Economics Unit 1 Exam revision

Relative scarcity

where people's needs and wants are virtually unlimited and exceed the limited resources available to satisfy those wants

Opportunity cost

The value of the next best alternative, foregone

Land resource

'A type of resource from natural sources. e.g. coal, sunlight, water

Labour resource

A type of resource involving human activity

Capital resource

A type of resource that is a combination of labour and land - best described as machinery

Positive economics

analyses issues based on hard evidence about what is actually the case

Normative economics

involves statements about what should be done, based on personal opinion, likes and dislikes

Material living standards

the level of economic wellbeing as measured by access to goods and services

Non-material living standards

the level of economic wellbeing as measured by happiness

Trade off

occurs when economic agents are forced to choose between the achievement of one goal and another

Cost-benefit analysis

performed by adding up all the anticipated direct and indirect costs of a particular decision, and comparing these against the total value of the anticipated benefits

Production possibility curve

depicts the maximum level of output possible for a country when all resources are used to maximum efficiency

Underutilisation

When resources are not being used to their full potential

Efficiency

A measure of how well resources are being used to their full potential

Rationality

the belief that both buyers and sellers behave and act in their own self-interest

Ordered preferences

The ranking of preferred choices based on utility maximisation

Informed decision making

the belief that consumers have access to accurate information to influence their decision making

Marginal benefits from consumption

Each additional unit consumed generates less utility than the previous one

Behavioural economics

A field of economics that is interested in how consumer really behave, that contradict some assumptions of traditional ecoomics

Bounded rationality

A belief that cnsumers' ability to make rational decisions is compromised by availability of information, complexity of the decision, or cognitive or time restraints.

Bounded willpower

A belief that consumers do not possess absolute self control when confronted with choices

Bounded self-interest

A belief that consumers are not always driven by self-interest to maximise their personal benefit

Positive incentive

A reward for behaving in a favourable manner

Negative incentive

A punishment or removal of something as a deterrent for for behaving in an unfavourable manner

Multiple branding

A legal profit maximisation strategy where businesses market their products under separate and distinct brand names.

Price discrimination

A legal profit maximisation strategy where businesses charge consumers different prices for the same product

Cartel conduct

An illegal profit maximisation strategy where businesses collude and agree not to compete, with the intention to raise prices

Predatory pricing

The setting of prices so low that it damages a competitor, with the intent to put them out of business and raise prices at a later date

Perfectly competitive market system

A market system where there are a large number of buyers and sellers, homogeneous products, low barriers to entry and information readily available

Law of demand

When price rises, demand falls, when price decreases, demand increases

Disposable income

Gross income less direct taxation

Substitute

A good or service that can be consumed instead of another good or service

Compliment

A good or service that is consumed together with another good or service

Preferences and tastes

The level of likeability of a specific good or service.

Interest rate

The cost of borrowing money

Consumer sentiment

the measurement of consumers' attitudes towards their financial positions and the present situation as well as expectations of the economic conditions

Law of supply

When price rises, supply increases, when price falls, supply falls

Productivity

a measure of efficiency or the output gained per unit of input of resources

Equilibrium price

the market price where the quantity of goods supplied is equal to the quantity of goods demanded

Relative price

The price (or change in price) of one good to another

Market power

The degree of influence a business has in the industry they operate within

Monopolistic competition

A market type where there are many buyers and sellers and products are differentiated

Oligopoly

A market type where there are many buyers and few sellers, and products are similar

Monopoly

A market type where there are many buyers and one seller who has a high degree of control over price