking risks in attempting to exploit these.

entrepreneurs

individuals who seek out profitable opportunities for production and take risks in attempting to exploit these.

factors of production

the inputs to the production process: land, labour, capital and enterprise or entrepreneurship.

fixed capital

economic resources, such as factories and hospitals, that are used to transform working capital into goods and services.

free goods

goods that are unlimited in supply and therefore have no opportunity cost.

human capital

the value of the productive potential of an individual or group or workers; it is made up of the skills, talents, education and training of an individual or group and represents the value of future earnings and production.

labour (as a factor of production)

the workforce.

land (as a factor of production)

all natural resources.

needs

the minimum that is necessary for a person to survive as a human being.

non-renewable resources

resources, such as coal or oil, which once exploited cannot be replaced.

non-sustainable resource

a resource which that can be economically exploited in such as a way that its stock is being reduced over time.

opportunity cost

the benefits of the next best alternative that are given up.

renewable resources

resources, such as fish stocks or forests, that can be exploited over and over again because they have the potential to renew themselves.

scarce resources

resources that are limited in supply so that choices have to be made about their use.

wants

desires for the consumption of goods and services.

working or circulating capital

resources that are in the production system waiting to be transformed into goods or other materials before being finally sold to the consumer.

allocatively efficient

allocative efficiency occurs when social welfare is maximised. The distribution of resources is such that it is not possible to redistribute them without making someone worse off.

capital goods

goods that are used in the production of other goods, such as factories, offices, roads, machines and equipment.

consumer goods

goods and services that are used by people to satisfy their needs and wants.

production possibility frontier

a curve that shows the maximum potential level of output of one good given a level of output for all others goods in the economy.

barter

swapping one good for another without the use of money.

capital productivity

output per unit of capital employed.

division of labour

specialisation by workers, who perform different tasks at different stages of production to make a good or service, in co-operation with other workers.

equity (in a company)

the value of the assets owned by the shareholders.

financial market

any convenient set of arrangements where buyers and sellers can buy or trade a range of services or assets that are fundamentally monetary in nature.

globalisation

the tendency for the world economy to work as one unit, led by large international companies doing business all over the world.

hyperinflation

a very fast rise in prices that seriously damages a country’s economy.

illiquid

difficult to convert an asset into cash. Completely illiquid means it is impossible to do so.

labour productivity

output per worker.

liquidity

the ability to change an asset into cash. The more liquid an asset is, the easier it is to do this.

market

any convenient set of arrangements by which buyers and sellers communicate to exchange goods and services.

money

any item, such as a coin or a bank balance, which fulfils four functions: a medium of exchange, a measure of value, a store of value and a method of deferred payment.

money substitutes

anything that can be used as a medium of exchange but are not stores of value. Examples are charge cards or credit cards.

primary sector

industries involving extraction and agriculture.

private sector

the part of the economy owned by individuals, companies and charities.

productivity

output per unit of input employed.

public sector

the part of the economy where production is organised by the state or the government.

retail banks

banks that provide services to individuals.

secondary or manufacturing sector

industries involved in the production of goods, mainly manufactured goods.

self-sufficiency

being able to provide all the things you need without help from other people.

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.

sub-market

a market that is a distinct and identifiable part of a larger market.

tertiary or service sector

industries involved in the production of services.