theme 1: intro to markets and market failure

ceteris paribus

(latin) “all other things remaining constant”

→ focus on the majority when observing the effect of one variable

normative statement

Information based on a value judgement

→ e.g. minimum wages should be increased

positive statement

information based on a fact

→ e.g. if prices decrease, general demand will increase

model

simplified version of a complex economic function that can be tested

value judgement

a subjective opinion

scarcity

excess of want over availability of resources

opportunity cost

next best alternative that is forgone when making a decision

economic agent

someone who makes economic decisions

e.g. firms, individuals, government

specialisation

producing what a worker, firm or country is best and most efficient at

division of labour (+ discussed by who?)

when productive processes are is split so each stage is carried out by different workers

→ idea discussed by adam smith

medium of exchange

e.g. money

a system used to overcome the inconvenience of the barter system

free market

economic environment with no government intervention

mixed economy

an economic environment where governments only intervene when necessary

command economy

an economic environment that is fully run by the government

which individuals advocated for free, mixed and command economies?

free: friedrich hayek

mixed: adam smith

command: karl marx

4 factors of production

capital, enterprise, land, labour

consumer goods

goods that cannot be used to produce another good

capital goods

goods that can be used to produce other goods