Studied by 5 peopleResources:
factors used to produce goods and services
The economic problem:
unlimited wants exceeding finite resources
Scarcity:
a situation where there is not enough to satisfy everyone’s wants
Wants:
desires for goods and services
Economic good:
a product which requires resources to produce it and therefore has an opportunity cost
Free good:
a product which does not require any resources to make it and so does not have an opportunity cost
Factors of production:
the economic resources of land, labour, capital and enterprise
Land:
gifts of nature available for production
Labour:
human effort used in producing goods and services
Capital:
human made goods used in production
Enterprise:
risk bearing and key decision making in business
Consumer goods:
goods and services purchased by households for their own satisfaction
Occupationally mobile:
capable of changing use
Geographically inmobile:
incapable of moving from one location to another location
Mobility of labour:
the ability of labour to change where it works or in which occupation
Mobility of capital:
the ability to change where capital is used or in which occupation
Mobility of enterprise:
the ability to change where enterprise is used or in which occupation
Entrepreneur:
a person who bears the risks and makes the key decisions in a business
Labour force:
the people in work and those actively seeking work
Productivity:
the output per factor of production in an hour
Labour productivity:
output per worker hour
Output:
goods and services produced by the factors of production
Investment:
spending on capital goods
Gross investment:
total spending on capital goods
Depreciation (capital consumption):
the value of capital goods that have worn out or become obsolete
Net investment:
gross investment minus depreciation
Negative net investment:
a reduction in the number of capital goods caused by some obsolete and worn out capital goods not being replaced
Opportunity cost:
the best alternative forgone when making a decision
Production possibility curve:
a curve that shows the maximum output of two types of products and combinations of those products that can be produced with existing resources and technology
Market:
an arrangement which brings buyers into contact with sellers
Microeconomics:
the study of the behaviour and decisions of households and firms, and the performance of individual markets
Macroeconomics:
the study of the whole economics
Aggregate =
total
Economic agents:
those who undertake economic activities and make economic decisions
Private sector:
firms owned by shareholders and individuals
Economic system:
the institutions, organisations and mechanisms that influence economic behaviour and determine how resources are allocated
Planned economic system:
an economic system where the government makes the crucial decisions, land and capital are state-owned and resources are allocated by directives
Directives:
state instructions given to state-owned enterprises
Mixed economic system:
an economy in which both the private and public sectors play an important role
Market economic system:
an economic system where consumers determine what is produced, resources are allocated by the price mechanism and land and capital are privately owned
Price mechanism:
the way the decisions made by households and firms interact to decide the allocation of resources
Capital-intensive:
the use of a high proportion of capital relative to labour
Labour-intensive:
the use of a high proportion of labour relative to capital
Demand:
the willingness and ability to buy a product
Market equilibrium:
a situation where demand and supply are equal at the current price
Market disequilibrium:
a situation where demand and supply are not equal at the current price
Demand:
the willingness and ability to buy a product
Market demand:
total demand for a product
Aggregation:
the addition of individual components to arrive at a total amount
Extension in demand:
a rise in the quantity demanded caused by a fall in the price of the product itself
Contraction in demand:
a fall in the quantity demanded caused by a rise in the price of the product itself
Changes in demand:
shifts in the demand curve
Increase in demand:
a rise in demand at any given price, causing the demand curve to shift to the right
Decrease in demand:
a fall in demand at any given price, causing the demand curve to shift to the left
Normal goods:
a product whose demand increases when income increases and decreases when income falls
Inferior goods:
a product whose demand decreases when income increases and increases when income falls
Substitute:
a product that can be used in place of another
Complement:
a product that is used together with another product
Ageing population:
an increase in the average age of the population
Birth rate:
the number of live births per thousand of the population in a year
Supply:
the willingness and ability to sell a product
Market supply:
total supply of a product
Extension in supply:
a rise in the quantity supplied caused by a rise in the price of the product itself
Contraction in supply:
a fall in the quantity supplied caused by a fall in the price of the product itself
Change in supply:
changes in supply conditions causing shifts in the supply cuve
Increase in supply:
a rise in supply at any given price, causing the supply curve to shift to the right
Decrease in supply:
a fall in supply at any given price, causing the supply curve to shift to the left
Unit cost:
the average cost of production. It is found by dividing total cost by output
Improvements in technology:
advances in the quality of capital goods and methods of production
Direct taxes:
taxes on the income and wealth of individuals and firms
Indirect taxes:
taxes on goods and services
Tax:
a payment to the government
Subsidy:
a payment by a government to encourage the production or consumption of a product
equilibrium price:
the price where demand and supply are equal
excess supply:
the amount by which supply is greater than demand
disequilibrium:
a situation where demand and supply are not equal
excess demand:
the amount by which demand is greater than supply
price elasticity of demand (PED):
a measure of the responsiveness of the quantity demanded
elastic demand:
when the quantity demanded changes by a greater percentage than the change in price
inelastic demand:
when the quantity demanded changes by a smaller percentage than the change in price
perfectly elastic demand:
when a change in price causes a complete change in the quantity demanded
perfectly inelastic demand:
when a change in price has no effect on the quantity demanded
unit PED:
when a change in price causes an equal change in the quantity demanded, leaving total revenue unchanged
price elasticity of supply (PES):
a measure of the responsiveness of the quantity supplied to a change in price
elastic supply:
when the quantity supplied changes by a greater percentage than the change in price
inelastic supply:
when the quantity supplied changes by a smaller percentage than the change in price
perfectly inelastic supply:
when a change in price has no effect on the quantity supplied
perfectly elastic supply:
when a change in price causes a complete change in quantity supplied
unit PES:
when a change in price
Public sector:
the part of the economy controlled by the government
State-owned enterprises (SOEs):
organisations owned by the government which sell products
Privatisation:
the sale of public sector assets to the private sector
Price mechanism:
the system by which the market forces of demand and supply determine prices
Market failure:
market forces resulting in an inefficient allocation of resources
Free rider:
someone who consumes a good or service without paying for it
Allocative efficiency:
when resources are allocated to produce the right products in the right quantities
productively efficient:
when products are produced at the lowest possible cost and making full use of resources
dynamic efficiency:
efficiency occurring over time as a result of investment and innovation
third parties:
those not directly involved in producing or consuming a product
social benefits:
the total benefits to a society of an economic activity
Note 
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