Central Economic Problem Vocabulary

Vocabulary flashcards covering key terms from the Central Economic Problem, including factors of production, types of economic systems, and the Production Possibility Curve.

Scarcity

Capital

All man-made resources or physical resources used for production.

Entrepreneurship

The factor of production responsible for decision making to combine other factors of production for production.

Land

All natural resources available for production, including both renewable and non-renewable resources.

Labour

Work undertaken by people in production.

Economic goods

Tangible output produced in an economy.

Producer goods

Tangible output used to make other goods.

Consumer goods

Tangible output consisting of consumables.

Economic services

Intangible output produced in an economy.

Intermediate services

Intangible services produced for firms.

Final services

Intangible services produced for consumers.

Choice

Decisions that must be made on how to allocate scarce resources.

Opportunity cost

The value of the next best alternative forgone due to a decision.

Market economy

An economic system driven by market forces, specifically consumers and producers.

Command economy

An economic system where all decisions are made by the government.

Mixed economy

An economic system where government intervention and the price mechanism work together.

Production Possibility Curve (PPC)

A graph showing the maximum possible combination of 2 goods a country can produce given full employment of resources and a constant state of technology.

Productively efficient points on PPC

Points representing the maximum combination of 2 goods that an economy can produce with full employment level of resources.

Allocatively efficient point

The specific point on a PPC where society's welfare is maximised because the combination of production of goods is aligned to society's preferences.

Underutilisation of resources (PPC)

Represented by points inside the PPC where the economy does not efficiently use resources, leading to wastage or underemployment.

Unattainable point (PPC)

Points beyond the PPC that are desirable but cannot be achieved due to scarcity of resources and insufficient technology.

Concave PPC shape

Illustrates increasing opportunity cost, which occurs because resources are imperfect substitutes to each other and not equally efficient in the production of both goods.