Econs WA1

ceteris paribus

assuming all other factors remain unchanged

rationality

economic agents make decisions to maximise self interest by weighing MB and MC of any activity

positive statement

objective statement whose accuracy can be tested

normative statement

statement containing value judgement and cannot be proved or disproved by looking at evidence

FOP

resources used in production of g&s

land

FOP encompasses all natural resources available

labour

human beings as FOP

capital

man-made goods used to produce of g/s over period of time

entrepreneurship

FOP that takes overall responsibility for the decision-making process in the firm so that other FOP can be combined to produce a g/s

scarcity

situation where human wants are unlimited whereas resources available to satisfy these wants are limited

opp cost

value of next best alternative forgone to satisfy a particular want

PPC

shows all combinations of 2 goods a country can produce within given time period with all resources fully and efficiently utilised at given state of tech

productive efficiency

situation where g&s produced at lowest possible avg COP

allocative efficiency

situation where resources allocated to produce a combi of g&s that max social welfare

demand

quantity of a good consumers are willing and able to purchase at every P lvl, cp

law of demand

inverse relationship btw P and Qd, cp

law of diminishing marginal utility

beyond certain point of consumption, as more and more units of a g/s are consumed, the additional utility a consumer derives from successive units decreases

normal good

D rise and Y rise, cp

necessities

D increases less than proportionately for a given increase in ppl’s Y, cp

luxury good

D increases more than proportionately for a given increase in ppl’s Y, cp

inferior good

D falls as ppl’s Y rise, cp

substitutes

alternatives of each other

complements

consumed tgth to give rise to higher combined utility than consumed individually

derived demand

demand for goods not demanded for own sake but used to facilitate productn of another

supply

quantity of the good producers are able and willing to sell at every P lvl, cp

law of supply

direct relationship btw P and Qs, cp

joint supply

productn of 1 good leads to productn of the other good

competitive supply

compete for use of same inputs

price mechanism

describes process by which consumers and producers interact through prices to determine the allocation of scarce resources btw competing uses

shortage

situation exists below any P below PE where Qd>Qs

surplus

situation which exists as any P above PE where Qs>Qd