Studied by 8 people
The basic economic problem
Limited resources + Unlimited wants = scarcity
Opportunity Cost
The next best alternative forgone when an economic decision is made
Free Good
Something that is available without a limit, e.g. Air
Production Possibility Curve
Shows the maximum combination of goods & services that can be produced by an economy in a given time
Factors of production
land, labor, capital, entrepreneurship
Land
Everything that grows on the land or is found under it (includes all natural resources)
Labour
Human Factor (physical and mental contribution of the workforce to production)
Capital
Stock of manufactured resources that is used to produce goods & services
Enterpreneurship
Organising & Risktaking factor of production
Sustainability
Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.
Actual Economic growth
Growth that stays within the production possibility curve / Increase in Real GDP
Potential Economic growth
An increase in the productive capacity of the economy
Planned (command) economy
Decisions are made by the government, all resources are collectively owned
Free market economy
Prices are used to ration goods and services, all productions is in private hands and demand & supply set wages & prices in the economy
Mixed Economy
A mix between planned (command) economy and free market economy
Positive Statement
May be proven right or wrong by looking at the facts
Normative Statement
Matter of opinion and cannot be proven right or wrong
Refutation
a denial of the validity of an opposing argument / a research study to determine if the findings can be applied to other data/methods
Leakages
Capital or Income that escapes an Economy (Taxes, Savings, Imports)
Injections
Introduction of income into an economy (Government expenditure, Exports, Investment)
Investment
The production of goods and services that will be used to produce other goods
Gross Domestic Product (GDP)
Monetary Value of final goods and services produced in an economy in a given period of time
Direct Tax
A charge levied by the government on an individual, household or institution (e.g. income tax, NI, council tax, etc.)
Indirect Tax
A charge levied by the government on spending on goods and services (e.g. VAT, excise duties)
Specific Tax
A fixed amount of tax per unit (e.g. excise duty on alcohol = GBP 2.23 per 750ml
Ad Valorem Tax
A percentage tax is added onto the price of the good (e.g. VAT in UK = 20%)
Subsidy
The government pays for firms to produce a good/service
Consumer Surplus
the difference between the highest price a consumer is willing to pay and the actual price they pay
Producer Surplus
the difference between what producers are willing to sell at and what price they actually receive
Price Elasticity of Supply
Responsiveness of quantity supplied to a change in price
Price elasticity of demand
Responsiveness of quantity demanded to a change in price
Income elasticity of demand
Responsiveness of quantity demanded to a change in income
Total Revenue Formula
Price x Quantity
Minimum Price (price floor)
A certain price at below which it is illegal to sell a good for (e.g. minimum wage)
Maximum Price (pr
A certain price above which it is illegal to sell a good for (e.g. rent controls)
Note 
Flashcard (20)